The prospects of Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) are looking up. To secure its future growth, the company is making strategic alliances with big names like Unilever plc (ADR) (NYSE:UL) and Starbucks Corporation (NASDAQ:SBUX). Due to the development of new business channels and potential further penetration, it now looks like the core domestic market has plenty to offer.
Home growth
Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has a built a good brand in the single serve segment. Its Keurig brewing system enjoys a near monopoly in the single cup market with a share of almost 80%. And this comes even after Starbucks Corporation (NASDAQ:SBUX)’ launch of its Verismo brewing systems.
According to the National Coffee Association’s 2013 survey, around 83% of adults drink coffee compared to 78% last year. And so far, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has penetrated just 13% households and that’s with a leading market position. Thus there is a large market opportunity that can be tapped.
New business
Apart from sales to households, the company is considering alternate business channels. It estimates there is a $10 billion wholesale opportunity for hot beverages away from the home. Food service makes up around 74% of this opportunity, while workplace makes up 20%. Travel, leisure, and hospitality account for the remaining 6%.
Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has a presence of 10% in the workplace, less than 5% in travel, and just 1% in the food service space. These figures tell the story of huge opportunities that can be harnessed. In fact, it’s foray into the food services business has already secured a certification from National Sanitation Foundation (NSF) for its K-150 series commercial brewing system.
Significant alliances
No man is an island, and this holds true for companies too. Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has some 32 brands in its system, including Starbucks Corporation (NASDAQ:SBUX) and Unilever plc (ADR) (NYSE:UL) which fueled lots of enthusiasm. These strategic alliances are helping the company leverage opportunities with some of the leading names in the beverage world.
The company’s alliance with Starbucks Corporation (NASDAQ:SBUX) dates back to 2011, but recently it announced an extension of this long term strategic partnership. The new agreement is for a minimum five year period. It covers manufacturing, marketing, distribution, and sale of Starbucks and Tazo-branded flavors for K-cups and Vue packs. Under this agreement, the number of drinks to be distributed and sold would triple.
Despite having its own Verismo machine, Starbucks Corporation (NASDAQ:SBUX) continued support is an unexpected bonus for Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR). The deal is also good for Starbucks, which grew its revenue by 11% to $3.6 billion in its second quarter. The coffee shop giant has also boosted its comparative same store sales by 7%. Many believe the agreement with Green Mountain will provide an additional avenue for growth.
Tea
Green Mountain has struck a deal with Unilever plc (ADR) (NYSE:UL) under which it will provide Lipton hot and iced tea K-cups and Vue packs for Keurig single cup brewing systems in most of North America starting this summer. Unilever dominates the $34 billion world tea market with its Lipton brand, which has an 11.5% market share. In 2012, Lipton beverages generated revenue of over $4.5 billion up 4.6% over previous year. Green Mountain should be able to help Unilever plc (ADR) (NYSE:UL) improve its overall tea business.
Green Mountain has also recently entered into agreements with Dr Pepper Snapple Group Inc. (NYSE:DPS) for selling ice-tea and Tata Global Beverages for selling Eight o’ Clock coffee, Tetley, & Good Earth Tea in K-Cups & Vue packs. Other big brands in Green Mountain’s system include Dunkin’ Donuts and Conagra.
While the deals with Starbucks and Unilever plc (ADR) (NYSE:UL) are for the North American markets, both these alliances can pave the road for Green Mountain’s international expansion. Starbucks operates in over 60 countries across the globe with a growing presence in big emerging markets like China. Meanwhile, Unilever has a presence in 190 countries across the globe with Lipton being one of the oldest brands in its portfolio.
New products
Green Mountain is developing a new machine compatible with both K-cup and Vue Coffee Pods to better compete with Verismo. It has announced a new line of brewers due out by the end of 2014. The company has yet to name this product line and reveal its price point, but its coming. Green Mountain has already expanded its Vue-series by launching V-500 brewers with customizable features at a lower price to improve.
Last word
Green Mountain has quite a few aces up its sleeve. With potential in its home market, big alliances, possibility of international expansion, and new product launches there are many things to look forward to. Although years of skyrocketing profits may be coming to an end, Green Mountain is built for steady and sustainable growth over the coming periods.
Eshna De has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters, Starbucks, and Unilever. The Motley Fool owns shares of Starbucks.
The article Do Not Miss Out on This Stock originally appeared on Fool.com and is written by Eshna De.
Eshna is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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