Green Mountain's Top Dog in US, but How About International S-S Market?

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Green Mountain Coffee Roasters' (NASDAQ: GMCR) stock has just seen a renewed round of red, dropping 28% in the thirteen trading days from September 19 through October 5.

There's been a plethora of articles over the past couple weeks covering the Keurig makers' woes, which include the expiration of two key K-Cup patents in mid-September, the entrance of Starbucks (NASDAQ: SBUX), Wal-Mart (NYSE: WMT), and others into the single-serve market, and the investigation into the company's accounting procedures. 

There's also been a raging debate as to whether the stock is over-sold and attractive at its beaten down level or if it's a value trap with more room to fall. My take two weeks ago at the start of this recent drop was bearish, and I maintain that it is currently a trader's -- not an investor's -- stock. We'll see how it all plays out.

It’s a Big World after all

The purpose of this article is to look at the bigger picture. Those following the single-serve coffee market know it's heating up as one of the main consumer product battlegrounds for the upcoming holiday season and beyond. It's well known that Green Mountain reigns supreme in the U.S., controlling over 75% of the fast-growing single-serve market. However, there's little coverage of the international market, which is larger than the U.S. market, so let's take a look at this topic.  

Overall coffee market – EU's got the jitters, and it's not just because of Greece 

Worldwide sales of coffee reached $70.9 billion last year, a rise of 17.5% according to Euromonitor.

The E.U. consumes almost twice as much coffee as we do in the U.S. Given the E.U.’s population is only about 60% larger – about 503 million to our 314 million – its per capita consumption is higher.

 

Coffee Consumption Total – Top 10 Countries/Unions

Rank

Country

60-Kilogram Bags

% Of World

1

EU-27

44,500,000

31.4%

2

U.S.

23,300,000

16.4%

3

Brazil

20,760,000

14.7%

4

Japan

7,050,000

5%

5

Russia

4,900,000

3.5%

6

Canada

3,600,000

2.5%

7

Ethiopia

3,000,000

2.1%

8

Philippines

2,670,000

1.9%

9

Indonesia

2,540,000

1.8%

10 

Switzerland

 2,300,000

1.6% 

 

World            141,708,000

Source: FAS/USDA


The Scandinavians have to keep warm somehow

How do those Norwegians and Finnish sleep? Starbucks recently announced it will be opening stores in Sweden --  not a surprise, given these rankings.

 

Coffee Consumption Per Capita – Top 10 Countries

Rank

Country

kg/person

1

Finland

12

2

Norway

9.9

3

Denmark

8.7

4

Netherlands

8.4

5

Sweden

8.2

6

Switzerland

7.9

7

Canada

6.5

8

Germany

6.4

9

Italy

5.9

10

Brazil, Greece

5.5

Source: Euromonitor. 1 kg = just over 2.2 lbs.

France, at 5.4 kg, almost made the list. The U.S. average is 4.2.

Single-serve coffee: serving up big double-digit growth

The global single-serve market, including brewers and coffee cups/pods, is reportedly an $8 billion market. Sales of single-serve coffee alone accounted for $5.8 billion, or 8% of all coffee sold, last year. That's a rise of 31.3% from the prior year. Total worldwide sales of coffee hit $70.9 billion last year, a rise of 17.5%.

As the 8% figure indicates, there's still plenty of room for growth in the single-serve market. And, as the chart below shows, there is plenty of opportunity in the European market -- the U.S. accounted for only 12.6% of all single-serve coffee sold last year.

Source: Euromonitor/Reuters

Single-serve players -- Nestle (NASDAQOTH: NSRGY) is heavyweight 

Green Mountain lives up to its name in the U.S., but is more akin to a hill in Europe. Given these are year-end 2011 figures, it could have surpassed Kraft (NASDAQ: KRFT) this year. Nonetheless, you can see there is formidable competition on the world stage. 

Source: Euromonitor/Reuters

Nestle's brewer, the Nespresso, priced from $199 to $699, is an espresso brewer. Espresso is considerably more popular in Europe than it is the U.S.  

Sara Lee discontinued its Senseo in North America as of March 31, except on select websites. It's reportedly working to make the brewer more appealing, especially for young people, to tap the international growth.

Kraft's brewer is the Tassimo, which is priced from $100 to $170. 

Green Mountain's Keurig is priced from $99 to $189, while its Keurig Vue -- which can produce a wider range of beverages -- is priced in the low-mid $200 range.

Lavazza is the Italian coffee roaster that Green Mountain teamed with to develop its espresso brewer, which is due out in select markets later this year. Lavazza recently increased its ownership stake in Green Mountain to 6.8% from 4.99%.  

The new entrants include Starbucks' Verismo, which made a big splash recently when it was released. It has both espresso and regular brew capabilities. The Verismo is priced at $199 for the basic model and $399 for the larger model with more features.

Wal-Mart will soon be entering the market with its Esio single-serve hot and cold drink maker. The Esio, which reportedly will be priced under $200, is scheduled to launch in the majority of U.S. stores this month. This machine sounds similar to Green Mountain's Keurig Vue in that it will have a wide range of beverage capabilities -- juices, lemonade, sports drinks, vitamin waters, and iced or hot coffees and teas. However, it will not have the vast selection of brand-name coffees available as the Keurigs do with their K-Cups. 

Bunn, maker of commercial beverage equipment, is scheduled to launch the very versatile MyCafe MCU this month. This brewer, which will be priced at $159.99, will work with Keurig's K-Cups -- though it is not licensed to do so -- and with any brand of regular ground coffee or with tea bags.

Closing

The fast-growing single-serve coffee market is getting increasingly competitive, both in the U.S. and internationally. Investors or potential investors in these companies should keep up with how things evolve in terms of market share and pricing power. Green Mountain investors or potential investors need to pay particular attention, especially to K-Cup sales and prices, as K-Cups account for over 75% of revenue. Green Mountain does have the widest selection of brand-name coffees and a considerable foothold in the U.S. market. However, it's also the only non-diversified company, so likely least able to survive a price war.


BAMcKenna has no positions in the stocks mentioned above. The Motley Fool owns shares of Starbucks and has the following options: long DEC 2012 $16.00 puts on Green Mountain Coffee Roasters, short DEC 2012 $21.00 calls on Green Mountain Coffee Roasters, and short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Green Mountain Coffee Roasters and Starbucks. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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