Big Oil v. Big Coffee

Mark Perry asks:

What's next? Congressional investigations to determine if coffee speculators are driving up prices? Allegations of "price gouging" at Starbucks? Investigations of "windfall profits" for "Big Coffee"?

source

Coffee and Innovation

Jeff Tucker writes:

To understand why the Keurig coffee maker is firing up the forces of history in a progressive direction, we need to reflect on the dynamics of the relentless technological trend from the collective to the individual...

This relentless push to fulfill the demands of individualism is the driving force of human history.
And so it is with coffee. For too long we've lived with a community form of delivery. Whatever collectivist pot was made for the whole group is what we drank. Never mind that it is burned from the heating pad. Never mind that it is too strong or too weak, too dark or too light, or that it is just plain gross. Never mind that the preparation and clean up requires that we stare at unappetizingly soaked coffee grounds that clog our sinks and stink up our trash. It was what we had, and we made do.

Then came Starbucks and other specialized shops. Here we could order what we wanted and every drink was prepared fresh and according to our specifications. We are all, after all, individuals, each of us with different tastes, desires, and demands. When given the chance to express our wishes, we take it, and therein lies a great entrepreneurial opportunity for those who are daring and creative enough, and willing to take on the responsibility for giving history a push forward.

In retrospect, the whole Keurig mania seems perfectly obvious, even inevitable. We want Starbucks in our homes. We want endless variety. We want it to be fast. We do not want to wake up to the shattering sound of coffee beans in a horrible grinding machine. In fact, though we had never thought of it before, we do not want to look at coffee grounds, before or after they become soaked.

When you first observe the K-cup that Keurig uses, your thought might be: this is ridiculously inefficient. Why would anyone take a tiny amount of coffee and package it in plastic with a complicated internal filtering system and waste foil to cover the top just to produce a single cup of coffee? But you know what? History is not about some outsider's view of what is or is not efficient according to some preset calculus. History is about the ideas and preferences of real human beings.

K-cups also owe their success to a software-style model of development. Keurig developed the hardware and sold it (and its K-cup patent) to Green Mountain Coffee Roasters. The company might have then to decided to cash in on its monopoly privileges but GMCR seemed to understand that there are profits to be made through liberality than restriction. It licensed many different companies to produce the K-cup firmware, so that now there is a gigantic market for these things, and even a market for contraptions to display them.

When the patent expires in 2012, the price of the K-cup will probably fall but the blow to GMCR will be minimal (as this blogger argues) because so many are already competing for market share. Note too that the mainstreaming of the K-cup came only after this liberalization; only as recently as 2007, when you only found these coffee makers in upscale law firms, was the company still hammering knock-off cup makers with lawsuits.

When the patent expires next year, all bets are off. I fully predict that the next generation will never see another coffee ground, never have to deal with grungy wet filters, any more than people who eat bacon today have to watch pigs being rounded up and slaughtered. The division of labor will kick in so that consumers have only one job to do: drink great coffee according to their own individual preferences.

read the essay

Cartoon: Gourmet Coffee

$11K Coffee Maker

The Clover, which runs about $11,000, makes one cup at a time and aims to coax each of the hundreds of flavors known to reside in the average coffee bean. In addition to brewing a complex flavor, the by-the-cup versatility means a wider array of beans can be used -creating a top shelf coffee menu of sorts.

tarbucks says the system is "one of the most significant innovations in coffee brewing since the introduction of the espresso machine" and says its introduction of the system with some small-batch beans is a "key initiative in transforming the company."...

"We committed to our customers that we would reinvent coffee, and once they taste coffee brewed from the Clover, we know they will want to come back for more," Aimee Johnson, vice president of Starbucks Strategic Coffee Initiatives, said in a statement.

read the CNN story

Is Starbucks a Competitive Force?

Don't Fear Starbucks: Why the franchise actually helps mom and pop coffeehouses.

By Taylor Clark

Hyman feared his life's work would be trampled underfoot. Starbucks even promised as much. "They just flat-out said, 'If you don't sell out to us, we're going to surround your stores,' " Hyman recalled. "And lo and behold, that's what happened—and it was the best thing that ever happened to us."

…Strange as it sounds, the best way to boost sales at your independently owned coffeehouse may just be to have Starbucks move in next-door…

… Ward Barbee, the recently passed founder of the coffee trade magazine Fresh Cup, saw this happen scores of times. "Anyone who complains about having a Starbucks put in next to you is crazy," he told me. "You want to welcome the manager, give them flowers. It should be the best news that any local coffeehouse ever had."…

…According to recent figures from the Specialty Coffee Association of America, 57 percent of the nation's coffeehouses are still mom and pops. Just over the five-year period from 2000 to 2005—long after Starbucks supposedly obliterated indie cafes—the number of mom and pops grew 40 percent, from 9,800 to nearly 14,000 coffeehouses. (Starbucks, I might add, tripled in size over that same time period. Good times all around.) So much for the sharp decline in locally owned coffee shops. And prepare yourself for some bona fide solid investment advice: The failure rate for new coffeehouses is a mere 10 percent, according to the market research firm Mintel, which means the vast majority of cafes stay afloat no matter where Starbucks drops its stores. Compare that to the restaurant business, where failure is the norm…

read the entire article

Has Higher Groundz been impacted?

Coffee Sales Driving McDonald's Growth

McDonald's Corp., the world's largest restaurant company, said October sales rose 6.9 percent as consumers bought more cinnamon rolls and coffee in the U.S....

McDonald's has posted monthly sales gains the past 4 1/2 years by adding iced coffee and lattes to two-thirds of its U.S. restaurants to compete with Starbucks Corp....

The company started selling a stronger coffee blend in 2006 to win customers from Starbucks, the world's largest coffee chain. McDonald's is testing an expanded beverage lineup, including lattes...

Global revenue increased 10 percent to $17 billion, McDonald's said in a regulatory filing Oct. 19.

read the entire story

Once again conumers are benefiting from competition