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Green Mountain Coffee Roasters Inc.

Company Background

Green Mountain Coffee Roasters was founded in 1980, when owner Bob Stiller found a great

cup of coffee he enjoyed, and proceeded to buy the Vermont-located shop. The company was

incorporated in 1981, and started its first mail order business in 1986. The company has long

been associated with green and earth-friendly initiatives in its use of energy and product

packaging.

Mission Statement

To create the ultimate coffee experience in every life we touch from tree to cup –

transforming the way the world understands business.

Values and Principles

Ethics – Do the right thing. Integrity is the foundation of all the company’s decisions, actions

and relationships.

Passion for Coffee – From tree to cup. The company roast great coffees and is committed to

ensuring that everyone who encounters Green Mountain coffee has an outstanding coffee

experience.

Sustainability – Pathway to its future. The company uses resources wisely and make

decisions that take into account the well being of people, profit, and the planet.

Communication – Open dialogue. In company’s thriving, healthy organization, it shares

information, ideas, and successes.

Appreciating Differences – Finding opportunity in conflict. The company believes that

opportunity comes from welcoming different opinions and ideas with mutual respect.

Continuous Learning – For today and tomorrow. The company’s competitive strength comes

from the continuous improvement of all that it does. The company actively seek out and

apply best practices.

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Business Success – Financial Strength. The company delivers steady growth in market share,

sales and profit. Financial strength benefits employees, stockholders and communities

worldwide.

Planning & Measuring – To understand and improve. The company focuses on integrated

planning throughout the organization to align its strategies. The company gains insights into

its successes and challenges by measuring and evaluating the results of its actions.

Decision-Making – At the most effective level. The company makes timely, informed,

criteria-based decisions aligned with its business goals. The company’s decisions are made

with personal commitment, ownership and accountability.

Personal Excellence – Strong organizations rely on strong individuals. Therefore, the

company is responsible to do its personal best for its co-workers, and the company. Personal

excellence is built on a high level of skills, knowledge, self-awareness, self-motivation, and

respectful intentions toward all.

Leadership – At every level. The company develops leaders that demonstrate a high level of

competence, generate trust and bring out the best in themselves and those around them.

Partnerships – Success for all. The company collaborates with its partners for mutual benefit.

The company’s relationships are based on respect, honesty, openness, reliability and trust.

Vibrant Workplace – A place where you can make a difference in the world. The company

creates and maintains a culture that fosters teamwork, fun, personal growth, career paths,

financial rewards and a healthy work-life balance.

Shared Ownership – Thinking and acting like owners. The company meets its commitments

and appreciate the contributions of each employee. The company believes that its employees

are stewards of its collective resources. Everyone shares equitably in our successes.

World Benefit – Creating positive change. The company believes that it is a force for good in

the world. It celebrates and supports the power of businesses and individuals to bring about

positive changes, locally and globally.

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PEST Analysis

Political

Taxation policy - high taxation imposed on farmers in those countries producing the coffee

bean will usually mean the company pay a higher price for the coffee they purchase. Any

fluctuations in taxation levels in the industry are almost certainly ultimately passed on to the

consumer.

Deregulation - A decade ago, the USA pulled out of the ICA (international Coffee

Agreement) that set export quotas for producing nations and kept the price of coffee fairly

stable. Coffee quotas and price controls ended. Since the deregulation farmers have suffered

and their earnings have dropped. Many have struggled to make a living so have given up.

International trade regulations/tariffs - Trade issues will affect the company predominantly

when exporting and importing goods. When another country’s government imposes a tariff it

not only results in an efficiency loss for the company but large income transfers can become

Organisation

Political

-Taxation policy

-Deregulation

-International trade

regulations/tariffs

-Government stability

Social

-Decrease spending on non-

essential products

-Increase attention to

environmental friendly

products

-Increase in online sales

Economical

- Global economic crisis

- Exchange rates

Technological

-New technology

developments

-Internet

-Social media

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inconsistent with equity. This extra charge can turn a bargain into a rip-off. Also, since 9/11,

trade relations have been adversely affected between the USA and some other countries.

Government stability – the company should thoroughly investigate the political stability of

any country they plan to export coffee from. Changes in government can lead to changes in

taxation and legislation.

Economical

Global economic crisis – global economic crisis significantly effects businesses all around the

world which may also effect the company’s business in the future. Sluggish recovery in the

economy has been negatively affecting consumer demand for specialist coffee chains and

therefore slowed down their growth.

Exchange rates – exchange rates differences between countries where Green Mountain

Coffee Roasters exports its raw materials and sells its products can affect the company’s

profit level.

Social

Decrease spending on non-essential products - consumers were seen to be curbing their

spending on what was considered non-essential and extravagant by them. Coffee may be seen

as a non-essential product to purchase by some people which may decrease the market value.

Increase attention to environmental friendly products – consumers have significant attention

to environmental friendly products as well as having attention to products that are sourced

ethically.

It has been noticed that coffee drinkers prefer local coffee shops over international chains for

their daily dose of coffee because of the more close and friendly environment in these

boutique coffee shops. Recent times have seen the emergence of superior kinds of artisan

coffees being offered by niche independent companies; this has resulted in more knowledge

about coffee leading to more quality-aware consumers. This has led to even companies who

do not have a strong base in coffees to offer better quality of the brew at competitive rates.

Online sales – online sales are on the rise among the consumers in the world.

Technological

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Technology is one of the most important factors that affect companies operations. In fact, it

plays a role in all aspects of the businesses from supply chain management to controlling and

monitoring and production. For example, new RFID technologies increase efficiency of

supply chain players. Similarly, robots are started to be used in production units and they

increased the speed of manufacturing process as well as increasing the quality of the

products. Therefore, it can be said that investing in those technologies are very important for

gaining competitive advantage. In fact, number of companies is attempting to produce

product like Keurig. This means that company should be focusing on to produce better

product in order to compete with the new technology.

Internet – internet can be used as a channel to sell products internationally.

With the new social media becoming an important part of life, coffee shops can utilise media

networking sites to market themselves. As well as this, they can connect people who interact

over the virtual platform.

Social network sites such as Facebook allow customers “check-in” in coffee shops and

therefore encouraging people to psychically socialise with others with the help of social

media. It is expected that technological advancements will increase appeal of coffee shops for

customers as long as they adapt these developments into their services.

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Industry Analysis

Threat of Entry – High

There are strong barriers to entry created by the strong brand portfolios of major international

corporations in the market. However, low switching costs and low levels of product

differentiation render the hot drinks market and coffee shops sector more attractive to an

increasing number of new entrants (especially the local ones). This reduces the entry barriers

to the coffee shop sector.

Threat of Substitutes –High

Prior analysis showed that consumers started to spend less money in average in coffee shops

in relation to previous years. This could be related to decline in income level or their

confidence to the future. This has adverse effect on specialist coffee shops; customers may

prefer affordable alternatives such as McDonalds. On top of this, there are growing concerns

about the adverse effects of caffeine consumption among consumers as caffeine containing

Degree of Rivalry -High

-Existence of large players like

Starbucks

-Low-priced products

-Increase in the number of artisan

or boutique coffee houses

Threat of Entry -High

-Low switching costs

-Low levels of product

differentiation

-Increasing number of new

entrants

Threat of Substitutes -High

-Decline in income levels of

customers

-Less money spending in coffee

shops

-Concerns about adverse effects of

caffeine consumption

Buyer Power -High

-Low switching cost

-Low product differentiation

-Entry of large food-specialists

such as McDonald’s

Supplier Power -Low

-Suppliers are small and have

limited power against industry

giants

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drinks including coffee cause nervousness, restlessness and over-excitement. These given

facts increase the threat of substitutes for coffee and specialist coffee chains.

Buyer Power – High

Buyer for the offerings of coffee shops consists of individual consumers. Irrespective of the

fragmented nature of the coffee shops sector, existence of international brands mainly

determines purchasing decision of consumers. However, low switching cost and low product

differentiation increase buyer power against the players operating in this sector. In fact, entry

of large food-specialists such as McDonald’s, into this sector increases the bargaining power

of buyers.

Supplier Power – Low

Primary suppliers of coffee shops are coffee growers who are generally small and have

limited power against industry giants as these firms dictate price determination of raw

materials.

Degree of Rivalry – High

Rivalry in the coffee shop sector is high due to the existence of large players like Starbucks.

Entry of non-specialist such as McDonald’s which offer low-priced products intensify the

competition in the industry along with the rapid increase in the number of artisan or boutique

coffee houses.

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SWOT Analysis

Strengths

Strong brand equity in the North American coffee industry: GMCR is one of the

leading companies in the North American specialty coffee industry. The company

sells more than 200 high quality coffee selections and organic coffees in the North

America region under the Green Mountain Coffee Roasters and Newman's Own

Organics brands. The wide range of coffees made by the company caters to varied

customer preferences and makes GMCR the 'one-stop-shop' for customers.

Corporate image built on sustainability initiatives: The company’s sustainability

practices have enhanced its corporate image and consumer perception over the years.

The company has introduced several sustainability measures as part of its corporate

social responsibility program. GMCR allocates 5% of pre-tax profits to support social

and environmental projects every year. Besides, the company is also a participant in

fair trade coffee (fair trade coffees are purchased directly from the growers at a higher

price than standard coffee) and sells fair trade certified coffees under the Newman’s

Own Organics label. Fair trade certified coffee represented approximately 27% of

overall coffee purchased by the company in 2010. In addition to this, the company has

-Strong brand equity

in the North

American coffee

industry

-Corporate image

built on

sustainability

initiatives

-Robust financial

performance

imparts business

sustenance

-Reliance on single

clients for both

supply as well as

distribution

-Acquisitions to

expand the brand

portfolio

-Strategic

agreements to

bolster revenues

-New product

development

realigns product

portfolio with

customer trend and

preferences

-Highly competitive

specialty coffee

market

-SEC probe and

class action

lawsuits could

affect brand image

-Political instability

in coffee growing

regions

Strengths Weaknesses Opportunities Threats

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launched several environment-friendly coffee cups and accessories in association with

International Paper Company.

Robust financial performance imparts business sustenance: GMCR recorded a very

robust financial performance in its key financial metrics (revenue and profitability) in

recent years.

Weaknesses

Reliance on single clients for both supply as well as distribution: GMCR relies on

single players for its supply as well as distribution operations. The company sources

its single-cup brewers from its supplier located in China. The dependence on the

single supplier for the product, which garners largest revenue for the company,

exposes it to supply disruption risks.

Opportunities

Acquisitions to expand the brand portfolio: GMCR has made several significant

acquisitions recently.

Strategic agreements to bolster revenues: The company has entered into a number of

strategic agreements in recent years.

New product development realigns product portfolio with customer trend and

preferences: The company has launched several new products recently.

Threats

Highly competitive specialty coffee market: The company faces intense competition

in its specialty coffee market.

SEC probe and class action lawsuits could affect brand image: In 2010, the company

was under investigation by Securities and Exchange Commission (SEC) for some of

its revenue recognition practices and its relationship with a vendor. Subsequent to the

SEC probe, several class action lawsuits were filed against the company alleging

revenue mismanagement and fraudulent accounting practices. Although, the enquiries

are in the initial phase, however, the probe has reflected negatively on the company’s

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image. Further allegations or adverse judgment of SEC could have material adverse

impact on the company’s business and market share.

Political instability in coffee growing regions: GMCR roasts Arabica coffee beans

from many different regions. Many of these regions, including Africa, Indonesia, and

Central and South America, are prone to political instability, and such instability

could affect the company's ability to purchase coffee from those regions.

Strategy Choice

Porter (1985) argues that a business needs to make two fundamental decisions in establishing

its competitive advantage: (a) whether to compete primarily on price (he says "cost," which

is necessary to sustain competitive prices, but price is what the customer responds to) or to

compete through providing some distinctive points of differentiation that justify higher

prices, and (b) how broad a market target it will aim at (its competitive scope). These two

choices define the following four generic competitive strategies which he argues cover the

fundamental range of choices.

1. Overall Price (Cost) Leadership: appealing to a broad cross-section of the market by

providing products or services at the lowest price.

2. Differentiation: appealing to a broad cross-section of the market through offering

differentiating features that make customers willing to pay premium prices, e.g., superior

technology, quality, prestige, special features, service, convenience.

3. Price (Cost) Focus: a market niche strategy, concentrating on a narrow customer segment

and competing with lowest prices, which, again, requires having lower cost structure than

competitors.

4. Differentiation Focus: a second market niche strategy, concentrating on a narrow customer

segment and competing through differentiating features.

GMCR applies differentiation strategy in the market where it operates. One of the major

determinants of achieving this strategy is mergers and acquisitions.

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Evaluation and Strategic Direction

Green Mountain Coffee Roasters enjoyed a period of rapid growth. This growth was

primarily due to the successful transition of the Keurig single-serve coffee brewing system to

consumers’ homes. Previously, Keurig single-serve coffee brewing system was only targeting

workplace and institutional areas.

The company is using this success to solidify its national presence by acquiring regional

brands. In addition it is focused on leveraging the popularity of its system to build

manufacturing and distribution partnerships with other major national brands, such as

Starbucks and Dunkin’ Donuts. Green Mountain is adapting to seek growth beyond coffee.