Kitchen counters today are well stocked with Keurig one cup coffee makers after they surged in popularity last year. Yet, while some consumers still use the single serve sealed plastic cups that look like a large creamer container, most consumers tired of the expense associated with K-Cups and looked for alternative ways to lower the cost of a cup of coffee. They ran many K-Cups through twice, or they bought a reusable/refillable container and spooned coffee into it then tapped it out in the trash when done – ending the revenue stream for Keurig Green Mountain, Inc. (GMCR) . Of course, this was reflected in the stock price volatility during 2014 and its continued ugly decline in 2015.
Shares in GMCR were a momentum play in 2012, when prices rallied from $15 to near $160, and were the darling of every hedge fund and money manager during an 18-month run. Planted in every office from Google, Inc. (GOOG) to Goldman Sachs Group Inc. (GS) , you could find a variety of K-Cup coffee choices from Cinnabon Classic Cinnamon flavor to Paul Newman’s Special Blend. It was a frenzy of branding and market share grab that was such a fizzling rocket ship that these units now sits in a dusty corner of many offices.
I think the Keurig brand was nothing more than an extension of the Starbucks Corporation (SBUX) café strategy, and never gained adoption by millennials. Nearly everyone gifted these units around the holidays, as the chichi gift de jour, but when the budget needed to be tightened, the K-Cup was the first to go, and go they did - I rode my bike past a Keurig sitting curbside next to an old throw away couch today.
A Stock that Could Use and Espresso Shot
The stock price is another story, and I guess you have to blame current management for not having long-term vision, and actually believing their press clippings about how the consumer would be buying the wide range of product offerings in the K-Cup fantasy for years to come. Many funds rode that horse for a 10 bagger - but many stayed too long – and if they still have GMCR in the portfolio today, they are wearing it like a spilled cup of coffee on a white shirt, with shares are off 46% year to date.
Now, the next logical misstep “Hail Mary” has the company chasing another beverage product line mirroring Sodastream International (SODA) – though I see this as a very stupid move. When I reviewed the current PR, I had to read the quotes from the company a few times to believe my own eyes.
Chief Executive Daniel Birnbaum told Reuters, "The Earth has shifted, and now we are adopting, we're focusing on what the consumer really wants. The consumer wants water. They want a healthy beverage." I’m confused – don’t you guys sell coffee? And didn’t you mean to say “adapting,” not “adopting”? You guys cannot even get your company theme organized enough to keep the message on point.
You see, desperation – as it relates to the company product shift and business plan – changes the company culture. You owned a cash cow so fantastic at one point that you tend to think that anything you try will bring this cash cow back…and it never does. There are many failed companies who litter the road of busted equities, dating back to the buttonwood tree.
Steve Kanaval is the author of the upcoming Equities.com's Small-Cap Throwdown, a premium newsletter designed to help investors identify the best small-cap stocks to add to your portfolio and trading ideas to profit off them. The first issue pits the hottest beverage small-cap stocks against each other to find a winner. Sign-up here for a free issue today!
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