Coffee Roaster's Big Success Comes With Growing Pains
05/19/11 5:50PM By Patti Daniels
| MP3 || Download MP3 |
(Host) Green Mountain Coffee Roasters has enjoyed exponential growth over the last few years, including a recent earnings report showed 100 percent growth over last year. The business is driven mostly by its single-serve "K-Cup" brewing system.
But as VPR's Patti Daniels reports, the pace of growth and the K-Cups themselves are not without problems:
(Daniels) There's little question that Green Mountain Coffee Roasters is a success story in the specialty coffee industry. Akshay Jagdale is an equities analyst for KeyBanc Capital Markets:
(Jagdale) "Growth rates that we tend to see in food and beverage businesses are 2-3% on the top line and if we're lucky 10% on the bottom line. So it's safe to say that Green Mountain is clearly one of the fastest growing consumer staple companies there is. And probably one of the fastest growing companies, period."
(Daniels) That growth is riding on the increasing popularity of "K-Cups" -- those small, white plastic cylinders that turn out a fresh cup of coffee from Keurig brewing machines. Keurig is also owned by Green Mountain Coffee Roasters. The brewing system has allowed the company to command 93 percent of the single-serve coffee market in the U-S. But exponential growth can be hard to manage:
(McCreary) "Yeah, that is our biggest challenge."
(Daniels) Scott McCreary is an executive with Green Mountain Coffee Roasters:
(McCreary) "We're doing a lot of focus on what we call organizational readiness. And it's around our business processes, it's around having the infrastructure and people in place to buy enough of the materials, get everything scheduled across these sites, coordinate all the orders from customers, get the shipments taken care of. So it is a tremendous challenge."
(Daniels) And there's been other evidence of growing pains. Last year the company had to restate its earnings, twice, and the SEC opened an inquiry into transfers and sales among its business units.
Equities analyst Akshay Jagdale says the S-E-C inquiry is a concern. But Jagdale has upgraded his rating of Green Mountain stock since the S-E-C inquiry raised questions last year:
(Jagdale) "As we sit here today it's less of an issue because of a few reasons: one, the company's done a better job of now explaining what the issue was in their opinion, and secondly there's been a lot more positive things that have taken place that overshadow these concerns."
(Daniels) The ‘positives' include deals with Starbucks and Dunkin Donuts to get those coffee brands into Green Mountain's K-Cup technology.
But all those little white cups have to go somewhere. And executive Scott McCreary says that trash and recycling problem is one that the company hears a lot about from customers:
(McCreary) "That K-Cup has a unique 7-layer construction that keeps oxygen out, keeps the coffee fresh and makes the whole experience work. But it also makes that plastic non-recyclable."
(Daniels) McCreary says the company is committed to corporate social responsibility, and it's looking at different materials they can use to address the environmental concerns of customers.
Green Mountain Coffee Roasters is estimated to be worth about $10.8 billion.
For VPR News, I'm Patti Daniels.