Green Mountain Coffee Roasters' business amounts to more than a hill of beans. The company offers about 200 varieties of coffee, cocoa, and tea, which it sells wholesale to supermarkets, convenience (c-) stores, resorts, and office-delivery services. Its roster of customers has included ExxonMobil c-stores and McDonald's restaurants. The company's coffee is marketed under the Newman's Own Organics, Tully's, and its namesake Green Mountain Coffee labels. In addition, Green Mountain sells the K-Cup single-cup brewing systems for office and home use, made by its subsidiary Keurig. Following a string of acquisitions in 2009, the company bought California's Diedrich Coffee and Canada's Van Houtte in 2010.
The two purchases coupled with alliances and product innovations are part of Green Mountain's aggressive growth strategy. Year-over-year earnings in 2009 and 2010 have soared roughly 135% and 30%, respectively, on an increase in sales of approximately 60% and 70%. Marking a record high, the improvement in 2010 was driven mainly by sales from the Keurig single-cup brewing system, which account for nearly two-thirds of total revenues. Green Mountain in 2011 has continued to build its position in single-serve beverage market by securing licensing deals to sell single-serve pods of Dunkin' Donuts and Starbucks brand coffees and Tazo teas in the US and Canada.
Most recently, the company looked north to Canada to expand its specialty coffee brand business. It purchased Van Houtte in a deal valued at CAD$915 million (roughly a whopping $905 million) from Connecticut-based private equity Littlejohn & Co. Van Houtte has partnered with Green Mountain as a Keurig licensee since 2001, selling Keurig and K-Cup coffee-brewing equipment and gourmet coffee. The move garnered Van Houtte's own brand, and the names Brulerie St. Denis, Les Cafes Orient Express Coffee, and Brulerie Mont Royal, as well as opened up multiple distribution channels to the retail store, restaurant, and online markets. At the time of the deal Green Mountain signaled its intent to sell Van Houtte USA Holdings, the US coffee-service business known as Filterfresh, to reduce redundancies. In fall 2011 Aramark scooped up the office-coffee business from Green Mountain for about $145 million. (Its coffee business operates via subsidiary Aramark Refreshment Services.)
At a price of $35 per share for Diedrich, that acquisition -- valued at some $300 million -- was in part fueled by an intense bidding war sparked in 2009 between Peet's Coffee & Tea and Green Mountain. Peet's Coffee originally offered to acquire the business for $210 million, intending to pair Diedrich's brands and K-Cup production with its rising portfolio of retail and wholesale brands. After a series of sweetened bids, however, Green Mountain took possession of Diedrich, along with Coffee People, and the rights to the Gloria Jean's brand. New additions to its coffee offerings also included development of Brista Prima Coffeehouse, a super-premium product in K-Cups.
Green Mountain initially shifted into expansion mode in 2009. It scooped up the brand and domestic wholesale business of Tully's Coffee for some $40 million. The deal gave Green Mountain a well-known specialty coffee brand name, a 200,000-sq.-ft. coffee roasting plant, and strengthened its presence on the West Coast. Tully's retail coffee shops continue to operate under license and supply agreements with Green Mountain. (Tully's retail and international business remains independent, operating under the name TC Global.)
Among other acquisitions in 2009, Green Mountain's took over the brand and wholesale business of Timothy's Coffees of the World, for approximately $157 million. (Bruegger's Enterprises bought Timothy's retail coffee shops, which numbered about 140.) As part of the deal, Green Mountain gained an entry into Canada, along with a coffee-roasting facility in Toronto, and a contract to supply the shops with coffee for five years.
To help finance its growth, Green Mountain in mid-2010 entered into a stock purchase agreement with Luigi Lavazza. The Italian firm bought about $250 million of newly issued Green Mountain stock, about 7% of Green Mountain's shares, with an option to raise its stake. Concurrently, Lavazza is looking to use Green Mountain's Keurig subsidiary as a platform for challenging Nestle in the high-growth capsule coffee market. Founder and former chairman Robert Stiller retained control of about 15% of the company's stock before May 2012, when he sold shares to meet a margin call at a time when the company's trading policies prohibited such sales. – less