Company: Formally Green Mountain Coffee Roasters Inc., now Keurig Green Mountain
Industry: Coffee and Tea (at-home, away-from-home, specialty, single serve, etc.)
Green Mountain Coffee Roasters Inc. (GMCR) is a global coffee company that acquired the Keurig brand in 2006. The case study in the textbook, Strategic Management, talks about the history of Keurig in depth. The company actually began in the 90’s and had a very slow beginning (8 years of development, millions invested). Their initial success came with introducing the new single serve brewer to the office coffee service (OCS) market, through office product distributors.
In March of 2014, Green Mountain Coffee Roasters Inc. changed their name to Keurig Green Mountain. The company website discusses the new name change:
“Our new name better reflects who we are as a Company today and captures our aspirations for the future,” said Brian Kelley, Keurig Green Mountain’s President and CEO. “The name Keurig Green Mountain brings together our two strongest brands, Keurig and Green Mountain Coffee, into one single and powerful corporate identity that symbolizes the strength of our business and the unity of our team, while also recognizing our strong heritage.”
The Company’s Canadian subsidiary, formerly GMCR Canada Holding, Inc., also becomes Keurig Canada Inc. effective immediately. The Company’s consumer facing brands, including Keurig® and Green Mountain Coffee® among others, will not change and consumers will continue to be able to purchase the brands they know and love on shelf and online (DuLong & Gosemick, 2014).
Just last month Green Mountain Coffee Roasters Inc. (GMCR) was acquired by JAB Holding Company—with this came a big change: The Company became a private company from a publicly traded company. JAB Holding bought the company out at $92/share (well above market value). In the textbook’s case study, the GMCR president and CEO was Larry Blanford. Brian Kelley was the president and CEO for the past four years.
After, the recent acquisition, the new president and CEO is Robert Gamgort from Pinnacle Foods. This is so new that even their website is not updated with the new leadership information. A recent USA TODAY article talks about the new transition:
The announcement comes several weeks after Keurig closed a deal to be acquired for $13.9 billion by an investment group led by private equity firm JAB Holding Company. JAB appears to be acting swiftly to institute new leadership as it attempts to turn around Keurig’s declining sales, which fell 13% in the fourth quarter ended Sept. 26. Sales of Keurig’s coffee and tea pods fell 9% while brewers and accessories fell 32%.
Gamgort will replace Brian Kelley, who has served as Keurig’s CEO for the past four years. Kelley will become vice chairman of the board. Keurig declined to comment beyond its press release regarding why Kelley was replaced (Malcolm).
Below are the financial results for Keurig Green Mountain for 2015:
- Revenue of $4.5 billion decreased 4% from fiscal 2014
- Company diluted earnings per share (“EPS”) was $3.14 per share in fiscal 2015, as compared to $3.74 per share in fiscal 2014
- Gross margin decreased 300 basis points in fiscal 2015 to $1.6 billion, or 35.6% of net sales, from $1.8 billion, or 38.6% of net sales, in fiscal 2014
- Free cash flow of $344 million in fiscal 2015, compared to $381.6 million in fiscal 2014 (Keurig Green Mountain)
ANALYSIS VIA PORTER’S FIVE FORCES MODEL
The threat of new entrants is moderate because the costs to startup and compete at GMCR’s level is high. However, other company’s brand image and loyalty may be enough to carry them through. The bargaining power of buyers is high because every dollar has a vote; the cost to switch brands is very low—in fact, they may save money!
The bargaining power of suppliers is very high. The Arabica coffee farmers wield a lot of power, as GMCR is dependent upon them; however, they could go to another region and try to find a similar taste, if necessary. If the costs of the green coffee beans or the plastics used to make the brewers go up, the company will really be in a bad position. The case study in the textbook, Strategic Management, discusses the very real need for GMCR to keep their price point low in order to support their expansion into the consumer homes (Dess et al., 2012, p.308).
The threat of substitute products and services is relatively high, because there are already so many coffee companies. The differentiating factor of a Keurig is no technological mystery. Meaning, other companies have already figured out to build one from their own patented designs to compete with the single-serve brewer.
The intensity of rivalry among competitors in the industry is strong; the textbook mentions “Flavia Beverage Systems (manufactured by Mars), the Tassimo beverage system (manufactured and marketed by Kraft), the Senso brewing system (manufactured and marketed by Philips and Sara Lee), and a number of additional single-cup brewing systems and brands. (Dess, 2012, p. C301) Now there’s the new Esio that is far more versatile with reusable “e-packs” and a large variety of beverage options.
Green Mountain Coffee used a combination of an entrepreneurial strategy and competitive advantage. In the case of this company, those two went hand in hand. GMCR acquired Keurig in 2006 and so began their competitive advantage by way of cutting-edge technology and product/industry advancement. GMCR was successful and began to acquire many brands that were strategically placed in the coffee industry and geographically.
GMCR achieved competitive advantage globally by recognized market needs; especially with the help of Keurig’s single-serve brewing system. GMCR strategically placed itself in the hands of very different distribution channels: home, office, retail, and hotel rooms. Now they are entering the cold beverage sector and licensing Coca-Cola to help with that.
The case study in the textbook, Strategic Management, mentioned that now that GMCR has done so well, they are focusing on corporate social responsibility and giving back to the community:
In their 2010 annual report, GMCR stated that their success was supported by their long-standing commitment to social and environmental responsibility (see Exhibit 11). That commitment, combined with GMCR’s entrepreneurial spirit and highly engaged workforce, enhanced their competitive advantage and provided GMCR an “opportunity to create better coffee, and brew a better world” (Dess, 2012, p. C306).
As mentioned in the textbook, the entrepreneurial strategy involves aligning with other leading companies (Dess et al., 2012, p.292). GMCR did this by following in Keurig’s footsteps of striking deals with big names like Starbucks. Now GMCR is doing the same with Coca-Cola for their new “Kold” brewing system. Other companies can do this as well.
GMCR’s technology has been thanks to many engineers all working together with a common goal. The technology and innovation used to make the first Keurig and an entrepreneurial strategy between technologically savvy people and investors—not necessarily coffee connoisseurs. With that being said, I believe GMCR is now in the maturity life cycle stage. They have a large customer base and have the finances to play around with their current product offering to keep things interesting.
Porter’s generic strategies:
- Overall Cost Leadership: GMCR is pricey compared to a lot of coffee products; however, compared to other single-serve products, they are competitive.
- Differentiation: GMCR is now best known for their Keurig system and being a Fair Trade product; this served them well to help stand out from the crowd.
- Focus: As mentioned above, GMCR has a very focused strategy on terms of which distribution channels they use and what businesses they have acquired over the years; however, now they’ve been acquired by JAB Holding Company, so only time will tell what’s in store for the future.
COURSE OF ACTION RECOMMENDED
I recommend Keurig Green Mountain’s new president and CEO, Gamgort, go sit down with JAB Holding Company executives and map out a plan. It’s important to have a clear vision for the future with attainable goals and action steps to take along the way.
The company has been busy buying other companies, creating new technology, and licensing with big names; it’s time they focus on nurturing their company for steady, long-lasting growth. I also recommend that they stop borrowing so many millions and buying every coffee company willing to sell. GMCR needs to focus on building their brand and paying off their debts.
Keurig Green Mountain has a pretty loyal following, mostly thanks to their Fair Trade stamp on the packaging of their coffee products. They also have bright customers with good ideas and useful feedback—put that to work! Improve what you already have: create biodegradable k-cups and continue to add a variety of beverage flavors.
I thought this case study was really interesting. I didn’t know the history of either Keurig or Green Mountain Coffee. I found it interesting how long ago the Keurig was invented and then when it was actually released. (I remember the first time I saw one was at an office and I was intimidated by all the buttons and odd look… After watching someone else use it, I gave it a try and never went back to brewing a full pot!)
I also learned that acquisitions are common and costly! And that acquiring a business is based on more than just expanding product offering; it’s also about location, distribution, and more customers. I would have thought GMCR would be more focused on the coffee bean farms than it sounded, as it is their lively hood. But I suppose that would go for any business that relies heavily on a specific supplier.
Finally, I was interested to find that the company was no longer a publicly traded company. For the first time since 1993, the company is privately owned and operated. This was news to my brother who owned stock in the company. He earned a 13% ROI, thanks to the generous buy-out amount from JAB Holding Company. Did this change affect you? Tell me in the comments below.
Dess, G., Lumpkin, G., & Eisner, A. (2012). Strategic Management (6e). Boston: McGraw-Hill Irwin.
DuLong, S. & Gosemick, M. (2014, March 10). Green Mountain Coffee Roasters, Inc. Changes its Name to Keurig Green Mountain, Inc. Retrieved April 09, 2016, from http://investor.keuriggreenmountain.com/releasedetail.cfm?ReleaseID=831598
Keurig Green Mountain, Inc – Amended Annual Report. (2016, January 19). Retrieved April 09, 2016, from http://investor.keuriggreenmountain.com/secfiling.cfm?filingID=1104659-16-91020
Malcolm, H. (2016, March 23). Pinnacle Foods CEO Robert Gamgort to head Keurig Green Mountain. Retrieved April 09, 2016, from http://www.usatoday.com/story/money/2016/03/23/pinnacle-foods-ceo-leaves-for-keurig-green-mountain/82156668/