Why Dunkin’ Donuts K-Cups Aren’t Selling

Why Dunkin' Donuts K-Cups Aren't Selling

Sales of K-cups, those little plastic pods for Keurig single-serve coffee brewers, have been on a tear in recent years. Which makes it all the more surprising that Dunkin’ Donuts, beloved across the U.S. for its coffee, is struggling to sell K-cups of its own.

Despite the launch of a new dark roast variety in the fall, Dunkin’ Brands Chief Executive Officer Nigel Travis said at a conference on Monday that the company’s K-cups “had double digit negatives” last quarter. In other words, sales fell by more than 10 percent. K-cup sales by Keurig Green Mountain, in contrast, increased 13 percent in fiscal year 2014.

Dunkin’ has adopted an unusual (and apparently not very effective) K-cup sales strategy. Unlike competitors such as Starbucks that sell K-cups through multiple channels, Dunkin’ sells its pods only in its restaurants, not in grocery and other mass retail outlets. The goal, as Travis previously explained to investors, is to avoid cannibalizing restaurant sales—Dunkin’s core business—by offering more ways for consumers to brew Dunkin’ coffee at home. Even if K-cups present a new source of revenue for franchisees, they’re only a very small piece of the business, according to Raymond James analyst Brian Vaccaro.

The strategy may protect sales of Dunkin’s brewed coffee, but it fails to take advantage of strong demand for K-cups as the selection in supermarkets expands. And increased K-cup competition is leading to some price-cutting, Vaccaro says. Dunkin’, for instance, ran a holiday K-cup promotion offering two boxes for $16, compared to the regular price of $10 each. The chain’s domestic comparable store sales increased 1.4 percent in the fourth quarter, but that jump would have amounted to just over 2 percent were it not for the decline in K-cup sales, Travis told investors.

It’s not just Dunkin’s K-cup sales that are suffering; sales of its bagged coffee are also down. In a statement to Bloomberg Businessweek, the company attributed that decline to “the growth of the single serve format.” Which, at the moment, doesn’t actually include Dunkin’s own K-cups.

Read More:Keurig single-serve coffee brewers

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