The Blog

view all

327. Single-serve brewers: A view from origin

The single-serve café may be the innovation that has most refined the presentation of specialty coffee in recent years, but the single-cup brewing system for home use has unquestionably been the innovation that has most disrupted it.

To borrow from the lexicon of American political discourse, single-cup technologies have been embraced from Wall Street, where the financial sector loves the business model, to Main Street, where mainstream consumers love the convenience.  They have also been well-liked on whatever street is synonymous with corporate America, where the list of companies lining up to get in on the high-margin single-cup action is long and growing.  The growth of the segment has been nothing short of phenomenal.  But not everyone is sold on the convenience and consistency that single-cup brewers offer.  The critiques of single-serve pods — and there are not a few of them — focus relentlessly on their high cost, low quality and implications for the environment.

  • Cost.
    Single-serve pods are expensive.  In some cases, over $50 a pound, or more than twice what quality-obsessed roasters charge for most of their carefully sourced, fresh-roasted coffee.
  • Quality.
    Even the most advanced technology can’t keep coffee from losing freshness and flavor when it is roasted and ground months before it is brewed.  People who prefer their single-serve coffee pulled, poured or pressed by baristas continue to marvel at the extent to which consumers are willing to trade off quality for convenience.

Whether arguing for or against single-serve brewers, writers have spilled a lot of ink their coverage of single-cup brewing systems.  What seems to be largely missing from the discussion, however, are the perspectives of the farmers whose coffee is inside all those pods.  While the motivations of consumers buying expensive single-serve capsules in the marketplace may leave observers scratching their heads, the motivations of the farmers who fill them may not.

  • Nespresso in Nariño

Our Borderlands Coffee Project is working in Nariño, a region on Colombia’s southern border celebrated for the quality of its coffee.  Nariño is part of Colombia’s eje de calidad, a relatively recent reference that contrasts the southern Colombian departments of Cauca, Huila and Nariño, where smallholder farmers produce smaller lots of surpassing quality, from the departments in Colombia’s traditional eje cafetero further north, where larger plantations are produce enormous volumes of coffee with less quality-based differentiation.  Nariño dominated Colombia’s 2010 Cup of Excellence competition.  It was the first origin in Colombia to earn a Denomination of Origin appellation.  And Nariño’s coffee commands an origin premium on top of the already high price of Colombian coffee.  It seems, in other words, that Nariño’s coffee farmers would have plenty of options in the marketplace.

And most of Nariño’s coffee goes to Nespresso for use in its single-serve pod: the Rosabaya de Colombia blend.  Why?  In part because Nespresso is generating lots of value for farmers.

It pays higher prices than its competitors.  Turns out that the delivery format that allows Nespresso to charge $51 a pound at retail also allows its to pay top dollar at source.

Farmers who are qualified to sell into its AAA sourcing program can sell all their production at Nespresso prices, not just a small portion that meets exacting standards for cup quality.

And Nespresso pays its exporter a significant per-pound premium to build and maintain a small army of agronomists who provide technical assistance to the farmers in its supply chain.

These are all significant sources of value for farmers, and help explain Nespresso’s dominance of the Nariño market in recent years.

  • Green Mountain in the K-Cup era

On this side of the Atlantic, where Nespresso has made more modest inroads, the single-serve pod market is dominated by Green Mountain’s Keurig K-Cup brewing systems. Unlike Nespresso, which doesn’t do anything beyond its espresso machines, Green Mountain sells its coffee in multiple formats.  But the explosive growth of the single-cup market — millions of K-Cup brewers and billions of K-Cups sold to date — has driven the company’s extraordinary growth over the past five years or so.  It has also created enormous opportunities for farmers.

Green Mountain was already a leading buyer of Fair Trade Certified coffee long before it bought Keurig.  But the rise of the K-Cup has allowed the company to expand every aspect of its business, including its Fair Trade sourcing.  In 2011, Green Mountain sourced 50 million pounds of Fair Trade Certified coffee — more than anyone else in the world — which means it paid $10 million in social premiums to Fair Trade cooperatives.

And as the company’s sales have soared, so too have its reinvestment in the coffeelands.  Green Mountain earmarks 5 percent of its pre-tax profits for community reinvestment.  So when Green Mountain does well, so do its shareholders in the marketplace and its stakeholders at origin. In 2011, Green Mountain spent $15 million in the coffeelands to fight hunger, promote community-based health and economic development, expand access to education and water, conserve natural resources, and more.

Farmers may be beyond earshot of the debate over the cost, quality and environmental implications of the K-Cup pod, but they have a keen grasp of the opportunities it creates at origin.

– – – – – – – – – –

This is not the first exploration of the impact at origin of single-serve brewing systems.  In recent years, Nespresso’s critics and champions in Europe have gone a few rounds in debating the merits of its model for farmers.

  • Round 1 to Clooney and Nespresso.
    Nespresso conquered the European market for single-serve brewers thanks in part to a sleek ad campaign featuring some reliably effective motifs: PG-rated double entendre and the idea that at Nespresso’s sleek Club cafés, even schleps like us are given the George Clooney treatment.
  • Round 2 to obscure Belgian NGO network Solidar.
    After Clooney became recognized as the face of Nespresso, a little-known Belgium-based NGO network called Solidar produced this parody featuring a Clooney look-alike who gets hit in the private parts by a falling corporate sign evoking a familiar corporate logo.  The ad features a voice over accusing Nespresso of exploiting smallholder farmers and farmworkers.
  • Round 3 to well-known Dutch NGO Solidaridad.
    Later that month, the executive director of Solidaridad, a well-known Dutch organization with a long history of support for coffee farmers, published this open letter suggesting that Nespresso isn’t doing well in the market because it is gouging farmers at origin, but because it is offering them the highest prices.

 

 

3 Comments

  • Rodney North says:

    I’m not sure but I think there may be some issues and themes tangled up here such that one cannot easily tease out whether the single-cup brewing phenomenon is a net-plus or not for farmers or the world.

    So here are some quick thoughts on the topic – not all of them brought to completion nor even related to each other:

    ◊For beginners there is apple and oranges problem – how to weigh & compare two very different concerns such as environmental waste & pollution in the global North vs. possible economic gains for coffee farmers in the global South.

    ◊Second, are single-cup brewers the _cause_ of the benefits for farmers that Michael describes? Or is the real cause the sourcing and philanthropic decisions of Green Mt & Nestle, decisions that might have been made w/out the single-cup phenomenon? For ex. GMCR had a strong Fair Trade program before their k-cup success. I do think they’re intertwined because w/Green Mt at least the success of K-cups has helped grow their Fair Trade purchases and philanthropy but I’d also want readers to keep in mind that there are many other roasters in the single-serve market who we can assume have much more conventional sourcing practices.

    ◊The single-cup brewing concept has been around for a decade now and every large roaster has tried to run with the concept, including Folgers, Sara Lee*, Starbucks, Maxwell House, as well as Nestle and Green Mt.
    (*Yes, 10 years ago Sara Lee was one of the world’s 5 largest coffee roasters.)
    And while there has no doubt been a shift in how people brew their coffee, where they drink it, and which brands they buy, there doesn’t seem to be a shift in _how much_ coffee they’re drinking. For example, in the last 10 years global population has grown 14% but global coffee exports (which I’m using as a proxy for consumption) have grown by only about 10%. Had single-serve systems reinvigorated overall coffee consumption that would definitely be a boon for farmers.

    ◊ Judging from the phenomenal growth of Green Mt. let’s assume there’s been a meaningful shift in brand loyalties towards Green Mt & maybe Nestle. With Nestle I worry about what is the effect of the success of the rest of the Nespresso pod line (http://www.nespresso.com/us/en/coffee/ ) The Rosabaya de Colombia blend is only 1 of at least 16 pods they sell. Could all or some of the other 15 coffees be more conventionally sourced and be stealing customers who at least sometimes were otherwise drinking organic &/or Fair Trade coffees? We’ll probably never know. One might also ask about this effect as regards the 70% of Green Mts k-cup sales that are _not_ made with Fair Trade coffee (tho’ Green Mt’s philanthropy at origin would remain a good consequence of their success w/Keurig.)

    ◊ Re: Green Mt’s philanthropy – $15,000,000 equals about an 9 cents for every pound of green coffee they import. (I’m estimating that they imported about 166,000,000 lbs in 2011 because Fair Trade coffee = approx 30% of GMCR total imports & 50M / 30% = 166M.) So that’s another way of looking at the gain to farming communities.

    • Michael Sheridan says:

      Rodney:

      Happy New Year. Good to hear from you, as always. Good points, as always. Some reactions below.

      For beginners there is apple and oranges problem – how to weigh & compare two very different concerns such as environmental waste & pollution in the global North vs. possible economic gains for coffee farmers in the global South.

      I couldn’t agree more and was never suggesting the two could be weighed side-by-side. I just wanted to insert a perspective into the conversation that I think has been missing – why companies whose market success depends so much on pods have had so much success in sourcing at origin.

      Second, are single-cup brewers the _cause_ of the benefits for farmers that Michael describes? Or is the real cause the sourcing and philanthropic decisions of Green Mt & Nestle, decisions that might have been made w/out the single-cup phenomenon? For ex. GMCR had a strong Fair Trade program before their k-cup success. I do think they’re intertwined because w/Green Mt at least the success of K-cups has helped grow their Fair Trade purchases and philanthropy but I’d also want readers to keep in mind that there are many other roasters in the single-serve market who we can assume have much more conventional sourcing practices.

      Agreed. As I noted, Green Mountain has been a leader in this segment for many years and was generating positive social impact at origin long before it purchased Keurig. K-Cup didn’t help Green Mountain introduce Fair Trade sourcing or reinvestment at origin, it helped Green Mountain expand those commitments.

      The single-cup brewing concept has been around for a decade now and every large roaster has tried to run with the concept, including Folgers, Sara Lee*, Starbucks, Maxwell House, as well as Nestle and Green Mt. (*Yes, 10 years ago Sara Lee was one of the world’s 5 largest coffee roasters.) And while there has no doubt been a shift in how people brew their coffee, where they drink it, and which brands they buy, there doesn’t seem to be a shift in _how much_ coffee they’re drinking. For example, in the last 10 years global population has grown 14% but global coffee exports (which I’m using as a proxy for consumption) have grown by only about 10%. Had single-serve systems reinvigorated overall coffee consumption that would definitely be a boon for farmers.

      This analysis suggests that single-cup brewers may actually contribute to a reduction in overall demand by reducing the amount of coffee wasted due to over-brewing.

      Michael

  • Pawel says:

    Fascinating discussion and excellent points. For me as a coffee drinker the quality issue is insurmountable and overshadows all the other issues. As a society we have the slow food movement and with help of people like Michael Pollan we are trying to move away from foods that are manufactured. This particular case is not about chemical additives and preservants but none the less it is outsourcing my coffee grinding to a factory months in advance of consumption. The absurdity of that idea in context of the direction we should be heading as a society is creating enough cognitive dissonance for everybody to just say no to the silly single brew idea.

Leave a Reply

Your email address will not be published.

Note: You can use basic XHTML in your comments. Your email address will never be published.

Subscribe to this comment feed via RSS