Case Study of Keurig Green Mountain
Kerri Green Mountain Christian Adrenal Nick Factorial Miguel Jimenez Anastasia Governing Table of Contents . Introduction II. Industry Economic and Value Chain Analysis A. Company Competitors Value Chain Analysis B.
Firm’s Market Share C. Industry-wide Technological Developments D. . Economic Analysis . Firm’s Business Strategy Financial Analysis of the Firm Ill. Assess Short-term Liquidity Critique of Capital Structure and Long-term Solvency Issues C.
Firm’s Asset Utilization Firm’s Operating Performance E. Meaningful Ratios IV.
Executive Summary Summary Interpretation Z-Score Conclusion Appendix V. Financial Statements Common Size Statements l. Introduction Kerri Green Mountain, previously known as Green Mountain Coffee Roasters, is a coffee company founded in 1981 in Whitfield, Vermont by Robert Stiller, who originally owned a local café©. The coffee’s rich blends and aromatic tastes sparked much local interest and quickly generated a growing demand.
Kerri Green Mountain is publicly traded on the NASDAQ Stock Market under the ticker symbol CACM ($98. 38 as of 4/17/2014).
In 2006 Kerri Green Mountain made a defining decision to acquire Kerri Inc. A company who manufactured single-cup beverages. The K-Cup structure was originally intended for coffee, but has since expanded into several Diverge types Including Trust Julies, tea, Iced tea Ana not conflate.
I Nils growing sector has been beneficial to Kerri Green Mountain because demand is growing and margins are high. Additionally, as the K-Cup System has become the industry standard, Kerri Green Mountain has been able to license the technology to otherwise coffee competitors such as Struck and Dunking’ Donuts.
This technology allows the much smaller Kerri Green Mountain to stay competitive with industry eoliths like Struck and Dunking’ Donuts, even though Kerri Green Mountain has far fewer retail outlets. This purchase would turn out to shape the company in the years to come as the home brewing industry has grown rapidly and exponentially in recent years. Green Mountain Coffee, who originally invested in Kerri in 1996, acquired the remaining 65% of the company they did not already own in 2006 for $160 million.
In its last full year of autonomous leadership, Kerri had a 66% increase in sales for a total of $61 million dollars. The synergy between Kerri and Green Mountain Roasters created a very beneficial relationship for the two companies. As of this writing, Kerri acts as a wholly owned subsidiary of Kerri Green Mountain. A. Company Competitors Kerri Green Mountains Inc. Has several competitors within both the coffee and coffeemaker businesses.
These competitors include, but are not limited to, the following, all listed with their stock ticker symbol. L.
Struck Corporation: SUBS Struck Corporation is an American global coffee company and coffeehouse chain based in Seattle, Washington. Struck is the largest coffeehouse company in the oral with over 20,000 stores in 64 countries. Struck is categorized as one of Usuries largest competitors; however the two companies have worked together concerning the Kerri K-Cup, with the two companies agreeing to licensing contracts for Struck to use the K-Cup System to sell their brand of coffee.
II. Pet’s Coffee & Tea, Inc. : PET Pet’s Coffee and Tea is a San Francisco Bay Area based specialty coffee roaster and retailer.
Pet’s is known for its early introduction of darker roasted Arabica coffee. Additionally, Pet’s is renowned for both their freshly roasted beans and in-store erred coffee.
Pet’s lives in the same high-end, high quality vein of coffee as the Kerri brand and naturally is seen as a competitor for their similar products. Like Kerri, Pet’s has a reputation for community activism and green thinking. Ill. Dunking Brands Group Inc. : DANK Dunking Brands Group Inc.
Is an American global doughnut company and coffeehouse chain based in Canton, Massachusetts.
Although the company is known for their coffee, they also drive a great portion of their revenue from baked good sales, which differs greatly from the Kerri Green Mountain strategy. Dunking does compete against Dunking intensely in the New England market, as both companies were founded and based in the area. B. Value Chain Analysis The Kerri Green Mountain Inc.
Value chain has seven main steps. Step 1. Cultivation Farm management techniques can affect coffee cultivation. Water irrigation isn’t uses oaten In teen coffee cultivation Decease much AT teen water anemia Tort co growing comes from rainfall.
Packaging & Shipping After coffee is harvested, it must be dried, packaged in sacks, and transported. During this stage, energy is sued for drying, storing, and mechanically hulling the fee beans. This stage of the value chain also includes transportation of green coffee beans to facilities. Step 3. Processing Once green coffee beans arrive at facilities, they are roasted and grinded for packaging. There is an established infrastructure to track the energy use of the roasting operations in a new way, providing data that is more useful for managing energy efficiency.
Step 4. Packaging After the coffee is roasted it is packaged. This stage of the value chain includes the physical packaging of the roasted coffee as well as the upstream material requirements for the packaging itself. Step 5. Distribution After packaging, coffee is stored in a warehouse before being distributed. Environmental impacts of this stage include the energy use of warehouses and retails locations as well as fuel to transport the coffee to its destination and to transport consumer to retail locations Step 6.
Consumption/Use Brewing a K-Cup pack require energy and water.
However, when it comes to limiting coffee waste, single-cup brewing may minimize negative value chain impacts. About 12-15% of brewed coffee is thrown away without being served, wasting resources used from cultivation to brewing. Step 7. End of Life Once a K-Cup pack is used, the packaging and grounds must be disposed of. Programs are offered to help customers responsibly dispose of current products.
C. Market Share Kerri Green Mountain Inc. Is classified within two industries – the mammoth consumer goods industry for coffeemakers, and the Processed & Packaged Goods Industry for their coffee products.
Kerri Green Mountain has less than a 1% market share in the consumer goods industry (. 0007%).
Kerri Green Mountain has a much more substantial 7. 7413% market share in the Processed & Packaged Goods Industry. D. Industry-wide Technological Developments In recent years, the primary growth in the coffee industry has come from the specialty coffee category, driven by the wider availability of high quality coffee, the emergence of upscale coffee shops throughout the country, and the general level of consumer appreciation for coffee quality .
The single-cup brewing Kerri-patented technology has been a development in the specialty coffee industry that has provided coffee and tea drinkers with the benefits of convenience, variety and great taste. The Kerri gourmet single cup system is based on three elements: a patented and repository portion-pack system using a specially designed filter, specially designed proprietary high speed packaging lines that manufacture K-Cups at the coffee roasters’ Tactless, Ana t TTY Tort Drawers to precisely control teen amount, temperature and pressure of water to provide a consistent cup of coffee or tea in less than a minute.
Kerri launched its first single cup brewers for the office market in 1998 and partnered with Green Mountain Coffee to manufacture and sell Usuries patented K-Cup portion packs. Consumers can choose from 11 gourmet brands and over 130 varieties of coffees and teas in K-Cups. K-Cups have grown to take up more than a quarter of the U. S. Market for ground coffee.
There are currently around 12. 5 million households with one of Green Mountain’s Kerri brewing machines; analysts expects that to hit 16-17 million by the end of 2013.
As a result of the Kerri partnership, Green Mountain Coffee saw an increase in its own brand by 34% in the 2013 fiscal year and sales of K-Cups as a whole were up 38%, according to data from Nielsen. Currently, the top five K-Cup Brands based on year-on-year unit sales growth Dare: Green Mountain (+29%), Struck (+47%), Folders (+22%), Private Label +471%), and Donuts House (+39%). It is important to note that brands such are Donuts House and Ere are actually owned or sold by Green Mountain, so the company still accounts for a large portion of K-Cup sales.
Partner brands that are not owned by Green Mountain still pay royalties to produce and sell pods bearing different labels (Newsman’s Own).
Additionally, despite the looming dominance of major coffee industry players such as Struck, Green Mountain is responsible for supplying their K-Cups as a result of the Kerri merger, meaning the larger company handles the retailing while the maker of the Kerri machines benefits. E. Economic Analysis Green Mountain Coffee Roasters began in 1981 as a small café© in Whitfield Vermont, roasting and serving coffee. Demand for the coffee grew, with local restaurants and inns asking to be supplied as well.
The company now maintains its headquarters in Waterbury, Vermont where it has a roasting and distribution facility. The coffee industry is worth over $100 billion worldwide, coming in second to oil.
It is a global commodity and one of the world’s most-traded products. Exporting alone is a $20 billion dollar industry and accounts for nearly half of the total net exports from tropical countries. The bean is mostly consumed by industrialized nations while being produced by the world’s underclass and is representative of the economic and agricultural issues facing the latter.
The coffee industry employs millions of people around the world through its growing, processing and trading. Recently, coffee prices have declined from highs of about $2 per pound, and now trade in the range of $1.
15 to $1. 20 on the New York ICE Futures Exchange. Demand for coffee is growing yearly, and supply has generally outpaced demand thus far, but there is question of how much will be available to go around in the long term. Emerging markets like China, India and Brazil bode well for coffee beans; however, major players like Struck risk over-saturating developed economies.
Demand is increasing globally for specialty coffee, but the economic factors of being a coffee farmer are lowering the supply. Such steadily rising demand, combined with limited supply from South American countries, will drive dynamics over the next few years.
Historically low coffee bean prices should reach a bottom and revive investor interest by the end of 2014. Local roasting is certainly an advantage for Kerri Green Mountain as coffee production markets in developing market become over-saturated and pose economic and humanitarian concerns.
In an effort to offset the sometimes- Managing erects AT coffee production, coffee makers Like Kerri Green Mountain champion a fair-trade certification. Under fair trade rules, the coffee importer has a direct relationship with the grower, and pays more to maintain that relationship. Fair trade certification gives farmers a fair price for their beans with a guaranteed minimum, which means they can invest in their crops, their communities, and their future .
Prices fluctuate, but most recently coffee farmers in fair trade cooperatives received $1. 26 per pound for their Arabica coffee, conversely regular coffee prices were around $0. 0 to $0. 90. While fair trade coffee is still a small portion of the market, it is the most popular fair trade commodity in the world. In terms of the single-serve coffee market, the industry is hot and growing.
U. S. Sales of pod-based brewing are systems up 8% at $930 million in 2013, according to The NYPD Group. They have proven to be an important segment in the world of home coffee brewing due to their convenience and simplicity. As previously depicted, Kerri is currently the most successful at capturing this market, however; other coffee companies are also looking into leveraging the category explosive growth.
Nestle S. A. Recently announced the introduction of a single-cup coffee and espresso brewer and more restaurant companies are entering the market with branded portion packs for the grocery channel. Additionally, the establishment of coffee shops has been growing at 7% annually. The single-serve coffee system is certainly something that contributes to the accessibility for the coffee industry.
With the expiration of Green Mountain’s patents on the K-Cup, private label, economy brands, regional roasters and premium players could all have an impact in terms of growing the category as a whole.
However, this growth will be offset by declines in other categories, due to a shift in the way people consume coffee, rather than more consumers drinking coffee. Sales of single-serve home coffee brewing machines like the Kerri Green Mountain K-Cup machine tend to be higher among certain demographics. Owners of such systems tend to be males under 39 with incomes of more than $50,000, most of them with children. F.
Business Strategy The acquisition of Kerri is part of Green Mountain Coffee’s strategy to grow its sales and earnings over the long term.
The company’s objective is “to be the leading specialty coffee company by providing the highest quality coffee and having the largest market share in our targeted markets while maximizing company value. We intend to achieve this objective by differentiating and reinforcing the Green Mountain Coffee brand and engendering a high degree of customer and consumer loyalty. ” Elements of this approach include producing high-quality coffee form the highest quality Arabica beans and use a roasting process that maximizes each offset’s individual taste and aroma as well as an emphasis on customer service and effective distribution.
Kerri Green Mountain seeks to create customers for life through a multi-channel distribution network of wholesale retailers to make their coffee and single-cup Kerri brewers widely and easily available to consumers. The company has an online inventory system for central and regional distribution centers that aims to improve the direct-store-delivery process and capability.
Kerri Green Mountain also champions responsible corporate governance and employee development.
The company seeks to create a highly inclusive and collaborative work environment that encourages employees’ individual growth and personal awareness tongue a culture AT personal accountability Ana continuous learning. Lastly, teen company places most weight on socially responsible business practices. As part of its 2013 Sustainability Report, Kerri Green Mountain announced new 2020 strategic targets, which strive to take the company’s performance to the next level as a leader in sustainability and global corporate citizenship to proactively address the biggest sustainability challenges facing the company as well as the planet.
The three main practice areas in sustainability strategy include: developing a resilient supply chain, creating sustainable products, and nurturing thriving people and communities.
Regarding these targets, Brian Kelley, Kerri Green Mountain’s President and CEO stated, “We believe that transparency and accountability are critical to the partnerships we have with our stakeholders, and we aim to renew emphasis on our strengths while challenging our strategy of integrating sustainability holistically across our organization and even more deeply into our business. ” Ill.
Financial Analysis of the Firm A. Assess Short-Term Liquidity The short-term liquidity ratios of a firm are important in assessing the financial health of a firm. These ratios basically show if a firm can meet its short term debt obligations. These ratios are important because they give a good idea on whether a firm can comfortably continue being in business.
Bad liquidity ratios can signal a firm is in trouble because they are not able to pay off their short term liabilities. In the case of Kerri Green Mountain Inc. , these ratios serve as a strong suit to the firm’s financial position.
The ratios that stand out for Kerri Green Mountain Inc. Re the current and quick ratios. The current ratio compares the current assets to current liabilities, while the quick ratio uses only the most liquid assets, making it a stronger indicator as to whether a firm can pay off its liabilities.
For the year ending in 2013, Surge’s current ratio was at 2. 55. Over the past three years, Usuries current ratio has risen steadily from 2. 08 to 2. 55, indicating the company’s financial condition in the short term is improving. The industry average current ratio is 1.
, showing that Usuries ratio is more than double the industry average. This is very impressive, showing the many is much more stable financially than its competitors. A high current ratio translates into a very high quick ratio for Kerri, at 1. 24. This has also seen a nice steady increase over the past three years from . 72.
The industry average for quick ratio is . 63, so once again Kerri is double the industry average. This shows that Just the most liquid assets of Kerri can be used to completely cover short term liabilities, while the industry can on average only cover about 63%.
B. Capital Structure and Long Term Solvency The capital structure and long term solvency of a company show how a company is enhanced, how much long term risk is associated with the company, and whether a company will be able to cover its long term liabilities. The capital structure of Kerri Green Mountain Coffee Inc.
Is very different than its competitors. The ratios to focus on here are the long term debt to equity ratio, the financial leverage ratio, and the times interest covered ratio. Kerri has a debt to equity ratio of . 09, which is much lower than the industry average of 1. 25.
Usuries debt to equity ratio has declined greatly over teen past tenure years, Implicating teen nave Eden detective In playing TOT long term debt. This is turn leads to a financial leverage ratio of 1. 41, compared to the industry average of 3. 53, and a time interest covered ratio of 53. 03, compared to the industry average of 9.
56. All these ratios show the capital structure of Kerri is more equity based than the industry. This can mean a number of things. This can be seen as a positive sign in that Kerri is much less risky than its competitors by not having a large amount of long term debt they have to pay off.
However, this could also indicate that the industry is being much for aggressive in financing its growth than Kerri is which loud result in higher increases in revenue and income for Usuries competitors. When looking at the percent increases in revenue and net income over the past three years, Kerri has been growing at a faster rate than the industry.
Revenue has grown by an average of 47% over the past three years, while the industry average is only 16%. Usuries three year average increase in net income is 83%, compared to the industry average of 11%.
This shows that Kerri has been able to grow much faster than the industry, while keeping long term debt low and financing this growth with equity. This shows that Kerri is a much less risky company than its competitors, but it is still able to deliver impressive growth results. Another interesting trend with Usuries long term debt is that they have basically paid it all off in the past three years.
They have moved away from financial leverage. They have been able to meet their long term obligations while still increasing net income at a rate greater than their competitors.
This also shows that if Kerri needed to, they have a lot of room to take on more debt if they are looking to expand more. This gives Kerri a huge advantage moving forward, especially in utilizing their acquisition of Kerri in 2006 to expand further. This also gives them an advantage over their competitors, which don’t have as much leeway as Kerri does.
The fact that Kerri has been able to grow faster than the industry while keeping debt levels way below the industry average is very impressive, and indicates the opportunity for growth moving forward. C.
Asset Utilization The asset utilization ratios of a firm assess how well a company uses its assets to generate revenue. This is where Kerri can aim to improve. Compared to its competitors, Kerri has a low receivables turnover ratio and inventory turnover ratio.
Kerri has a receivable turnover of 9. 31, while the industry average is 12. 31. Kerri also has an inventory turnover of 5. 2, which is slightly lower than the industry average of 6.
34. The receivable turnover is also trending downward over the past three years, which is not a good sign showing that the firm is having some trouble turning over their receivables.
The inventory turnover, however, is trending upward over the past three years as it is getting closer to the industry average. This is a good sign going forward, meaning the Kerri is becoming more efficient in eliminating excess inventory. Total Asset turnover is where Kerri has an advantage above its competitors.
Kerri has an asset turnover ratio of 1. 22, which is considerably higher than the industry average of . 88. This shows that Kerri does an excellent Job in turning its assets into revenue.
This is due in large part to their ability to meet short term and long term responsibilities, which shows that Kerri will be a successful firm for years to come. Usuries PEPS is also something to take into consideration.
Its current PEPS is $3. 37, and it has shown a positive increase in five of the previous six quarters. Ill. Executive Summary A. Summary Interpretation Kerri Green Mountain Inc. Has been a very successful company that has seen rapid growth since their big acquisition in 2006.
They have developed a very effective value chain that has delivered great results.
They have many competitors, as the coffee industry is a large one, but they have been able to separate themselves from the industry and have plans to grow even more in the future. Usuries financial are strong across the board, as they are in excellent shape to continue to grow because of their low debt. They have strong liquidity ratios, as well as an excellent capital structure which has allowed them to grow over the past three years while not taking on too much risk. This has also allowed them the option to be aggressive with their growth going forward if they choose to be.
With the company’s strong financial standing, it is no surprise that it has an Alton Z-Score of 10. 07, which is well above the criteria for a financially safe company. This is due in large part to their ability to meet short term and long term responsibilities, which shows that Kerri will be a successful firm for years to come. Usuries PEPS is also something to take into consideration. Its current PEPS is $3. 37, and it has shown a positive increase in five of the previous six quarters.
The most important factor moving forward for Kerri is the growing market for K-
Cups and the fact that every company that makes K-Cups has to have them licensed through Kerri. This gives Kerri a huge advantage moving forward because as the market for K-Cups grows, so will Usuries profits. Based on teen detective value canal In place, teen strong Atlanta standing AT teen company, as well as future of the K-Cup, we have attributed a buy rating to this stock. Although it has grown exponentially over the past few years, we believe that it is in a great position to continue this growth because of all the potential surrounding the company and its products. V. Appendix A.