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In the world of consumer products, it's rare to witness a company not only create a new category, but dominate it so completely that its name becomes shorthand for the experience itself. But what happens when that dominance breeds complacency? When innovation turns inward, partnerships fray and a string of public missteps erode consumer trust. Today's case dives into the anatomy of a corporate turnaround
exploring how a once beloved brand lost its way, how bold private ownership enabled radical transformation, and how a new CEO reignited a growth engine that many believed had stalled out for good. It's a story of strategic focus, operational discipline, and the hard choices companies face when standing at the crossroads of reinvention.
Today on Cold Call, we welcome Professor David Fabini and co-author Patrick Sanguinetti to discuss the case Keurig, A Return to Growth. I'm your host, Brian Kenney, and you're listening to Cold Call on the HBR Podcast Network.
David Fabini is an expert in strategy and a repeat visitor on Cold Call. Welcome back, David. Thrilled to be back. Thank you for having me. We were just discussing before we started to record here the other cases that we've done. And I think if people want to look at those, they're still in the catalog. One's on American Airlines and the other is on the Big Apple Circus, which was a really fun one. That's fun.
Patrick Sanguinetti is a research associate here at Harvard Business School. He's the co-author in this case. Patrick, thanks for joining us. It's a pleasure. I have to admit, I mean, I'm a fan of Keurig. I know we're not supposed to endorse products or services on this show, but I'm a fan of Keurig, and I think a lot of our listeners probably are too. And it
really was revolutionary when it first came onto the market. And I think people are going to enjoy hearing about some of the inside story about some of the challenges they face and where they are now and how they've been able to turn things around. So thanks for writing it and thanks for being here to talk about it. David, I'll start with you. What are the central issues in the case and what prompted you to write about it?
The central issues in this case are summarized brilliantly by you at the outset of this podcast, which is that it was a remarkable company and doing really well, lost its way, and then it found its way back again, and now it had growth options, and we wanted to give that strategic opportunity
puzzle to the students. The question was, which growth strategy would allow it to continue? The reason is because I was in touch with the management team, both the old management team as well as the new management team, so I could see the insides of what had happened in between. And also because it's such an interesting story and most of the students can relate to Keurig and know it. So it makes it a much more approachable case for the students. Yeah. And until I read the case, I never fully understood the problem they were trying to solve, which was just that the
people would make a big pot of coffee in the office and it would be awful within a few hours. Oh, yeah. Yeah. Well, that big pot of coffee has only one type of coffee. So if you don't particularly like that type of coffee, you're out of luck. And so this gives the single-serve idea was just a wonderful one for them. And it allowed them to just take the coffee market by storm. Yeah. Patrick, let me turn to you for a minute. I mean, Keurig...
created an entirely new segment that didn't exist before. There's not a lot of examples of firms that have done that, particularly modern examples. It feels like everything's been done before, but this was really new and revolutionary. And they had a really interesting business model. Can you talk about how that contributed to their success? Sure. So I think you mentioned the problem that they were addressing. So if you go back, you know, mid-late 90s, late 2000s, most Americans are using these big batch, you know, coffee pots and
And someone's going to be drinking that nasty stuff on the bottom. It's usually me. Yeah, me too in the house. And so now with Keurig, you have this really novel and potentially lucrative solution to that. So you have the hardware, the brewer itself, but really it's the K-cup, the pods that they're using. And that's kind of the key to this. So very similar to, you know, think Gillette and that razor blade model where –
Consumers are going out and really what they're coming back for is that razor blade. Keurig is churning out thousands, millions, a ton of these pods and the machines on millions of American countertops. And really because of that, the model meant for high volume, consistent consumption. And like David said, it's a lot of potential for kind of cross brand partnerships and like new flavors, you know, a lot of different directions.
Yeah. Did they look at the machine itself as kind of a lost leader for them? Like, they knew if they had the machine in the house, then people would buy the pods. Was that the idea? You know, interestingly enough, I think the pods are really more important to the story because, you know, they can make new machines over and over. And, you know, once you have that kind of in place, it's just about getting them to come back.
with the new flavors or whatever. So the machine is important, but I think it's almost a little bit of the red herring. The pods are the real secret here. And we'll talk about the 2.0 at some point. They changed the machines and how the pods work too, and that kind of created some disruptions as well. So when they change part of the model, that also upsets some folks. I'm ready to talk about that now. You teed that up well. They've had some missteps along the way, and the case documents those pretty well. There were the K-Cup
with sustainability. Correct. And drove a lot of people kind of away from using the K-Cups because they felt, you know, like it was irresponsible. There was the version 2.0 that you just mentioned, Patrick. There was the Keurig Cold, which a lot of people may not even know about.
because that came and went really quickly. There's a reason for that. Yeah. So, David, can you maybe start us off, talk a little bit about some of those missteps and how that impacted the brand? Yeah, the Keurig 2.0 is one example. So here you have a great success, and with great success you get imitations and imitators. And so quickly people come up with the idea of creating a K-Pod that can go into a Keurig machine and isn't actually –
produced by Keurig. And so it becomes a generic equivalent. The natural thought is, well, let's try and figure out a way to make sure that you're using Keurig K-cups with Keurig machines. We'll put in a mechanism by which it digitally reads the actual encoded code on the K-cup, and so therefore it's able to be brewed by the 2.0 Keurig machine. Mm-hmm.
The reaction from consumers was pretty barely bad. This was like, you know, now you're forcing us to basically use your product. You don't allow us to actually use the generic or others. And the reaction, both social media as well as in terms of buying behavior, was quite definitively negative. And I don't think they anticipated that.
Yeah. And so it surprised them. Yeah. It's an interesting dynamic of, you know, like consumer trust and control, I feel like, because like David said, people got really attached to the flavors that they had. And now I think we say in the case, like Keurig kind of took some insight from Apple on the DRM, the digital rights management system. Right. And people really didn't like that with Apple either. Right.
I think now iTunes has moved away from that like a decade ago. But David, you mentioned social media. There are tons of blogs that were dedicated to sharing, you know, this is the way to hack the hardware. Here's how we splice the code from this and, you know, graft it onto the other one. And I think people really, you know, they like the autonomy. But also they just wanted to have the flavors that they had before and now suddenly they couldn't do that. Yeah. And they could put up with Apple because Apple had the functionality, which was a great deal more than just making a cup of coffee. Yeah.
And they're like, hey, wait a moment. You're overstepping your bounds here. Yeah, and it reminds me a little bit. Even Apple has run into this where they'll introduce a new model and you have to use a different kind of adapter or charger for it. You're kind of forced to buy. How many dongles? Exactly right. You're kind of forced to buy and stay within their ecosystem. So it reminds me a little bit of that. They were acquired by JAB. I should know what that stands for, JAB. I believe it's just a series of initials of the private equity owners.
So they came in and they acquired the firm. And the case talks about the protagonist in the case is Bob Gamgort. Why was he the right leader to help drive that turnaround? We'll zoom out for a second and think about why JAB wanted to acquire Keurig to begin with. So we talked about the kind of strength of the firm.
of the model, I think they believed really strongly in the fundamentals. You know, they realized that Keurig had basically lost its way. So Olivier Gaudet, who was heading JAB at the time, he and some others in JAB had kind of had their eyes on Keurig for some time. I think they realized that this was the time for them to kind of come in. In terms of, you know, the Bob aspect, Olivier and Bob had worked together at Mars. And in our conversations with Olivier, he had told us
You know, he was really impressed with the work that Bob had done afterwards when he was CEO of Pinnacle Foods. So Bob became CEO of Pinnacle in 2009, which was just a few years after Blackstone had acquired it. What Olivier is seeing is this really successful turnaround of this, you know, packaged goods or food company that was under PE ownership. And he said, well, that's basically the model that we're going to try and run with Keurig. And he told us, like, it has to be Bob. If it wasn't Bob, it wasn't going to work.
This was the interesting thing when you find this out. When you do a case like this, you don't really know. They had an eye on Keurig for some time, but they weren't willing to go forward with buying it because they didn't have somebody to run it. And so as soon as they convinced Bob to leave Pinnacle and come run it, then they said, well, now we're aligned and we're going to go do it.
So that's what triggered it. Well, and Bob, they had a strategy of saturation before. We've talked about that a little bit. And that was one of the first things that Bob dug into was that strategy. Why was he questioning that? Well, because he came into an organization that basically said, hey, look how many homes we're in. We're basically saturated. I mean, there's just no more there.
And Bob said, whoa, whoa, whoa, wait, no, redefine the audience. There's a huge audience out there. We're only an X number of homes. There's plenty more penetration we could do because you're thinking about this only in the context of today's machine. What about a smaller machine? What about a machine that finds its way into dorm rooms? What about machines that, yes, finds a bigger machine that finds its way into bigger offices? There are many other, frankly, pieces of real estate that we could go beyond. And we need to rethink that. And that was fantastic.
eye-opening for the group. Now, as always, when a new CEO comes in, we have to be honest that there was also a lot of new management that came with him. And so they also got incented to actually think differently. Yeah, and all the ideas that you just described carry big implications with them, right? They're used to making a certain type of machine, a certain type of
All of those things are part of their manufacturing process. And if you start to do what you just described, David, it creates a whole new set of pressures for the organization to deal with. How did they start to address some of those things? I would just answer that with one quick thought, which is let's remember that
There is margin in this business. Okay. So I think that we shouldn't actually think that this is a business that doesn't generate a fairly attractive return when you think about coffee and actually the expense of it relative to the price of some of these items. So they certainly have the incentive financially to actually be rewarded for expanding as well. So I think that's one thought. Yeah.
Just talk a little bit about the operational thing. I'm also interested in that in the context of the partnerships that they have. Maybe you can describe some of those partnerships as well. I guess what I'll say on this is that, you know, I think the partners were actually in favor of lowering the cost of the pods. How that kind of happened is a little, I think there was some kind of internal negotiations that happened there, but there was maybe some dissatisfaction on how they priced it, some questions around whether it was priced accurately. And so when we were talking with Bob, he made it really clear to us that
It became very clear to him early on that the partner kind of relationship, that ecosystem was very sensitive and the partners had kind of lost alignment with Keurig based on some of the moves that they had made prior. And so it was sort of we need to do whatever we can to make sure that we really cement that and make them even stronger going forward. So in the case, it might not be totally transparent how it happened, but it was very clear for Bob from the from the get go that they needed to just cement that and strike some new deals. Yeah, yeah.
The Keurig cold, did that happen under Bob's watch? No. No. Okay. It was a precipitating event for his predecessor to step out. I see. Okay. And it's worth mentioning the problem with Keurig cold. Which, by the way, if listeners don't know because it was so quick, it was actually a version of the Keurig that made cold beverages.
instantly that were either carbonated or regular cold beverages. Yeah, and the fundamental problem was threefold. One, the machine that made it was quite large. And so the standard everyday kitchen was suddenly rapidly running out of real estate to put it on. I mean, between the toaster, the microwave, a Keurig coffee machine, and now a Keurig cold, there's like no room for a cutting board. And literally, there was really just—it was large.
Second, the cost of the actual soda that was produced from the cups that they used was shockingly high for the amount that you got. So in no way would it mirror that of going out and buying a 16-ounce can in a store. And third, fundamentally, the machine really didn't work well.
I mean, I just, there's no other way to say it. It was flawed and often wouldn't produce a consistent product. Yeah, that sounds like the trifecta of reasons not to buy. Yes. But then you might ask, well, how did it find its way to market? And that is a little bit why new management was brought in. Yeah, that makes perfect sense. And it strikes me as, you know, the execution was not very good. But even if the idea in some kind of theoretical land made sense, like, yeah, why not do a, you know, go in a cold direction? Yeah.
I think part of what David's talking about with losing Keurig's direction is that when you strip away the coffee or the hot element, it's like people keep coming back to our products because they like convenient, high-quality products that's easy to keep in the home. There's the execution element, but if you also are kind of selling out on all that too, it just doesn't make any sense. There was another product actually that came out on the market. I think it might have been called SodaStream that performed the same function but maybe did it a little bit better and a little bit less expensive.
Incredibly simply. Yeah. And it was a lot smaller. Yeah. Very simple process, right? It just injected carbon dioxide into an existing still beverage. Right. Exactly right. David, let me turn to you and talk a little bit about strategy. The case outlines that there were four things on the table that they were considering, one being an IPO, another being globalization, the third being coffee market expansion, and then the fourth being beverage diversification. Right.
Which of those struck you as the most ambitious and why? Well, the ambitious one, as it turns out, to be the globalization one. Because you think, oh, great, we're coffee drinkers here in the United States. There are coffee drinkers around the world. And then you rapidly find out that there are radically different tastes and approaches to drinking coffee around the world. There are espresso-based markets where really the traditional drip
coffee makers, which is what Keurig is, are really not acceptable. I mean, southern Mediterranean countries, for the most part, work on espresso-based products. Then you have people also in certain markets where they don't like the forced drip. They like the more hourglass method of canters that make coffee. So you have that problem. And it turns out that when you look at the competition, there are some massive players in this world. I mean, you
that are already heavily entrenched. So obviously to come in and put this new system in place
is really difficult when you think about some of the more larger competitors. When you actually get into it and you start looking into the underlying challenges of moving competitively into that market, it's very intensely competitive, huge consumer uptake challenges. And so it was one that looks really difficult. But yet often when you look at this case, you think, oh, that's just a natural thing to do. Let's just expand. Right, right.
Was the potential acquisition of Dr. Pepper part of that as they were looking at different possibilities? It was a possibility, but it was not at all tied to the coffee options. So it was out there to sort of say, well, if we can't do coffee, maybe we should redefine who we are as a company. And so we're not a coffee company. We're going to become a beverage company. That sounds like a risk, does it? It is a risk, yes. Yeah.
But strangely enough, as we get into it, we'll find out that there are some elements that made it less risky. Piggyback a little bit off what David just said, that if you want to think about breaking into Italy, you said it a lot more diplomatically. I think the Italians wouldn't consider what most Americans drink to be coffee.
Yeah. And then you multiply that across France, I guess the UK, but wherever. It's like every market would need a nuanced strategy. And then you have Nestle, Lavazza, et cetera. So fine, we're going to table Europe. So in the case, we talk a lot about kind of South Korea as being this potential place where they could go and break in. If Europe is kind of off the table, fine, we'll look at Asia. And let's look at kind of three main markets-- China, Japan, Korea.
China has some really interesting market dynamics, and so maybe we can table that. And then Japan has a really interesting coffee culture, but it's mostly like craft or like novelty stuff. Like, I don't know if you've ever had Japanese Starbucks. They make some really fascinating, colorful stuff. And so probably what they'd be going up against is like,
canned coffee and vending machines, so like boss brand stuff. They're on like every single street corner and it's been entrenched for a really long time. And also, you know, Japan has been kind of in stagnation for a couple decades. And so maybe Japan isn't an attractive market to go into. So then you say, fine, Korea, it's been having this huge cultural moment. It has a really, you know, at this point, famous kind of cafe culture. And what is it that they're drinking in those cafes? It's Americanos.
which is a little bit different than kind of what the Keurig machine makes. It's espresso that's been diluted, but it drinks pretty similarly and you wouldn't need to change the brewer too much. So the thinking was maybe because the incumbents aren't as strong, like this could be the option. But you can probably tell from both of our tone on this that that was kind of the long shot. So when you look at the kind of case development side on the back end,
It's like a fun challenge for us when we write the case because our partners at Keurig are basically saying, well, we thought about this, but we ruled it out pretty quick. But then we say, you know, but the debate here is really interesting. So why don't you kind of walk us through your thinking as if you had really considered this? And then we build it out a little bit with them to give the students enough to work from. And as it turns out, you know, David can talk about this too, our students are.
go full force for that option. Really? They see globalization and they're like, well, maybe Korea, but also China would be great. Or, oh, we could make this work in Brazil. And that's what they get, you know, really stuck on. And so it works super well in the classroom. Yeah, I would imagine that the case subjects benefit from this as well because I would, is it a little bit like a teaching session when you're interviewing? Yeah, it is.
I want to talk a little bit about the Dunkin' Donuts partnership that they had and the potential risk that that involved and the sort of difficult dynamics that they encountered with that. Can you describe how that went? So the Dunkin' Donuts, like many in Starbucks and others, they have this unique situation because they really are an integrator of the supply chain for Dunkin' Donuts because Dunkin' Donuts has many other ways to go to market. But here Keurig is providing them yet another channel, if you will, through the K-Cup.
to get to market. So then if you think about, and remember JAB likes owning coffee entities, and they had a number of other assets that they bought in businesses that were coffee related. There was a notion that, well, let's think about whether or not we should actually buy a coffee manufacturer as a way to grow. And Starbucks is too large and probably not appropriate at the time. But there was some thought about Dunkin' Donuts had been marketed and was on the market. And now suddenly, should you think about acquiring Dunkin' Donuts or something like it?
And the problem is, of course, now you're buying both a customer and you're going to now compete against other coffee manufacturers as a coffee manufacturer, yet you're trying to stay true to your previous self, which was an enabler to get to market. And now you're sort of competing with somebody that you're also actually enabling. And that became really challenging strategically. Yeah, and you're dealing with franchisees at that point, too, which I imagine would be another challenge. So there was some thought, well, we could take the franchisees and maybe create a spinoff company. And then now you're getting really quite complicated. Mm-hmm. Mm-hmm.
We're coming near the end of our conversation. It's been very, very interesting. I've got a couple of questions left, one for each of you. So I'll start with you, Patrick. The case ends with an interesting metaphor, I thought, about them filtering out the right option. I got the play on words there. Very clever. How do you think they should think about defining their success going forward? Should they be looking at scale or profit or innovation or something entirely different? Is this a good time for a spoiler alert? Yes, please. Because, you know,
I think many people would probably know in the audience by this point that they do end up kind of merging with Dr. Pepper. So when you look at it from that perspective, I'm going to make a little plug for a project that David and I are working on right now. We're writing a book really based on David's advisory career, but it's all about
post-merger integration success, and how do we advise executives, leaders, and companies that are looking to acquire, and the mindsets that they need to make integration successful, and the traps that they need to avoid. And so that's really relevant in this context here. They are thinking now about, great, we've acquired this company, and it's all about the direct store distribution system. That was kind of the rationale for the deal. So the next phase, at least insofar as this kind of case timeline is concerned,
Keurig needs to think really strongly, okay, how do we then plan for and execute around that kind of distribution model? And the plan needs to think about not only bringing together these two different cultures, because we have Keurig that's in the Boston area and Dr. Pepper's in Texas. Geographic distance, but really how they operate too is pretty different. And they also need to ensure that both parts of the business in that whole first year, essentially, of that integration, that
that there's no dip. They need to keep the base businesses really strong. At least that's how I would think about kind of defining success for them. They need to go really hard on integration planning and be really mindful of that. Yeah, that's great. David, I'll give the last word to you here, which is quite simply, if there's one thing you want our listeners to remember about this case, what's the broad takeaway? What should they remember? Well, the broad takeaway, I think, is that there are always strategic options.
They are never all of the same quality and the same result. But also you have to understand that actually achieving those strategy options is as challenging as choosing one. So we often sit and talk about strategy and say, well, that's a great strategy. Well, it's only a great strategy if you can implement it.
And a lot of these strategies on the paper seem to be, oh, yeah, these would be lovely. But they're incredibly difficult to implement. And by the way, buying Dr. Pepper is not so easy either. But in that context, the thought was, okay, we're going to redefine ourselves not as a coffee company but as a beverage company. And that enables us to think about ourselves in a different way. And so culturally we can align around that. That's the essence of a strategy, which is, okay, you have a strategy, but you could also have a perception of how you're going to actually implement it.
And the last thought I'd leave you and the listeners to think about is also innovation doesn't stop. One of the things you're about to see, and again, I think this has been publicized, is to get around the problem with the K-cup is they've actually innovated and they've now created basically what you would think would be like a coffee puck. And it has organic material around it and no cup. And so you just drop it right in. It's environmentally sustainable.
incredibly sensitive. So there's nothing to throw away. Nothing to throw away. Interesting. And as they say, the coffee grinds are left. They encourage you to put it in your garden. Brilliant. And on that note, David, Patrick, thank you for joining me on Cold Call. Thank you very much. Thank you for having us.
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