October 28, 2013

Brewing Opportunity - Startup's K-cup vending machine offers employers money-saving option

Steve Laschever
Steve Laschever
Paul Striebel and his father Edmund Striebel have developed a K-cup vending machine for small businesses

In 2011 Paul Striebel, procurement manager at the Connecticut Center for Advanced Technology in East Hartford, was given a task that's become rather commonplace at offices around North America.

"The K-cup was becoming so popular that we decided we'd bring a Keurig brewer into our lunch room," Striebel said.

Little did Striebel know that in the process of selecting a vendor to supply the brewing machine and 10 gram, single-serve K-cups to CCAT — which operates a network of startup incubators — that he would formulate an idea for his own company.

While working with the vendor, Striebel found it odd that there were Keurig brewers that accepted coins. In his mind, it made more sense to charge people for using individual K-cups instead.

After doing some research, he found the only other K-cup vending option on the market is the Multi-Max, an electronic machine that accepts credit cards and costs around $1,600.

Striebel saw an opportunity to create a lower cost vending machine for small businesses: the result was Koffee Karousel.

The Karousel is a mechanical, coin-operated machine that stands 33 inches tall, weighs 26 pounds empty and can hold 88 K-cups.

At $449, plus shipping and tax, it costs less than half the price of its closest vending machine competitor.

Interested buyers can select a Karousel that charges up to $1 per K-cup.

Employees who like their free workplace coffee breaks may not be thrilled, but the Karousel could be enticing to employers spending 50 cents or more per K-cup these days, depending on the brand they buy. For a 20-person office in which each worker drinks a cup per day, that can add up to $2,500 a year in K-cups alone, plus the cost of buying or renting the brewing machine.

A Chinese partner

Striebel worked on his design for two years before incorporating his company, KK Manufacturing, in January 2012.

He and his father, Edmund Striebel — a retired Pratt & Whitney engineer and KK's vice president of engineering — based the design off of a reengineered toy egg vending machine.

With prototype in hand, the Striebels traveled to China last year to find a manufacturer for their product. They met with a company that makes toy egg machines with similar components to their Koffee Karousel.

The trip was a success: the manufacturer — who Striebel didn't want to disclose — completed its first batch of Karousel's this month. Striebel wouldn't say how many machines were made, but a number have already been shipped to buyers and distributors in the Northeast.

Striebel said he is working on formal agreements with a number of distributors including Watertown's Crystal Rock — a $71 million, publicly traded company — and JHS Vending in Wolcott, as well as several national office supply companies.

Tom Hayes, vending manager at JHS, said several of his customers recently asked for the $1,600 electronic K-cup vending machines, which are made by San Diego-based Multi-Max.

There was a delay in shipping the units to JHS, Hayes said, so he decided to give KK Manufacturing a try after one of his salesmen saw the Koffee Karousel at a tradeshow.

K-Cups have been a good line of business for JHS, which mainly focuses on food service and vending, Hayes said.

"It's given us another avenue, a higher-end coffee," he said.

K-cups have also been good business for Vermont's Green Mountain Coffee Roasters, which bought the remaining 65 percent of Keurig Inc. in 2006 for $104 million.

Green Mountain sold $2.7 billion worth of K-cups in 2012, up from $1.7 billion in 2011, according to U.S. Securities and Exchange filings. And other companies, including Starbucks and Whole Foods, have started to make K-cups since the patent on them expired last year.

An expensive process

The Koffee Karousel looks simple enough, which is part of its charm.

To select a K-cup flavor, the caffeine craver simply turns a wheel to rotate an eight-slot display containing various K-cups. Once a desired flavor is chosen, the coffee drinker inserts the coins, twists a handle and the K-cup falls into a slot at the bottom.

But a seemingly simple machine still costs plenty of money to develop, Striebel said. He built four iterations of it himself before outsourcing the manufacturing overseas.

Using the Chinese manufacturer made sense, Striebel said, because the firm produced a similarly designed product. China is also considered a lower cost production center.

To help the company get started, the state provided KK Manufacturing $35,000 in grants, which was a huge help, Striebel said.

But the funds went quickly, so he also solicited investments from friends and family and put in his own money. Striebel declined to disclose how much the development process cost.

KK Manufacturing is now generating revenue. Striebel said he expects to be a "healthy six-figure company" in 2014, and thinks there's potential to breach the $1 million sales mark in 2015.

He's going to hire his first sales and customer service employee in the next year — a pledge he made to get the state funding. He hopes there will be more to come.
"We're pretty excited about the future prospects for it," he said.

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