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.