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Keurig Green Mountain works to set itself apart from the competition. A brighter future lies ahead for the company and its shareholders.
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The Business Behind Keurig and Where It’s Heading
“Razor-Razorblade model”
• Selling dependent goods for different prices• Primary product sold at a discount (the Keurig
brewing machine)• Dependent good sold at a markup (the K-Cup)
• The K-Cup represented 73% of sales in 2013.
Keurig sales mix
K-Cups become a higher percentage of sales as consumers adopt brewing systems.
Partnerships
More than “35 owned, licensed, partner and private label brands” Photo Source: Q2 2014 Presentation
Declining YOY growth rate
Declining growth spurs plans for new initiatives
Source: Morningstar2013 2012 2011 2010 2009
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Keurig Green Mountain YOY Revenue Growth
Keurig Green Mountain YOY Revenue Growth
New initiatives – Keurig Cold
• Keurig Cold represents the most notable initiative in 2014.
• The company utilizes investment proceeds from beverage giant Coca-Cola to build facilities for making the home carbonation system.
• The market potential for cold exceeds hot by roughly 4 to 5 times.
Experienced management
• Keurig’s CEO, Brian P. Kelley joined the company from Coca-Cola in 2012.
• One of his roles at Coca-Cola was Chief Product Supply Officer.
• A Chief Product Officer oversees innovation, project management, and release management.
• His experience in the role will help guide the company in its new initiatives especially the Cold device.
More profitable than SodaStream
Keurig’s operating margin exceeds SodaStream’s.
Source: Morningstar
2013 2012 2011 2010 20090
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20
Keurig Green Mountain Operating Margin % SodaStream Operating Margin %
More profitable than SodaStream (continued)
• SodaStream incurs freight costs from CO2 cylinder exchanges.
• Keurig Cold will utilize a system without a CO2 tank which means that it can preserve its margin advantage over SodaStream.
• This will give Keurig a convenience advantage over SodaStream.
Market penetration - room for growth
Keurig estimates that only 13% of U.S. households own one of its brewers.
Source: 2013 annual reportPhoto Source : Motley Fool Flickr by Ben Popkins
New initiatives – Keurig Bolt
• Makes 64 ounces of coffee in two minutes
• Foodservice penetration equates to less than 1%.
Photo Source:http://www.keurig.com/bolt
Other new initiatives
• Keurig plans a new water purification system to aid customers in getting potable water.
• International expansion planned for Australia, United Kingdom, Sweden and South Korea Photo Source Q2 2014 Investor Presentation
What now?• Keurig’s Cold device will sport a “one touch
simplicity” that will add a convenience, personalization, and product consistency edge over SodaStream.
• Coca-Cola’s 500 brands should provide the Keurig Cold with many opportunities.
Looking ahead • Look for Coca-Cola to buy Keurig if its cold
system proves successful.• Coca-Cola already made two investments in the
company in 2014.• Keurig’s forward P/E ratio of 30 versus 17 for the
S&P 500 makes it richly valued.• Expect significant volatility that comes with
growth companies.
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