Disruptive Innovation: Anticipating the Effects of the Single Serve Market

By James Hoffmann, Co-Owner of Square Mile Coffee Roasters

Disruptive innovation is often defined as the kind of innovation that creates new markets. Single serve coffee has certainly been such an innovation—and since its creation, it has seen incredible uptake amongst consumers and, in some cases, has seen exponential growth.

What is most interesting— and perhaps most worrying— about this is that another trait of this kind of innovation is that the established market typically underestimates the new technology and fails to react to it. This failure is sometimes a choice, but many times larger companies struggle to compete because of their size and lack of speed. In most cases, the convenience offered by the new technology is enough to drive the market until the technology gets to a point where quality catches up. For example: when cell phones were first introduced to the market, they were incredibly expensive; the call quality was poor, but the phones were convenient. At this point, they were easy to mock and dismiss, but just look at how dramatically this market has changed since then.

Industries often over-value existing quality and under-value convenience, acknowledging the likelihood of improved quality in the future.

With single serve coffee pods, a large part of the specialty coffee community has been dismissive of their impact. We are confident that we can produce a better cup, and seem to underestimate these well-funded companies’ technological ability to close that gap.

Let’s look at espresso specifically for a moment. I will never again have an espresso machine in my house, because I know all too well how much work needs to be done to dial in a grinder, pull a good shot, and clean down properly afterwards. I would rather pay someone else to deal with it, so I head out to a cafe. Single serve pods take away all of those specific reasons for me to leave the house. Hopefully I’m heading to a cafe that can do a better job, more consistently than a capsule, or I am going to the cafe for different reasons. For those retailing coffee and coffee drinks, there is an opportunity to change focus slightly, to leverage our advantages in order to remain successful. If a customer is coming to a cafe simply to buy a cup of coffee, then that cafe is soon going to be in competition with single serve coffee at home—which has the advantage of being much cheaper, most likely more consistent, and potentially of comparable quality. While the focus on coffee quality needs to remain high, the real opportunity here is to focus on the other aspects of why people enjoy the experience of visiting a cafe: the service and the environment.

Looking across at the music industry, the rise of digital media has had a huge impact on physical sales for music. Whether the switch to digital has to do with convenience or piracy isn’t relevant – the fact is that a key source of revenue disappeared for an entire industry.

The result was an increased focus on live music shows, increased attendance at live shows, and increased profitability in that sector of the industry. Music rarely sounds better live, but the experience is compelling and desirable and pretty hard to price.

Currently we run most cafes around the world like a production line. We aim to cycle people in and out as quickly as we can, our own effort to appeal to convenience.

Where we choose to engage, we often aim to educate instead of entertain. Even if done as efficiently as possible, the “in and out” style of cafes means there is rarely time to interact with our customers, reducing us to sound bites that fail to communicate the things we’re most excited about.

To offer a better coffee experience we need more time with our customers. This is going to change the financial mechanics of how we sell coffee; with increased labor costs for each drink and a lower number of sales each day. However, this doesn’t mean that it isn’t possible or potentially profitable.

We need to begin to explore other models around coffee retail, and we can look to various places for motivation. I believe that if a business simply sells a cup of coffee, then the single serve market is going to compete directly with that business, and will most likely win. Coffee can offer a great deal more to the consumer, and we need to showcase this more effectively through diversity in our retail.

James Hoffmann has been in coffee since 2004, starting at Gaggia UK before becoming National Training Manager for La Spaziale UK. In 2007 he left to start his own company with Anette Moldvaer – Square Mile Coffee Roasters – who have been operating since 2008. He was the UK Barista Champion in 2006 & 2007, and the World Barista Champion in 2007. He was also the UK Brewers Cup champion in 2011, the UK Cup Tasting Champion in 2008. He currently divides his time between Square Mile Coffee Roasters and a handful of consultancy projects within the world of coffee and equipment.