Continuation of part 2…..As soon as you look at the data above, one thing becomes evident. Keurig Green Mountain fundamental growth over the last 15 years has been nearly as impressive as its stock price growth. During this period of time revenue grew by 6,823%, earnings per share increased by 23,757%, book value grew by 28,785% and shareholders equity jumped by 22,464%. More than justifying the rise in the stock price.
The question is, what had happened on the fundamental level to push the company to grow at such a fast pace?
Well, before the $4.5 Billion in sales, before all of the partnerships, before Keurig brewing system and single portion cups of coffee, Green Mountain Coffee Rosters began operations in 1981 as a small Cafe in Waitsfield, Vermont. By simply roasting and serving coffee. As demand grew, the company expanded its roasting and wholesale operation to attract larger customers.
Over the next decade the company grew large enough to do an IPO by 1993. By 1999, Green Mountain was roasting over 25 high-quality Arabica coffees in order to produce over 60 varieties of coffee which it was selling through a network of wholesale and direct mail partners. All 6,000 of them. During the fiscal 1999, 1998 and 1997, approximately 95%, 94% and 93%, respectively, of Green Mountain’s sales from continuing operations were derived from its wholesale operation in the northeastern United States. All in all, by 1999, Green Mountain was just another local roaster and a wholesale distributor.
Yet, something incredible was brewing.
In 1996, Green Mountain invested in Keurig Inc, buying a 35% interest in the company. Keurig, the maker of a single cup brewing system started selling its first brewer, the B2000 in 1998. While Keurig initially concentrated on the office use of its products, it later added a number of popular consumer models. By 2003, there were more than 40,000 commercial Keurig brewers in American offices. In 2003 Green Mountain increased its Keurig ownership to 43% and in 2006 the company decided for acquire the rest of Keurig for $160 Million.
Going back to 1998, Green Mountain began supplying Keurig with 12 coffee varieties in K-Cup portion packs designed for the Keurig Premium Coffee System. And while the companies did not have an exclusive deal, it could be very well ascertained that Keurig would use Green Mountain as its primary coffee or K-Cup supplier (because of the 35% Green Mountains stake in Keurig at the time).
Even thought the company was sitting on a major growth engine in 1998-1999, the company’s annual report at the time does not indicate that neither the management (nor the stock market) has yet realized the opportunity that was right in front of them. In fact, the management continued to concentrate about 95% of their attention on growing their wholesale distribution business and increasing their market share.
1999 Annual Report: Green Mountain Coffee is focused on building the brand and profitably growing its business. At present, management believes that it can continue to grow sales internally over the next few years at a rate similar to its historical five-year average growth rate (in the range of 25 to 30 percent).
What they didn’t realize is that…..to be continued tomorrow.
