Selling coffee by a different sort of cup

If you think a K cup is something for a Playboy model, you’re out of sync with the hottest trend in coffee selling.

The “K” stands for the Keurig, a single-cup coffee brewer that’s now a standard feature of corporate canteen areas. A user fits a sealed single portion of coffee grounds—a little package that looks like a larger-than-normal coffee creamer—into a receptacle inside the machine. The machine is closed, a button is pushed, and the coffee is brewed and dispensed.

Because the user’s discretion is removed, the cup of coffee tends to be of barista quality. You get the best of what’s in the little pre-portioned container, a.k.a. the K cup.

Quality aside, the machines are proving popular because there’s little maintenance. Someone has to empty a bin that catches the used K cups. But there’s very little additional work to be done by the host site.

No wonder the Keurig unit has made such inroads into the coffee-service market. But it’s also winning home-brewers, too. Green Mountain Coffee Roasters sold 771,000 of the units during the 2008 year-end holidays. Walmart has struck a deal with the company to sell Keurigs in 3,000 of its outlets. Clearly it’s the gadget of the moment.

And that’s orgasmic news for coffee processors who put their grinds in K cups. Once you have a machine, you have to buy the cups. It won’t work otherwise. It’s selling razor blades, so to speak.

Yet the phenomenon has landed roasters with retail outlets in a Catch 22. Players like Starbucks could sell a lot of K cups because of the brand appeal. But might they be undercutting themselves in the long run?

Rick Aristotle Munarriz, a frequent contributor to the The Motley Fool financial website, estimates that a K cup could be sold by Starbucks for 40 cents. It would deliver a cup of coffee close to what a café customer would have to pay $2 to get. How long would that disparity be tolerated, even with the delivery of the mystical Starbucks Experience that Howard Schultz is always crowing about?

So Starbucks isn’t selling K cups. Nor, apparently, is Peet’s, a brand with limited retail operations. Nor Dunkin’ Donuts. Or McDonald’s/McCafe. You won’t find Tim Hortons grinds or BK Joe in a K cup, either.

But Caribou sells its coffee that way. Coffee People, too. Diedrich sold its Gloria Jeans concept last week. But it held on to the K cup part of the business. The secondary brands seem to have shrugged and decided, What do we have to lose?

Which makes you stop and wonder: Are the big coffee brands missing an opportunity? Would there be a way to exploit the booming K cup market without cannibalizing walk-up café sales?

You know it’s a question that’s consuming the marketers in Seattle, Oakbrook and Canton, Mass.