Recently, I've been following developments in the emerging category of single-serve (pod) coffee and coffee makers. The Starbucks experience at home at last. Even if you’re not a coffee drinker, I think it’s interesting to watch the industry dynamics –- a great ongoing study of competing approaches to collaborative innovation. It's a classic razor/ razor blade scenario and creates lots of different business model opportunities, across durable and consumable companies.
Consider the Salton/Melitta business model: Salton, a very innovation-focused company (think George Foreman grille) which has launched the 'One:One' single cup coffeemaker under the Melitta brand -- Salton handles the coffee makers, Melitta handles the coffee pods. Good synergistic partnership with each side sticking to their strengths. The problem? Melitta’s a brand known perhaps for filters and maybe coffee makers, but not known for coffee. Bigger problem? They’re expecting you to buy these pods on-line. While there’s some retail distribution, it’s mostly only sold where you buy the coffee makers. Never a good idea to ask consumers to change their habits for your sake.
Philips and Sara Lee have been selling the Senseo pod systems for several years, trying to leverage the growth of these systems in Europe into a US success story. Sara Lee’s Douwe Egberts division is better known in Europe than the US and the system has never taken off, again largely due to lack of strong US coffee brand, lack of distribution and high price of the units.
Then there’s the Proctor & Gamble business model: Applica was their initial partner, providing the coffee makers under the Home Café sub-brand of their Black & Decker coffee maker line. P&G provides the pods under their Folgers and Millstone brand. Big difference here? P&G knows a thing or two about retailing coffee and of course has already secured broad distribution of the pods. Problem? Applica receives very little benefit from the partnerships except a jumpstart on the launch. Soon after the Black & Decker hit the market, it's being followed by P&G’s other Home Café licensees, including Mr. Coffee, Hamilton Beach and Krups.
My guess? P&G’s going to win this war on the strength of their brands and their ability to provide the coffee where consumers expect to buy it. And they’ve structured partnerships that ensure quick diffusion of Home Café systems, further increasing the odds of broad consumer acceptance. Whether the initial durable product partners are able to leverage their early access to the system into a lasting competitive advantage is much less certain.
And then the whole question of standardization gets tackled! No one, from consumers to retailers will want to stock competing sizes and styles of pods. There are even companies specializing in selling pods, such as PodHead. Ahhh, but where there’s a will there’s a way... I’m confident that the more creative among the manufacturers will find a way to create coffee makers that take a variety of pod sizes. Like Jeff Goldblum’s character in Jurassic Park once said “Nature always finds a way”!
Comments