Green Mountain's Worst K-Cup Yet

Investors reacted positively to Green Mountain Coffee Roasters' (NASDAQ: GMCR  ) K-Cup deal with Unilever's (NYSE: UL  ) venerated Lipton tea brand. The only problem is that it's ridiculous. Since when is making a cup of hot tea the old-fashioned way that hard?

Single-serve coffee makes perfect sense. It's easier to churn out one cup of coffee instead of grinding beans, measuring amounts, and making a whole pot that may go to waste. It's perfect for people who need just one cup to go in the morning, or those whose family's coffee tastes differ; it's a great way to deal with various opinions on, say, hazelnut. For the latter reason, it makes total sense in the office, too.

However, the problem with Green Mountain's Lipton deal is that unless you're talking about the more languid tradition of brewing a pot using loose tea, hot tea has pretty much been a single-serve beverage for ages.

Tea bags have been around for more than a century, with patents showing up around in the early 1900s. Lipton formed thereafter, and sources say Lipton's then-innovative "Flo-Thru" tea bag hit the market in the 1950s.

The real-world truth is that brewing tea in tea bags is already convenient. It simply consists of boiling water and putting a tea bag in a cup of hot water. (Some even reuse the tea bag again, another money-saving attribute you won't get with a K-Cup or other single-serve pod.)

Granted, tea is a new market to explore and expand in the United States. That's certainly why Starbucks (NASDAQ: SBUX  ) recently purchased mall-based upscale tea retailer Teavana to add to its Tazo tea product line. Tea comes in many forms, many artisan and even rare, and boasts health benefits such as antioxidants. It's also not as jitter-inducing as its cousin, coffee.

Last but not least, Green Mountain's K-Cups still aren't easily recyclable. A K-Cup user would have to be a diehard to separate the two parts of the K-Cup that are easily recyclable, plus this action detracts from the convenience they're known for. (Thankfully, Green Mountain's pods for its Vue machine are easily recycled in places that take No. 5 plastic.)

It's kind of nauseating to think of more K-Cups clogging up landfills when the majority of old-school tea bags are mostly biodegradable. A 2010 study showed most tea bags in the U.K. are only 70% to 80% biodegradable, but consumers are still encouraged to compost them, and that's a lot better than used K-Cups' destiny to hang around.

Green Mountain's stock has been on a roller-coaster ride over the past year or so, with many doubting the soundness of its business on many levels. Right now, investors view new licensing deals with consumer giants very positively. After all, heavyweights such as Starbucks are also entering the single-serve coffee market, giving Green Mountain a major run for the money in an area it long dominated.

Still, in the real world, some of these partnerships simply won't do much for Green Mountain despite the fanfare. Getting excited about the growth possibilities related to the Lipton deal is nothing more than a tempest in a teapot.

With Green Mountain at nearly record lows, many investors are wondering whether this is the end of the former market darling or the perfect entry point for an enormous rebound. You can find our recommendation for how to play the company in our new premium research report. In it you'll find everything you need to know about Green Mountain, including whether it's a buy at today's prices. Click here for instant access.


Read/Post Comments (9) | Recommend This Article (2)

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 March 09, 2013, at 10:47 AM, mikelath wrote:

    This article should have been called "Motley Fool's Worst K-Cup article Yet".

  • Report this Comment On March 09, 2013, at 10:56 AM, ralph0865 wrote:

    What a crappy article!!! Don't quit your day job as a dishwasher.

  • Report this Comment On March 09, 2013, at 11:26 AM, moms1955 wrote:

    There is one flaw with this theory.None of the major fast food chains carry tea bags.I was witness to a visitor from the UK begging for a tea bag one day in wendys ,they dont carry them.Also hair salons all have the kuereg system now to offer beverages to their customers. They want to impress and pamper their customers. offering them a tea bag would be seen as cheap and tacky.

  • Report this Comment On March 09, 2013, at 1:13 PM, Commonsense1123 wrote:

    How many people do you think still have a tea pot on their stove? It's another way of reducing another appliance in the kitchen, while providing a consistent beverage.

    What has been missed is the real issue, Unilever / Keurigs international penetration, build on partnerships.

    Common

  • Report this Comment On March 09, 2013, at 1:23 PM, Dodilligence wrote:

    Idiot. Guess what - some people don't drink coffee, yet drink tea! And using a Keurig machine makes a better cup of tea than a tea bag! The Tazo tea from Starbucks is great - but Starbucks is the loser - not GMCR. Lipton will be a top 5 brand within a year. Your short position was a mistake. Man up and stop your stupid spinning.

  • Report this Comment On March 09, 2013, at 1:51 PM, tonysav wrote:

    u realy gotta be kidding. this stock, greenmountain coffee is going to break records and 1 being its own at 71 a share and then some. tea or not it dosnt matter, their new CEO hasnt even got started yet. its gonna be repeating what it did 2,3, years ago.

  • Report this Comment On March 09, 2013, at 7:59 PM, rvn0 wrote:

    True, the article is crappy, but you've got to love the comments. They are spot on!

  • Report this Comment On March 09, 2013, at 11:19 PM, GMCR1971 wrote:

    So, as a GMCR long, and having endured a very bumpy ride over this past year, this is exactly the kind of article that should inspire resentment and a lengthy retort. And yet I can't muster much more than a little pity for this person who was tasked with coming up with an article to persuade people why it was a bad, or at best neutral, development that GMCR added another billion dollar partner to their stable. The last gasp of the short thesis has come to this. And you could feel it all this past week, as there was a last desperate attempt to keep the stock below 50, where it does not like to hang around for very long, one way or the other.

    Funny thing is, I almost agree that the Lipton deal did not justify the run up this past week. It's just the latest indicator in a long line of facts that say this stock was unfairly beaten down and there aren't enough smoke and mirrors left to hold it down. There are still a tremendous number of shares short and the coming scramble to cover is going to be anything but orderly. Let the show begin.

  • Report this Comment On March 11, 2013, at 2:11 PM, rsm7400 wrote:

    This article is so opinionated not backed by anything. Clearly this person is angered by something GMCR did.

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