On Monday evening, Keurig Green Mountain CEO Brian Kelley stepped onto a platform at Cedar Lake, a performance space on West 26th Street in New York City, and greeted a select audience of about 100 industry executives, bloggers and other influential people for the debut of Keurig Kold, the company's long-awaited cold beverage system.

In front of Kelley, "Keurig Kold" was projected onto the platform in bold capital letters. Behind him a white curtain blocked the view of most of the space.

The stakes were high for Kelley, as Keurig Kold has been bashed by analysts for its price since Kelley introduced the machine to the investment community in May. Pablo Zuanic, consumer equity analyst for Susquehanna International Group in Bala Cynwyd, Pennsylvania, said Wednesday the $370 price tag on the machine is too high, but he's even more concerned about the price of the pods. Take the Coke pods for example, which sell for $4.99 for a four-pack and make 8-ounce servings.

"If we take the prices from Keurig to 12 ounces from 8 ounces we're talking $1.90" Zuanic said. "To me the main issue is the price of the pod. For the machine, first adopters might be willing to pay that price."

Zuanic is unequivocal in what he believes the pricing means.

"My prediction is that the Keurig Kold will fail," he said. "The industry will move on to what we think is the next holy grail, a combined cold and hot platform."

None of that was on Kelley's mind as he prepared to launch the spectacle that waited behind the curtain.

"Over the last decade, Keurig has changed the way consumers make coffee and revolutionized the coffee business in doing so," Kelley began. "People love Keurig for a convenient, simple, fast fresh cup of coffee each morning on demand."

People asked, Kelley said, "When are you going to do this for cold beverages?"

The question launched a six-year quest involving 250 engineers and scientists and 10,000 consumers who were surveyed for feedback, ultimately leading to "innovation the industry has never seen before."

"The first moment of truth is when a person makes that first glass of Keurig Kold, so I invite you now to step into what we believe is the coolest house on the block and experience for yourself a new Keurig Kold," Kelley said.

At that moment, an unseen trumpeter blared out a triumphant line of celebratory tones and the curtain dropped dramatically, revealing a sort of dream den bathed in purplish light with green spotlights reflecting on a brick wall at the back of the room and Keurig Kold machines lined up like soldiers along a curved bar.

The trumpeter, a thin New York musician dressed in black from his fedora to the pointy toes of his boots, stood on another platform center stage, blowing his horn in celebration while the audience filtered into the room and wandered toward the gleaming white machines.

Kelley beamed near the bar beneath a large "Keurig Kold" cut out in individual letters and suspended in front of the brick wall, and talked to first-time Kold users about the machine's breakthroughs: a cold, carbonated drink at the push of a button in about 60 seconds, without the use of a CO2 canister. The carbonation is in the pod.

Coke, which owns 16 percent of Keurig, is on board, along with Dr. Pepper Snapple Group and a variety of Keurig's own seltzers, hydration drinks, flavored waters, craft sodas and iced teas. A mojito and margarita are coming in December, Kelley said.

"This exciting launch of Keurig Kold is what we have certainly been working for," Kelley said before the curtain dropped. "We know consumers are excited about it. Keurig Kold will change the way consumers experience cold beverages at home, just like our hot brewer did. It's unlike anything consumers have seen before, game-changing, on-demand fresh beverages delivered with Keurig simplicity.

The Kold gamble

The Keurig Kold launch follows a disastrous debut last September of the Keurig 2.0 hot brewer, which locked out pods made by private labels, and annoyed consumers who had a drawer full of pods they couldn't use in their new brewers.

In August, Kelley reported dismal third quarter results, with sales of $970 million down 5 percent from 2014, and hot brewer sales in particular down 18 percent from the previous year. Keurig plans to cut 330 jobs over the next three years, including nearly 200 in Waterbury where the company is based, the biggest cuts in the company's history.

Keurig's stock price dropped by nearly 30 percent following the third quarter report, down more than $22 per share to $52.67. The stock had hit a high in the past year of $158.87 per share on Nov. 18, 2014. Wednesday afternoon, two days after the big announcement in New York, Keurig's stock price was up slightly to around $54 per share.

Before the launch, Kelley was having lunch with Tara Murphy, the executive in charge of Keurig Kold, and a few other executives at Keurig's small third-floor office at 120 5th Ave., overlooking the busy street below. Keurig keeps the New York office for investor relations, marketing and media, Kelley said.

"When we have meetings in New York, we don't have to rent," he said.

Previously:

Keurig cuts nearly 200 jobs in Waterbury

Former executive: Keurig social investments wane

Keurig 2.0 flopped, can it rebound?

Kelley and Murphy were anxious to show off Keurig Kold before the debut that evening. The machine has 150 patents, 50 of which are issued, and 100 pending globally. The patents go through 2031 and 2035, depending on when Keurig applied for them. The pod is recyclable #7 plastic, Kelley said.

The K-Cup pod for the hot brewer is not recyclable, which has been another source of discontent on the part of some consumers. Keurig makes 10 billion pods annually, all of them headed for landfills. The company has said it will have a recyclable K-Cup by 2020.

Why is it taking so long, when Keurig is known for innovation?

"It's a good question," Kelley said. "I would tell you this. The pod we have was invented some 20 years ago. You might ask, 'Why didn't we invent it that way (recyclable) 20 years ago?' And then what happens is it gets big, and then you've got all this equipment, then it's hard to change everything and stop it."

Most important, Kelley said, a recyclable K-Cup must provide the consumer with the same experience. It can't be more complicated.

Kelley has made the recyclable K-Cup a priority.

"You can't move forward without a firm commitment to make these recyclable and we are," he said.

Keurig is on track to deliver a recyclable K-Cup by 2020, Kelley said, and "if we do it well we'll do it much more in advance of that."

Tara Murphy demonstrated the new cold-drink machine. She pulled the aluminum seal off a Persian Lime Seraphine Seltzer pod, one of Keurig's own brands, and popped it into a machine. The seltzer sells for $4.49 for a four-pack.

"Right now it's drawing ambient water from the reservoir and pulling it into our proprietary chiller, rapidly reducing the temperature of that water, getting it to just above freezing because the secret is carbonation absorbs into water best when water is really cold," Murphy said.

The Keurig Kold made a buzzing sound.

"The second sound means the machine knows the water is cold enough," Murphy continued. "It's prompting the pod to release the carbonation. Now it's perfect. Perfect carbonation, perfect temperature and the right volume has been achieved."

"It's like opening the can," Kelley quips.

Pod alchemy

Tom Novak, Keurig's vice president for research and development and a chemical engineer, is the man who put the magic in the Keurig Kold pods.

They're called "carbonator beads," a manufactured mineral measuring 2 to 4 millimeters in diameter that absorbs beverage-grade carbon dioxide and then releases it when exposed to water.

"It traps the CO2 inside pores like a sponge almost," Novak said. "Water releases it. The process has been studied a lot actually for carbon dioxide sequestration."

The carbonator beads never come in contact with the beverage, Novak said.

Novak's team studied many different ways of putting the gas in the pod before settling on the carbonator beads.

"It was pretty obvious we did not want to use a CO2 cylinder," he said. "Mom doesn't like the kids to have the cylinder around."

Keurig Kold's main competitor, SodaStream, uses a cylinder, one of the reasons Brian Kelley was determined to avoid a cylinder. SodaStream has a partnership with PepsiCo.

Novak developed the Keurig Kold pod with his team at the beverage research and development center in Waterbury. The machine was developed by the appliance experts at Keurig in Burlington, Massachusetts.

Hot and cold

Kevin Hartley, Keurig's chief innovation officer based in Massachusetts, gave Novak his marching orders six years ago for what would become Keurig Kold.

Hartley is constantly taking the pulse of consumers, talking to them in their homes and in what's called "central location testing," where people are gathered together in a room and quizzed. Hartley, a Vermonter who graduated from the University of Vermont, joined Keurig in 2009 to find out why the hot brewer was taking off in homes after first introduced into offices.

Consumers told him convenience and choice, but even though he was there to talk about the hot brewer, Hartley said people kept asking him to do the same thing in cold as Keurig had done in hot.

"This shows not all ideas come from us," Hartley said. "People kept saying, 'I want a cold brewer on the counter with all the famous brands in a pod. I want to push a button and get a perfect carbonated cold beverage in under a minute.'"

"We didn't know how to do any of that."

Hartley sees two sets of initial customers for Keurig Kold: adventurous entertainers and freshness-seeking foodies.

"Adventurous entertainers have people over all the time, and their kids bring all their friends over," Hartley said. "In those homes the host receives love by enabling everyone to have exactly what they want."

Right now Keurig Kold offers Coke products, Dr. Pepper, Fanta Orange and Canada Dry Ginger Ale, craft sodas, iced tea, seltzer and sports drinks. There will be more choices to come, Kelley said.

"Think what that household would have to do to deliver that choice," Hartley said. "You'd have to go to the store, buy 50 or 60 12-packs and have three refrigerators in the basement."

The freshness-seeking foodies are self-explanatory.

"We've had this whole craft movement in beers, wines and cheeses," Hartley said. "Why isn't that happening in cold beverages? Why aren't there craft sodas? Try a new flavor every month. That's the other group that's so excited."

Hartley admits he has no idea what Keurig Kold will do in the marketplace. But he believes the example of the hot brewer is instructive. No Fortune 500 company would have launched the hot brewer, Hartley said, because its "purchase intent" scores — the likelihood that someone being surveyed would buy the product — were so low.

The criticism was similar to that being heard about Keurig Kold.

"Wait, you're going to take a 5-cent cup of coffee and make it 50 cents when Edith and I have been making coffee this way forever with our perfectly good brewer?" Hartley remembered hearing.

Today, 20 million households have Keurig brewers, and Brian Kelley has said publicly he won't be satisfied until 50 million of America's 120 million households are brewing their coffee with K-Cups.

"Consumers do things no one thought they would do," Hartley said.

This story was first published on September 30, 2015. Contact Dan D'Ambrosio at 660-1841 or ddambrosio@freepressmedia.com. Follow him on Twitter at www.twitter.com/DanDambrosioVT.
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