A Bitter Start To 2015 For This Beverage Innovator

 

Keurig Green Mountain Experiences A Bitter Start to 2015

 

As of the market close on May 26, the worst-performing stock in the S&P 500 was none other than Keurig Green Mountain (GMCR).

This probably comes as a surprise to many of you… after all, Keurig’s instant coffee machines are nearly ubiquitous in kitchens and offices across the country.

Plus, Keurig’s stock had been on an epic run since mid-2012, gaining almost 800% by the time it peaked in November 2014.

Since then, though, things have gone south for the Vermont-based beverage company. In just six short months, the stock has cratered over 41%.

What happened?

First, there was the Keurig 2.0 debacle. You could say Keurig got greedy – or was afraid of the competition. Either way, the company decided that its new machine should only accept K-Cups licensed by Keurig itself.

A light sensor, installed in the Keurig 2.0 machines, would read a proprietary ink stamp on all Keurig K-Cups, thus ensuring that no outside brands could be brewed. Unfortunately, this change also rendered old K-Cups and refillable K-Cups useless.

Both consumers and competitors alike were displeased. Rival Treehouse Foods (THS) even sought legal recourse, citing anti-competitive practices.

Worse yet, Treehouse reverse engineered the ink stamps in just a few months, and it created its own coffee pod that would work with the Keurig 2.0. More recently, consumers discovered that a simple piece of tape, placed on top of the light sensor, could defeat Keurig’s licensing scheme.

A few weeks ago, Keurig CEO Brian Kelley offered something of an apology. He admitted that the company was wrong to incorporate licensed K-Cup technology into its 2.0 machine, but the damage has already been done.

Meanwhile, investors are also nervous about Keurig’s plan to expand into the cold beverage market. The Keurig Kold, a joint venture between Keurig and Coca-Cola (KO), will make soft drinks in addition to cold coffee and tea.

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Comments

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Haniya Ahmad 4 years ago Member's comment
Will make soft drinks in addition to cold coffee and tea.
Cynthia Decker 4 years ago Member's comment

Would have to agree with the article. Especially in the case of Sodastream ($SODA). I'm bearish.

Dan Jackson 4 years ago Member's comment

Great article, offering some insight into this overly inflated stock. Much more downside ahead.