Innovation Will Help This Coffee Company

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Green Mountain Coffee Roasters'  Keurig single-serving coffee maker made it quick and easy to make cups of coffee in the morning. But recently, Green Mountain has shifted its focus toward a different hot liquid in order to stay ahead of its competition.

Soup's up
Green Mountain recently announced that it has partnered with Campbell Soup to make soup K-cups for Keurig machines. The cups will brew chicken broth and come with a packet of vegetables and noodles to mix in with the soup.

Green Mountain has been looking at non-coffee beverages like energy drinks and teas to make Keurig more than just a coffee maker, but this is the first food option that the company has mentioned. According to CEO Brian Kelly, Keurig users already use the machine to add hot water to dried soup mixes and already think of the machines as "soup makers." Research done by Campbell and Green Mountain has also shown that 84% of Keurig users are also Campbell Soup customers, so combining the two might not be a stretch for consumers.


The idea of using Keurig machines to make soup is innovative and shows that Green Mountain is working to stay a step ahead of its competition, but there are questions that accompany this new idea.

First, how will the new soup K-cups be better than just adding hot water to dried soup mixes? Based on the description, the K-cups seem like a slightly more complicated Cup of Noodles. Campbell's soup broth will hopefully taste better than other soup mixes, but if it doesn't the product could be passed-over by consumers.

Another question that came to mind was how will making soup in my Keurig affect the taste of my coffee? Green Mountain answered that question by saying that the single-serve machines are made to cleanse the system through the brewing process. This should ensure that your morning coffee doesn't come with a hint of chicken.

Overall, the move to soup shows Green Mountain's creative, out-of-the-box thinking, which is a good thing. I think that the company has developed a good product with Campbell that adds a function to the Keurig.

Recent performance
Green Mountain's stock has shot up over the last year from a low of $22 to more than $80 a share. In its most recent earnings report, the company saw revenue increase 11% to $967 million, driven by a 14% increase in U.S. sales, which accounts for 85% of the company's business.

Green Mountain focuses on the growth of installed bases (Keurig machines) of at-home brewers, the number of drinks consumed per day by brewers, and portion packs to drive performance. The three drivers have healthy growth rates of 36%, 37%, and 28%, respectively. Green Mountain estimates that the number of installed bases in the U.S. will reach 16 million by the end of 2013. Single-serve packet volumes were up 21% during quarter, driving 18% of the revenue growth.

Recent performance shows that consumers like the convenient coffee system that Green Mountain provides. Moving forward, Green Mountain has introduced the new Bolt brewing system. It will be able to brew entire pots of coffee with the same convenience of the single-serve Keurig machines, which should help Green Mountain penetrate the 65% of coffee lovers that still brew by the pot. I think this is a good innovation that will become a sales-driver in the coming years.

Competition
Green Mountain faces direct competition with Farmer Brothers . Farmer Brothers makes coffee products in addition to other food products, such as gravy, pancake, and biscuit mixes. The company is not profitable and had slower quarterly revenue growth of 4% last quarter.

Farmer Brothers has a gross margin of 38%, which is slightly higher than Green Mountains 37%, but its other ratios such as profit and operating margins are below zero. Overall, I think Green Mountain is a superior company.

Conclusion
The new partnership with Campbell has shown Green Mountain's creativity and potential for innovation. When this is paired with the company's new Bolt system and recent performance, I think the future looks bright for the coffee company. I think Green Mountain is a good investment.

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The article Innovation Will Help This Coffee Company originally appeared on Fool.com.

Ben Popkin has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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