Everything is going wrong for Keurig all at once

Trouble in pod-paradise
Trouble in pod-paradise
Image: Reuters/Brian Snyder
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Just last November, Keurig Green Mountain looked unstoppable. It had a death grip on the extremely profitable single-serve coffee market, announced an enormous investment from Coca Cola as it developed a new machine for sodas and cold beverages, scared off a legendary hedge fund manager betting on its failure, and was about to release a machine that promised to end its pod piracy problems forever.

All that made it the best performing stock in the S&P 500 at one point. But since then consumers have roundly rejected the new machine, sales are down, and that cold drinks machine? Late to market, and way too expensive.

The company’s stock dove after earnings were released last week, and then dove again after analysts got a closer look at the new machine via a call with management. They were, to put it mildly, less than pleased (paywall).

The “Keurig Kold” will cost around $300 or $369 dollars, depending on the retailer—more than expected and much pricier than even the highest-end product from its rival Sodastream, which costs $199.99. Sodastream’s least expensive machine is just $79.99.

Even at that price, Keurig will be subsidizing the product and losing money on every machine, hoping to make it back with pod sales. The pods will also be substantially more expensive than Sodastream’s concentrate, at between 99 cents and $1.29 for a pod that makes an 8 ounce drink. Sodastream sells concentrate at $5.99 per pack, which is enough to make 33 drinks. Keurig drinks will have a cost per ounce of between 12 and 16 cents, compared with between 1 and 2 cents for Sodastream.

Analysts expect that that Keurig’s proposed prices are going to badly hurt sales until the company brings them down by at least a third, but the fact that it’s subsidizing the machine even at this very high price tag suggests that won’t happen for some time.

The new machine does have some advantages. It will be able to chill drinks without ice, for example, which Sodastream can’t, and won’t require a gas canister as the pods contain “carbonation beads.”

It wasn’t just the price that disappointed investors. The product also won’t be available online until the fall, and won’t be rolled out in full at retailers until the 2016 holiday season.

The company’s stock saw its second precipitous price drop in about a week on Friday. It’s now down over 30% from its highs last year:

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To make matters worse, the market that Keurig is chasing with its expensive and late machine may not even be that lucrative. Sodastream dominates the category and it isn’t doing all that well:

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Keurig has had tremendous success becoming the single serving coffee option of choice in America. But what drove its stock price up was a belief that it could combat piracy with its new machine, to further cement its hold on the coffee market; and that the cold machines could provide a large second stream of revenue. Neither of those things seem terribly likely right now.