Continuation from two weeks ago……
Case Study: If you are a big fan of coffee, you should be fairly familiar with Keurig line of coffee machines, K-cups and other accessories. As of this writing Keurig Green Mountain, Inc (GMCR) generates close to $4.5 Billion in sales within this product category alone. Yet, this wasn’t always the case.
Back in 1997, the company was a simple coffee roaster and a distributor with a new product line. Keurig coffee machines and K-cups. At the time the company was struggling with a net annualized revenue base of just $60 Million. Yet, around 1999 Keurig’s new product line started to take off. So much so that between 1999 and 2012 the company was able to grow their sales from just $60 Million a year to over $4 Billion a year. Increasing their stock market valuation by over 49,000% in the process.
If you were passionate about coffee and had a desire to start some sort of a business within the “Coffee Industry” it would have made perfect sense to follow companies such as Keurig Green Mountain (GMCR), Starbucks (SBUX), Dunkin’ Brand Group, Inc (DNKN) and others. By doing so you would be able to educate yourself on a number of industry factors that you might otherwise be unfamiliar with. From how many cups of coffee your average American drinks per day to the struggles of a Guatemalan coffee grower, from the market price of coffee to the energy costs associated with roasting it. Most importantly, you would have been able to determine what the leaders within the industry saw and how they were positioning themselves for future business opportunities.
Now, going back to our fast growing Keurig example. After learning about the industry and the company, you could have had a number of great business ideas and their application towards your passion. For instance, here are just a few ideas off the top of my head…
- Become a low cost producer of K-Cups for Keurig’s machines. A low margin and a high volume business.
- Develop similar machines in the early 2000’s and sell them throughout Europe, Asia or South America. Since Keurig was concentrating on the US market you would not have had any competition.
- You could have approached Keurig directly and have asked to become a distributor of their machines to commercial outlets such as gas stations, convenient stores, coffee shops, etc…. And while Keurig was concentrating on selling directly to consumers and office environments, you could have cornered the market for retail outlets.
- You could have gone to Guatemala and developed a direct relationship with a coffee grower to process, roast, fill K-Cups and ship to the US. Cutting your costs and undercutting your competition in the process.
In fact, you could have done either one or all of the above. And while the ideas above need further refining, this simple process shows you what is possible once you begin studying and analyzing your market. Your thinking will become clearer, your ideas will become better and your execution will be on par with the big guys. Finally, while you will still make mistakes, they will not be as deadly as going into any business without first studying the industry.
Quick Note: Be careful of what you read in various trade publications or magazines. A lot of the time authors do a very poor job putting that information together. Plus, they might not be as well versed in the topic as they should be or they might be more concerned about hyping up certain products. Instead, once you have identified a product or a service, go to the root of the matter. The public companies themselves. Read and study their annual and quarterly reports. Look at the actual sales numbers and see what is selling very well and what is not. Which product lines are growing and which product lines are dying.
To Be Continued Tomorrow…...(Why Am I Seeing This On A Financial Website?)
