Keurig Green Mountain back in the spotlight

by Keith Nunes
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Keurig in the spotlight
In 2017, Keurig Green Mountain generated $4,135 million in sales.
 

BURLINGTON, MASS. — In March 2016, JAB Holding Co., Luxembourg City, Luxembourg, completed its $13.9 billion acquisition of Keurig Green Mountain, Inc. With the transaction completed, the single-serve coffee company’s stock ceased to be traded, and it became a private company. For two years, information about its operations and performance was limited.

With the Jan. 29 announcement the company is merging with Dr Pepper Snapple Group, Inc., Keurig Green Mountain is back and more focused than ever, according to management.

Bob Gamgort, Keurig Green Mountain
Robert Gamgort, c.e.o. of Keurig Green Mountain

“ … Under private ownership, we have transformed the company, positioning it for growth and profitability,” said Robert J. Gamgort, chief executive officer, Jan. 29 during a conference call to discuss the merger with Dr Pepper Snapple. “We now have a focused business model dedicated to growing household penetration for single-serve coffee in North America.

“We have attracted and continue to attract valuable brand partners through an open, consumer-friendly system and unmatched value and services for our partners. We have been able to offer that value to our partners and have increased our investment in marketing and innovation by driving significant productivity in our supply chain specifically and organization more generally.

“Our focus on cash management, combined with our decision to move away from nonstrategic projects, has enabled us to delever rapidly. These deliberate actions have allowed us to build on the core strengths of the Keurig system. Keurig is the driver of growth in the retail coffee category, generating nearly all of the category's dollar growth over the past seven years.”

Keurig Green Mountain Coffee K-Cup pods
Keurig's single-serve pod sales rose 3% in 2017 to 11.3 billion.
 

In 2017, Keurig Green Mountain generated $4,135 million in sales, a 3% decline compared with 2015, when the company had sales of $4,392 million. While sales fell during the two-year period, operating income rose 14% to $1,068 million.

Single-serve pod sales, a measure of performance for the company, rose 3% in 2017 to 11.3 billion compared with 10.5 billion pods sold in 2015.

“… We’ve implemented a strategic and cost reset, driving significant efficiencies throughout our business and reinvesting those savings into strategic pod pricing, to retain and add brand partners, and offer a competitive pod price to consumers to incentivize more of them to adopt the Keurig system,” Mr. Gamgort said. “Our strategy is working. We’ve added new partners to the system and have extended existing partner agreements through competitive pricing, innovation and value-added services.

Keurig e-commerce
Keurig is building out its e-commerce business.
 

“Reflective of the pricing strategy, volume is up, though net sales are down. But most importantly, that pricing has been covered by a comprehensive efficiency program that has expanded margin by 710 basis points over the past two years. The improvement in margin combined with outstanding cash management practices have enabled rapid deleveraging, paying down nearly $2.5 billion in debt and reducing leverage from 5.5x to 2.7x.” 

During the past two years the company also has reinvigorated its innovation pipeline. Keurig Green Mountain introduced its first new brewer last year, and the company is now on pace to deliver new innovation every six months, Mr. Gamgort said.

“… Brewer household penetration is the engine of growth in the Keurig business model, and brewer innovation is the fuel that makes that engine run faster,” he said.

Keurig pull quote
 

Future innovation on tap includes recyclable pods and Wi-Fi connected brewers.

“We have positioned ourselves well for future growth by building a substantial e-commerce business, not only through keurig.com, but also through Amazon, Jet and a wide variety of retailer dot-com sites,” Mr. Gamgort said. “We've launched 15,000 Wi-Fi connected brewers that are providing the first-ever point-of-consumption data in C.P.G. for the exclusive use of our partners. And this experience is paving the way for a future in which a significant number of Keurig brewers will offer IoT (internet-of-things) connectivity to consumers.”
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