Green Mountain's Desperate Measures

Green Mountain Coffee Roasters (Nasdaq: GMCR  ) is trying all kinds of new avenues to spur growth. When companies try new initiatives, it's usually good news, but in Green Mountain's case, it may simply show desperation.

The latest development in the Green Mountain saga is that Kroger (NYSE: KR  ) will provide store-branded K-Cups that work with Green Mountain's Keurig brewers. However, the news isn't 100% bullish for Green Mountain: Kroger said it may introduce single-serve cups that are compatible with other single-serve brewers.

The word comes on the heels of Starbucks' (Nasdaq: SBUX  ) accelerated plan to sell K-Cups using its own branded coffee in its cafes; they will be available in Starbucks stores tomorrow.

According to Reuters, Green Mountain is also having discussions with pharmaceutical companies about providing additives for its beverages. These could include vitamins, minerals, or other purportedly healthy additions like green-tea extract or antioxidants.

These may sound like heartening developments for the beleaguered stock, but the other side of the story is that some of the patents associated with Green Mountain's K-Cups are set to expire in the fall. Because Green Mountain makes more money on the K-Cups than on its Keurig brewers, this could really hurt its business.

One thing that could also really hurt Green Mountain's business is consumers realizing just how wasteful and environmentally unfriendly those convenient K-Cups are. The K-Cups are difficult to recycle, given their components, and are reportedly stacking up in landfills. Aside from the environmental impacts, local governments aren't pleased, either; solid-waste disposal is a major expense.

Hopefully, Green Mountain will work harder to address this. On its website, it claims it's "actively working to meet the challenge of creating a pack that reduces environmental impact and continues to deliver an extraordinary cup of coffee." Incidentally, the cups for its recently launched Vue brewer are recyclable in facilities where No. 5 plastic is accepted. However, Vue is still a very small part of Green Mountain's business, having launched earlier this year with its original distribution through Bed Bath & Beyond (Nasdaq: BBBY  ) and its own site.

In February, rumor had it Green Mountain was discussing options with Terracycle, which has agreements for environmentally friendly solutions for Kraft's (NYSE: KFT  ) Tassimo system and Mars' Flavia brewers, both of which compete directly with Green Mountain's Keurig.

Even though it trades at just seven times forward earnings, I wouldn't touch Green Mountain shares. The company's current scramble for connections seems like a desperate measure in a shifting competitive landscape, and its environmentally unfriendly K-Cups bug me, considering that the company has always tried to tout its social responsibility.

Meanwhile, let's not forget the recent scandal involving the company's founder and now-former chairman, or the Securities & Exchange Commission's ongoing investigation into its accounting practices.

Despite the stock's downward trajectory from its old nosebleed highs, there are far greener pastures than Green Mountain. What do you think? Comment on Green Mountain's future in the comments box below or add Green Mountain Coffee Roasters to your Watchlist.

Alyce Lomax owns shares of Starbucks. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks, Bed Bath & Beyond, and Green Mountain Coffee Roasters. Motley Fool newsletter services have recommended writing covered calls on Starbucks. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 11, 2012, at 2:27 PM, cbglobal wrote:

    So you are surprised Starbucks is going to sell K-Cups with Starbucks coffee in them? Starbucks only sells Starbucks coffee. If they are going to use K-Cups this is new business for GMCR, not lost business.

    Btw, Starbucks owns Seattle's Best Coffee, so the same there.

    In case you are still confused. McDonalds only sells McDonalds food. You cannot get a Whopper at McDonalds, or a Big Mac at Burger King for that matter.

  • Report this Comment On June 11, 2012, at 2:39 PM, TMFLomax wrote:


    I am aware that the coffee in those K-Cups is Starbucks coffee; I'm not sure where you read that I was "surprised" by that.



  • Report this Comment On June 11, 2012, at 3:47 PM, mapbc wrote:

    Razor & Blade model right?

    They give the handles out for free or next to nothing. They need to drop the cost on the machine itself and continue to reap the earnings from the overpriced coffee.

  • Report this Comment On June 11, 2012, at 4:24 PM, Patrockk wrote:

    Strengthening ties with a company (Starbucks) who has been commended all year for their aggressive expansion should prove huge sooner or later. Most, if not all of this news has already been WELL priced into GMCR's stock over the past months anyhow. Any sign of stability, or especially a positive quarterly report, will generate some great returns on the stock at these valuations. The bearish articles just continue influencing a better bargain every day ;)

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