The burned, brownish liquid known as office coffee was to coffee what office politics are to statesmanship. Then, in the early 1990s, a venture capital company named Keurig came up with the single-server K-Cup coffee machine, allowing cubicle dwellers to instantly brew a fresh, hot and individual cup of java. But as Keurig wasn’t in the coffee-roasting business, it sought out partners. Its first licensee was a fledgling outfit in Waterbury, Vermont, that had arisen out of a local café: Green Mountain Coffee Roasters. Coffee, of course, inspires prodigious feats of energy. Green Mountain, whose arabica blends caught on in a big way, began working with and buying into Keurig in 1993 and by 2006 had acquired it completely. At the end of fiscal ’06, Green Mountain’s market capitalization was $300 million; today it is $12 billion.
In May 2007, Lawrence Blanford took over from Green Mountain’s founder, Robert Stiller, as president and CEO. Back when he’d been president of Maytag Corp., Blanford had worked with his old employer, Procter & Gamble Co., to develop a low-sudsing detergent for Maytag’s washing machines. So he grasped right away the importance of combining Keurig’s devices and Green Mountain’s coffee. “Forgive me, because I’m a chemical engineer,” says the University of Cincinnati BS and Xavier University MBA. “But a washing machine is a chemical reactor, and normally you would not design it so that the chemistry is over here and the reactor is over there.” With Keurig, Green Mountain has both the reactor, the K-Cup brewer, and the chemicals — the coffee — in one strategic package, and Blanford has used this formula to brew up stock market magic. When he took over in 2007, Green Mountain’s Nasdaq-listed stock traded at $4.62; at the end of May, after a three-for-one stock split in 2010, the stock was close to $83. Staff Writer Julie Segal recently talked to Blanford, 57, about Green Mountain’s plans to expand beyond coffee and tea.
How did the Keurig single-server turn the coffee world upside down?
Our brewing system is absolutely in sync with today’s consumer. It allows people to enjoy a great cup of fresh-brewed coffee, one cup at a time, from a wide variety of coffees. When you’re brewing by the pot, that first cup is very good. Forty-five minutes later it doesn’t taste quite as good. And if you just have a pot brewing, you really can’t manage more than one variety at a time. And suppose you want a decaf in the evening. You couldn’t do that easily brewing by the pot.
But the single-server method makes coffee more expensive.
That depends on your frame of reference. If you’re brewing coffee by the pot at home, yes, it’s more expensive. But if you’re stopping by one of those coffee shops and paying $1.50 for a cup of coffee versus 55 cents for a portion pack, it’s dramatically less expensive.
Sara Lee, Procter & Gamble and Kraft Foods are also players in the single-server game.
Yeah, here we are, this little company in Vermont, and we’re taking on the giants of consumer packaged goods, right? But at Green Mountain we felt that our value proposition and the brewing system we had developed were stronger than anything else in the market. And with some research and a lot of intuition, we thought the idea could go mainstream. So we married it to a mainstream financial model.
Which was?
The Gillette razor blade model. We keep our machine affordable to encourage adoption, and we make our money on the portion pack [of individual coffee servings]. Having development of the brewing system and the portion pack under the same umbrella as the development of beverages is where the magic gets created. The consumer buys the brewer for great coffee and tea, but once it’s on the countertop, it’s occupying precious space. We’ve found that Keurig owners, who are passionate about their coffee and their systems, are incredibly open to trying new products, whether more coffees and teas or hot cocoas or mochas, or tea and coffee brewed over ice.
Green Mountain puts a lot of emphasis on “sustainability.”
Our Brewing a Better World initiative helps coffee farmers with their agricultural practices but also with first-aid and medical facilities and with schools for their kids. We do a lot there. Also interesting is how we’re using newly developed tools like life-cycle analysis to build sustainability into our products so we have a more sustainable company, country and planet.
Yet your K-Cups don’t seem especially sustainable.
Consumers think landfill, but science says that’s not where the environmental impact occurs. This is true whether you’re talking coffee or toys. The real impact on water quality and air quality and the carbon footprint comes from how packaging materials are produced. Science tells you to reduce the amount of packaging, then select materials with the least environmental impact. Later on you worry about the landfill.
Corporate culture can be more talk than walk. What’s yours?
Green Mountain’s culture has been really helpful because it has empowered our workforce to feel confident and not have to wait to be told what to do. They’re engaged, meaning that they’re included and they can access management. When you’re growing at 60 percent a year, strategy is great, but you’ve got to be able to execute.
You’ve grown through partnerships.
On the brewing side we have several important partners, including Conair, which is Cuisinart; Jarden, which is Mr. Coffee; and Breville. They’re all in the [single-server coffeemaker] game as well as selling their own brands, but have co-branded with Keurig. It’s not unlike Intel Inside. On the beverage side we own a number of brands, but we also have great partnerships with Smucker’s, which now owns Folgers and the Millstone brand; Caribou Coffee; Celestial Seasonings; and Newman’s Own Organics. And we have a new partnership with Dunkin’ Donuts where they’re rolling out Dunkin’ Donuts–branded portion packs in their nearly 70,000 U.S. locations. [Green Mountain recently partnered with Starbucks.]
But partnerships often fail. Why have yours worked?
I come back to the culture. We have been so successful because we always think win-win. That’s critical. Those partnerships are driving our success.
How do you keep growth going?
We’re now focused on other beverages than just coffee and tea. We have been pumping money into R&D both on the brewing and on the beverage side. The pipeline is loaded with things like our recently introduced apple cider, which includes real fruit. We can participate in a number of products in the noncarbonated-beverage aisle at the grocery store.
Such as?
We’ve got a Southern sweet tea. We’ve got Half and Half, which is an Arnold Palmer — half ice tea, half lemonade — all made by brewing over ice. It will be interesting where we sell the new varieties in the grocery. Obviously, increasing the types of beverages available for the consumer who owns the brewer has significant financial benefit for us. Even if a consumer owns the brewer three or four years, it stays fresh because the next new beverage comes along.
What about overseas growth in a world of coffee drinkers?
We have a partnership with Italy’s Lavazza, the world’s second-largest single-serve espresso company behind Nestlé with Nespresso. We’re developing systems together, first for marketing in North America but then perhaps abroad. And Lavazza gives us feet on the ground throughout Europe if we decide to leverage that.
You’ve beaten back some major competitors, like Senseo and Tassimo.
We’ve just kind of sailed through major competitors, major companies. We would have never envisioned that we’d be as successful as we are. I still worry about them, though. They’re large; they have tremendous resources. And as we push into noncarbonated beverages, we’re going up against another category of large competitors. You’ve got Coca-Cola, you’ve got PepsiCo, other big players. We’re not threatening them yet, but we’re just getting started.
What’s your emphasis going to be in the future?
Our primary focus looking forward is new platforms and new beverages. If we keep driving innovation, we’re going to stay in the lead.
