It's out with the old and in with the new for Green Mountain Coffee Roasters (NASDAQ:GMCR), in more ways than one. As the company ushers in its next generation of Keurig systems, dubbed Keurig 2.0, it's also overhauling its brand and hopes to adopt Keurig as part of its new formal name...Green Mountain Keurig. Shareholders will have the final say in March, but support is widely anticipated.
So for a company that in 2006 was formed by the joining of two separate businesses -- Green Mountain and Keurig -- why is it pushing for this makeover now? And, perhaps more importantly, what will making the brand synonymous with a beverage system (albeit one with multiple SKUs, or stock-keeping units) mean for brand value?
Allen Adamson, managing director at branding firm Landor Associates, cheers Green Mountain's pursuit. "It's a really smart move," Adamson told me. "The brand value is built up in Keurig almost more than Green Mountain in terms of consumer recognition. Between Keurig and Green Mountain, it would be a very close race."
Indeed, it is a horse race and one that either way the company has no intentions of losing.
Let's back up for a moment and examine Green Mountain. It's in the specialty coffee and specialty coffee maker business. Its technology delivers the Keurig beverage system for hot drinks -- coffee, tea, hot cocoa. There are close to three dozen brands, including owned, licensed, partnered, and private label, in the Keurig universe (Keurig K-cup, Keurig Vue, and the cobranded Keurig Rivo).
And Green Mountain has another technology in the pipeline, the Keurig Cold System, which will tap what the company estimates is an even greater opportunity. It suggests that the U.S. cold beverage market is as much as five times larger than the hot beverage market.
Green Mountain's performance in the hot beverage market, however, hasn't been too shabby. In fiscal 2013, sales of portion packs increased 18%, to close to $3.2 billion. Sales of brewers and accessories, meanwhile, increased 9% to about $828 million. Total sales, including other products and royalties, came to about $4.4 billion in fiscal 2013.
It's Keurig, however, that is the star. And in the grander scheme of things, Green Mountain hopes to have "a Keurig brewer on every counter and a beverage for every occasion," not just coffee. Green Mountain assigns a $1.3 billion value to the Keurig brand, but making it a must-have seems like a tall order. In the U.S., 15 million-plus households have a Keurig machine on the countertop, about a 13% penetration rate.
The company places brand awareness for Keurig at more than 80%, which is probably why it's going with Green Mountain Keurig as opposed to Green Mountain Beverages or Vue, for instance. Plus, Keurig 2.0, the next-gen beverage system, is a combination of the technologies from the Keurig and the Vue, so the company clearly recognizes the most brand value in Keurig.
A brand by any other name..
Indeed, equally notable, if not more so, to what's going into Green Mountain's brand is what's being removed...coffee. This isn't to suggest that Green Mountain is moving away from its roots or abandoning the hot beverage, only that it's maturing.
Indeed, as The Williams Capital Group's Senior Consumer Analyst Marc Riddick told me, what's unfolding at Green Mountain is part of the evolution of a brand. "It's actually consistent with the things happening in different ways with other companies," he said. Riddick pointed to the example of Starbucks (NASDAQ:SBUX), where over the decades the brand has evolved. The only thing that has endured in the Starbucks logo is the siren artwork that has been part of the brand since the company's founding in 1971, when it sold coffee beans in a Seattle market. In 2011, the company dropped the word coffee from its logo … featuring only the siren as the brand. Starbucks has been achieving record revenue ever since; $11.7 billion in fiscal 2011, $13.3 billion in fiscal 2012, and $14.9 billion in fiscal 2013.
"Little by little, it happens with companies that are best known for a single product for a while. As they do other things, to some degree, there is a branding opportunity where brand supersedes any one particular product," Riddick explained.
Adamson tends to agree. "You want a brand name to stand for something beyond what you're selling. Otherwise it limits you forever. Coffee is too one-dimensional."
Indeed, Green Mountain officials contend that while fiscal 2014 will be a time of focusing on the fundamentals, fiscal 2015 will be about launching new innovations. "It's one format, (K-Cups), but the brand is actually one that going forward will be getting into other things -- water filtration, carbonation. It will all be under the Keurig umbrella," Riddick said. "The brand going forward must be known by consumers for things other than K-Cups and coffee."
While Green Mountain's name change is all about bigger and better, another company went in the opposite direction. AFC Enterprises last month revealed not only was it changing its name, to Popeyes Louisiana Kitchen (NASDAQ:PLKI), but also its trading symbol.
"Sometimes, the name changes are the exact opposite reason, to tap into a strong brand name and focus on that one business," Riddick said.
Now in this instance, the name change doesn't seem to be as much a rebranding as it does a streamlining for simplicity's sake. The company's two trade names both contained Popeyes, and the company went with the one that was most aligned with its Louisiana heritage.
As motivational speaker Les Brown says, "Shoot for the moon. Even if you miss, you'll land among the stars." In its case, Green Mountain seems to be shooting for the moon. It also appears to be protecting its moat in every way possible.
"I think locking together Green Mountain and Keurig is putting the best story forward, certainly in terms of investors and many employees," said Adamson. "It adds strength to their name … and stature and awareness … and gravitas."
Gerelyn Terzo has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.