A little less than a year ago I reported in on our experience with Green Mountain Coffee Roasters' (Nasdaq: GMCR) Keurig brewer. We were on our third brewer at the time. We're on our sixth now, but we've only paid for one since purchasing our first brewer from the local Costco in late 2010.
In a way, we're famous. Turn to page F-32 and you'll find us among a crowd of K-Cup drinkers responsible for fast-growing warranty reserve on Green Mountain's balance sheet:
| Metric | Fiscal 2011 | Fiscal 2010 |
|---|---|---|
| Keurig division sales | $1,261.5 million | $727.8 million |
| Warranty reserve balance (year end) | $14.728 million | $6.694 million |
| Warranty reserve as a % of division sales | 1.17% | 0.92% |
Sources: SEC filings.
Our experience has been both good and bad.
You already know the bad: The experience of owning a faulty brewer gets tiring and more than a little frustrating. With our fourth, I spent months unclogging the system till every third cup created a blockage. Nothing helped, not even de-scaling -- a deep-cleaning process involving vinegar.
The good? Green Mountain has done everything it should to keep us happy. I'd have given up long ago if Keurig not spent hours helping first diagnose and solve issues and then replacing brewers when it became apparent we'd done all we could to repair what we had.
Yet for all the company's efforts, it's becoming harder to stick with Green Mountain. Making coffee has become too much like a bad Saturday Night Live skit in which I'm in full surgical gear -- defibrillator in hand -- trying to resuscitate the poor Keurig.
Only here, the audience (my wife) isn't laughing. She's grimacing, mad, and wondering when Green Mountain will make a brewer we can rely on. I'm wondering the same thing.
Neither of our frustrations are what matters to investors, though. What does? Partnerships. The Starbucks (Nasdaq: SBUX) deal in which shareholders place so much faith depends on Keurig brewers being a reliable source of K-Cup sales. And I'm sure fellow coffee partner Dunkin Brands (Nasdaq: DNKN) won't hesitate to pull the devices from its shelves if returns become the sort of problem warranty data suggests they are. In each case, failing brewers weaken the company's competitive positioning. Fix the Keurig, Green Mountain, before Starbucks and Dunkin decide they need a more reliable partner.
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