Dunkin' Brands Group Inc. has struck an agreement with the J.M. Smucker Company and Keurig Green Mountain Inc. to sell single-serve Dunkin’ Donuts branded K-Cups at retail outlets, the company said Thursday.
Terms of the deal, which was more than a year in the making, were not disclosed. The agreement includes a unique profit sharing agreement between Dunkin’ and its operators that could yield $2,500 to $3,000 per unit, per year.
“This is an industry leading, unprecedented deal with our franchisees,” Dunkin’ Brands CEO Nigel Travis told Nation’s Restaurant News. “The simple reason is our franchisees’ profitability is what’s important for us. It attracts more franchisees into the system. We can grow more stores. And the more Dunkin’s we get, the more penetration we get.”
J.M. Smucker and Keurig have only now started talking with retailers and grocery outlets about the product because negotiations thus far have been secret. But Travis suggested that K-Cups could be sold in 67,000 locations around the U.S., including Dunkin’ Donuts’ 8,000 U.S. units.
The K-Cups should be available in the middle of the year in five varieties: original, decaf, French Vanilla, Hazelnut and Dunkin’ Donuts Bakery Series Chocolate Glazed Donut flavor. This spring, K-Cup packs will be on sale at DunkinDonuts.com, www.OnlineStore.Smucker.com and Keurig.com.
J.M. Smucker has been making K-Cups for Dunkin’ since 2011, but the coffee has only been available at the chain’s domestic locations, not at grocery stores or big box retailers. Dunkin’ sells packaged coffee at retail outlets, but the market for single-serve coffee, led by Keurig’s K-Cups, has been exploding.
According to the National Coffee Association, the percentage of Americans who use a single-serve coffee maker grew from 20 percent in 2013 to 29 percent last year, while the percentage that use drip coffee makers has declined. Sales of single-serve coffee pods have grown from $234 million in 2009 to $3.8 billion last year, according to Reuters.
Meanwhile, Dunkin’ competitor Starbucks Corp. has sold branded K-Cups at retail for years, as have other coffee chains like The Coffee Bean & Tea Leaf and Caribou Coffee. McDonald’s Corp. recently started selling McCafé branded K-Cups at retail, along with packaged coffee.
Dunkin’ said selling branded coffee at retail outlets gives consumers a taste of its primary product, and K-Cups are a growing part of that business.
Dunkin’ has been working with franchisees since December 2013 on a deal to enable the sale of K-Cups at retail. Travis said operators themselves hired an independent consultant to study the issue. The consultant agreed with Dunkin’s position that K-Cups don’t hurt sales at the coffee shops and give consumers a taste of the product, he said.
“We always knew that being in retail was important so people could taste our brand of coffee,” Travis said. “We also knew that being in retail was going to make us more competitive. And we didn’t want customers to take others’ K-Cups and get used to their taste profiles.”
At the same time, Dunkin’ units are selling fewer K-Cups. The company said in January that U.S. fourth-quarter same-store sales grew 1.4 percent, but that sales of K-Cups at its locations were negative, hurting sales. By selling K-Cups at retail, Dunkin’ will be where consumers shop for coffee they buy for the home.
“Home is where 80 percent of all coffee sales happen,” Travis said. “People brew coffee at home, and a lot has moved to K-Cups.”
By selling at retail, Dunkin’ will also advertise its brand as it expands west. The chain is well known in the Northeast, near its headquarters in Canton, Mass., and it has only 280 locations west of the Mississippi. But the brand plans to expand in California and in other Western states.
If new customers can taste Dunkin’ coffee in their homes, they might be more willing to visit the chain’s locations.
“That gives consumers another chance to experience Dunkin. It gets the taste profile established. People get Dunkin’, and when a store comes along, it makes it easier to pick up and get it,” Travis said, adding that the company’s sale of branded coffee at retail outlets helped pave the way for its new locations in California.
Contact Jonathan Maze at [email protected].
Follow him on Twitter: @jonathanmaze
