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The remarkable rise of reverse-engineered private-label coffee pods

The remarkable rise of reverse-engineered private-label coffee pods

By Max Nisen @MaxNisen June 20, 2014

The coffee roaster and single-serve coffee machine maker Keurig Green Mountain has been extremely successful over the last few years, becoming one of America’sdominant coffee brands. But it has been challenged by a rising number of K-Cup pirates—private label companies making much cheaper Keurig-compatible single-serving pods, without paying a dime to Keurig for licenses.

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To be clear, this “piracy” is not illegal, and in fact private labels are by far the fastest growing segment of the single-serve market, dramatically outstripping Keurig’s own brands and high-profile partner companies such as Starbucks. Private-label market share has grown to 9.3% of the total, according to a Credit Suisse research report. And private-label sales growth has been absolutely spectacular over the last year:

That chart makes it pretty clear why Keurig is planning to fight back with its Keurig 2.0 machines, which will have technology that makes it incompatible with unlicensed pods. The company claims that the move is about making a better or more consistent cup of coffee, but its competitors seem to think otherwise. Treehouse Foods, the biggest manufacturer of private-label K-cups, issuing Keurig, arguing that the new machines are anti-competitive.

Still, the K-cup pirates are not too worried about the new efforts to shut private labels out. Treehouse CEO Sam Reed predicts that it’ll be “a matter of months, not years” before the technology is reverse-engineered.

 

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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