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Keurig Green Mountain Is Making Coke Look Good

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Green Mountain Commands Most Expensive U.S. Valuation
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One of this year's biggest winners on Wall Street is Keurig Green Mountain (GMCR). The stock was up 65 percent through the first half of 2014, a surprising spike for the leader in single-serve premium coffee, which was starting to see its growth decelerate.

The initial catalyst for Keurig Green Mountain's surge came in February when Coca-Cola (KO) paid $1.25 billion for a 10 percent stake in the company. Coca-Cola paid roughly $75 a share for the stock, and it paid a much higher price for more a couple of months later when it boosted its stake to 16 percent.

It's a significant development when the world's largest beverage company takes such a sizable stake in a niche player, but Coca-Cola's validation of the K-Cup champ has also made that investment more valuable. That initial $1.25 billion purchase is now worth more than $2 billion.

Given the meandering ways of Coca-Cola's own business -- analysts expect to see flat sales growth this year -- riding the coattails of a hot beverage company could be just the ticket to silence those skeptics reminiscing about Coca-Cola's glory years of heady growth.

The Mountain is Always Greener on the Other Side

Coca-Cola's investment isn't the only reason why Keurig Green Mountain has been percolating. Despite losing patent protection for its K-Cup portion packs two years ago, growing numbers of coffee brands and retailers are turning to Keurig Green Mountain to fuel single-serve initiatives.

BJ's Wholesale Club announced last week that it will have Keurig Green Mountain itself handle K-Cup production for BJ's private-label Wellsley brand. Keurig Green Mountain this week it revealed that it's teaming up with European giant Nestle (NSRGY) to introduce the first K-Cup to offer branded coffee and creamer in the same portion pack. Nestle Coffee-mate K-Cups will be available through Keurig's website in the fall and across retail outlets early next year.

Hot and Cold

Nothing trumps fears over expiring patents like the introduction of new technology with proprietary platforms -- and fresh patent protection clocks. Keurig Green Mountain will have two new product lines hitting the market in the coming months.

The Keurig 2.0 brewing system will offer a broader range of customization. It will also allow for pots of coffee to be made with portion packs. Coffee is still what the market associates with Keurig Green Mountain, and Keurig 2.0 is going to generate plenty of attention. Success is critical. Some of the companies turning to Keurig Green Mountain as their K-Cup partner may be doing so to make sure that their brands play nice with the new brewing platform.

At some point in Keurig Green Mountain's fiscal year starting in October, it will introduce Keurig Cold, its first machine to make cold and carbonated beverages on its own. That's possibly the biggest reason for Coca-Cola's investment.

Coca-Cola has already offered the support of its brands for Keurig Cold. Allowing people to make Coke, Diet Coke, Sprite and other pop flavors at home is a gamble for Coca-Cola, but one that's worth making when global sales of traditional canned and bottled carbonated beverages have stalled.

Motley Fool contributor Rick Munarriz owns shares of Keurig Green Mountain. The Motley Fool recommends Coca-Cola and Keurig Green Mountain. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our newsletter services free for 30 days.

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11 Comments

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ezspin42

All that expense and waste for 1 cup of coffee? Admittedly, it's good, but this is an example of why the rest of the world wants to blow us up

July 04 2014 at 12:20 PM Report abuse +2 rate up rate down Reply
Theresa

I love my kuerig and use it several times aday! I was hooked on Green Mountain decaf coffee until I heard that Coke was involved with them , now I believe I will try to find me another brand of coffee! My Keurig machine is how I got myself off of drinking diet sodas, being able to fix a cup of decaf any time day and night with no problem made my habit of drinking diest sodas real easy to break, but I want nothing to do with Coke Cola.

July 03 2014 at 5:41 PM Report abuse rate up rate down Reply
rstedfield

AND, to make matters worse, it is a Coca Cola product? You know, the corporation that is poisoning all of us with high fructose GMO corn syrup. I have been boycotting Coca Cola product, those bastards!

July 03 2014 at 11:30 AM Report abuse rate up rate down Reply
rstedfield

Before buying anything, I have to think about what sort of trash results from my purchase. These things are waste fill cloggers and non degradable PLASTIC. I have a BUNN and love it! First one lasted 10 yrs. Brown unbleached coffee filters and organic coffee = compost for my garden. WIN-WIN.

July 03 2014 at 11:25 AM Report abuse +2 rate up rate down Reply
Barry

I love the Keurig (when it works) every few months it starts to brew 1/2 cups and we run vinegar through it to clear it, after 4 full containers of vinegar it seems to work fine for another few months

July 03 2014 at 10:05 AM Report abuse +1 rate up rate down Reply
1 reply to Barry's comment
freeetob

Are you using filtered water? We filter through our Brita before filling the resavoir.

July 04 2014 at 8:30 PM Report abuse rate up rate down Reply
George

I've had the Keurig B70 programable one cup coffee maker for about 5 years and it finally died. All it does now is wheez and does not program to all seletions, only the large cup size. I have de-scaled it on several occasions but now it's not de-scaleable. Since the warranty has run out, Keurig has offerred me the same brewer at a reduced price. At lest they are concerned about their customers. George.

July 03 2014 at 9:31 AM Report abuse +1 rate up rate down Reply
raidrmik67

I'm on my third Keurig in the past year, they are very unreliable...great idea and I love it when it works but I'd never purchase one, this was given to me as a gift!

July 03 2014 at 6:22 AM Report abuse rate up rate down Reply
2 replies to raidrmik67's comment
Kay

I've had my Keurig for over two years and use it every day, several times a day and I have never had a problem, as several of my friends also. Do you have hard water? /Your water may be the problem.

July 03 2014 at 9:28 AM Report abuse +5 rate up rate down Reply
1 reply to Kay's comment
Mindy

I've had my Keurig for 2.5 years now, too, and I have absolutely NO problems with it whatsoever. I have heard the "key" to having a Keurig that lasts is using bottled or filtered water...not tap water. Also, I use mine only a few times a week. I think I've gotten my money's worth to date. (I hope I didn't hex myself and it stops working now. LOL.)

July 03 2014 at 3:02 PM Report abuse +3 rate up rate down
mt1975

K-cup or Vue? The vues are junk, the older K-cups work considerably better. On the third Vue Keurig coffee pot since Nov 2013, Work bought a commercial k-cup 2 years ago and no problems. No idea on the new k-cups, they look like the vues, so I'm very skeptical.

July 04 2014 at 3:55 AM Report abuse rate up rate down Reply