What happens when the largest entity in the beverage industry
buys a 10% stake in your company?
In the case of
Green Mountain Coffee Roasters (Nasdaq: GMCR)
, shares of the specialty coffee company jumped 47% in just four
trading days, landing on an all-time above $119.
bought a minority stake in GMCR for $1.2 billion last week. The
deal has major benefits for both sides, and could have
long-lasting implications for shareholders of the two
The benefits for Green Mountain Coffee - the Vermont-based
single-serve brewer headquartered a mere 15 miles from our
offices here at
- are obvious. The 10-year agreement with Coca-Cola gives GMCR a
decade's worth of increased branding and distribution potential.
Everybody knows what Coke is. Not everybody knows the name Green
Mountain Coffee Roasters. Being in business with Coca-Cola for
the next 10 years will probably change that.
For Coca-Cola, buying a stake in Green Mountain Coffee has the
potential to create an entirely new revenue stream. It allows
Coca-Cola to tap into the burgeoning at-home soda-making sector
SodaStream (Nasdaq: SODA)
Green Mountain Coffee made its name through its signature
Keurig brewing machines and K-Cups, which allow users to brew
coffee with ease from a disposable, single-serve plastic
container. Now Coke and GMCR are collaborating on the "Keurig
Cold," a similar system to the K-Cups except using cold Coke
The Deal's Impact on the Beverage Industry
deal with Green Mountain
comes at a time when sales in the soda industry are flat-lining.
Coca-Cola's revenue slipped in the first three quarters of 2013,
and earnings have actually fallen on a per-share basis since
, Coca-Cola's main rival, has experienced similar declines.
Meanwhile, sales at SodaStream have quintupled in the last
three years, while net income has more than tripled. The maker of
do-it-yourself soft drink systems has become mainstream enough to
warrant its own Super Bowl commercial - starring Scarlett
Johansson, no less - a couple weeks ago. SodaStream's sales grew
by 51% last year, though the pace is expected to slow to 29% this
Now Coca-Cola wants a piece of the make-it-yourself market in
the beverage industry. And it doesn't have to risk much to tap
into that market. The $1.2 billion spent in the Green Mountain
Coffee deal is a lot to GMCR, a $17 billion company. But it's
little more than a drop in the bucket for Coca-Cola, which
despite its recent sales plateau reported $6.8 billion in profits
in the first three quarter of 2013 alone.
Coca-Cola will always make boatloads of money. But the number
of Coke drinkers around the world remains fairly steady. By
teaming with Green Mountain Coffee, Coca-Cola can now sell
"Keurig Cold" home brewers to those same people. The average
retail price for a regular Keurig brewer is $120, and Green
Mountain sold a record 5.1 million Keurig machines over the
holidays. That's $612 million in basically one month.
It's doubtful Keurig Cold sales will ever reach that level.
After all, the Keurig brewer is designed to simplify the
coffee-making process for people. You can just buy a can or
bottle of Coke. You don't have to change a filter or pour grounds
or wait a few minutes for it to brew. You simply crack open a can
or twist a bottle cap and drink.
People don't buy do-it-yourself soda brewing systems for the
simplicity, however. They do it for the novelty. Now that the
most recognizable soda brand in the world has entered the
do-it-yourself space, Coca-Cola should be able to steal some of
that novelty away from SodaStream, which only offers generic
Opening up a new avenue of business could help move Coca-Cola
sales out of their current rut. If so, that should give a
nice boost to a stock that has risen less than 3% in the last
Green Mountain Coffee Roasters
, the Coca-Cola deal could completely change the way we think of
the company. Heretofore, GMCR has been almost strictly a brewer
of hot beverages. Breaking into the cold-beverage industry opens
up countless possibilities.
And that means its recent 47% bump may be just the beginning
of a much larger run.
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