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May 18, 2017 - The Washington Post

APR Member Highlight: Keurig Green Mountain

Keurig is finally designing a more eco-friendly K-cup

The ubiquitous K-cup that sparks so many millions of coffee drinkers to life each morning is appealing to eco-conscious consumers — just as the market for its Cup of Joe appears to be cooling.

Keurig Green Mountain said it plans by 2020 to change the plastic composition in the billions of K-cup single-serving coffee containers it sells annually, making them more lucrative to recyclers while removing one of the nagging complaints that mountains of the little pods are piling up in landfills.

“Our goal is 100 percent Keurig K-cup pods diverted from landfills by curbside recycling,” said Monique Oxender, the coffee brewer’s chief sustainability officer. “The consumer is going to brew it, peel and empty it, and pop the pod into the recycling bin in the same behavior they would do with a yogurt cup. We want them to make it a habit.”

The recycling breakthrough comes as the Keurig’s single-serve coffee machines, which helped revolutionize coffee consumption, are becoming less of a habit after years of growth. There were 23 million Keurig machines in North American homes as of the end of last September, according to the company.

According to analysts, growth in the K-cup market has stalled as Vermont-based Keurig loses market share.

“If it is going to be easier to recycle K-cups, some consumers will care and that may or may not affect demand,” said Pablo Zuanic, an analyst with Susquehanna International Group. “On the margin it’s nice, but I don’t think it’s going to move the needle. The bigger issue for Keurig is that there are not enough affordable Keurig machines, and so volume is not growing much. ”

The company’s model has shifted from manufacturing pods that contain its own brand to making pods for brands such as Starbucks and Dunkin’ Donuts, which is known as co-packing. Co-packing for others is a lower-margin business than putting Keurig’s own coffee in the pods it manufactures.

Keurig was founded in Massachusetts in 1992. Its first machines, known as brewers, launched in 1998 and targeted the office market. Home brewers began selling in 2004.

Keurig has been knocked for the billions of recycle-resistant K-cup pods it sells. A Keurig spokesperson said the company sold 10.5 billion K-cups for the fiscal year ending in September 2015, which is the last year of public data before the company was taken private in a $13.9 billion buyout by JAB Holding Co.

JAB is an investment firm managing the money for Germany’s Reimann family. The family’s portfolio also includes stakes in England’s Reckitt Benckiser consumer goods company, the Coty fragrance firm and the Jimmy Choo luxury shoe brand.

Keurig was struggling with declining sales when JAB announced it was acquiring the firm in December 2015. Part of JAB’s strategy was to use Keurig technology and its dominance of the U.S. market to become “the Bud(weiser) of the coffee space,” said Zuniac at the time, according to a Wall Street Journal report on the acquisition.

It would also be a hedge by JAB against European rivals such as Nestle, which is the largest packaged-coffee company in the world.

But the company has not yet delivered on its growth, with analysts citing a lack of innovation and affordability.

Zuniac said the company needs to lower the cost of the brewers to below $79, enticing more buyers. He also said the machines have failed to become smaller, faster and quieter.

“They have to drive household penetration, and that has stalled because of the lack of more affordable machines,” he said.

The company is preparing to deliver the knockout punch to its critics in the sustainability world as the brewer switches to a plastic composition that gives recyclers a motivation to capture the spent K-cups on the sorting lines.

The problem with K-cups has been twofold. First, they have been too small for the sorting machines to “see” and move to the recycling line instead of the garbage heap. Second, the material composition of the K-cup plastic did not lend itself to being broken down and reused as another material.

Oxender said Keurig is on the way to changing both outcomes.

Many of the 600 or so recycling plants across the United States and Canada have reinvested in technology that can spot the K-cup pods and divert them toward reuse.

In a series of tests that Oxender termed “myth-busting,” 90 percent of Keurig K-cups were sorted appropriately at recycling centers.

Steve Alexander of the Association of Plastic Recyclers said Keurig is cracking what has been a long-time issue for recyclers.

“They are trying to solve an industry problem,” he said. “It’s a small-container capture problem.”

At the same time, Oxender said Keurig is in the process of changing the makeup of its K-cups from polystyrene to polypropylene.

“What we have found is with (polystyrene), there’s not a lot of value to it,” he said. “In the good versus bad, it’s determined by market value. If it’s plastic that can be made into something new, it has higher value.”

“We have listened to our consumers and stakeholders,” Oxender said. “We are delivering a truly recyclable solution.”

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