Green Mountain Coffee, Inc.

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Green Mountain Coffee, Inc.

33 Coffee Lane
Waterbury, Vermont 05676–1529
U.S.A.
Telephone: (802) 244-5436
Toll Free: (800) 545-2326
Fax: (802) 244-5436
Web site: http://www.GreenMountainCoffee.com

Public Company
Incorporated: 1981 as Green Mountain Coffee Roasters, Inc.
Employees: 400
Sales: $55.8 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: GMCR
NAIC: 31192 Coffee and Tea Manufacturing

Green Mountain Coffee, Inc. is the holding company for a rapidly growing roaster of specialty coffee. Green Mountain Coffee Roasters, Inc.’s 5,000 wholesale customers—grocery stores, conveniences stores, restaurants, and places of work—are located mostly in the Northeast, but sales territories extend to Arizona and Florida. Based in Vermont, the company has aimed to expand internationally, to England, Turkey, Canada, the Caribbean, and the Pacific Rim. It also has invested in an online store, while closing or selling its retail stores in 1998.

Hazy Origins

The prehistory of Green Mountain Coffee, Inc. is shrouded in smoke—marijuana smoke. In 1971 company founder Robert Stiller had helped launch E-Z Wider, a maker of rolling papers. E-Z Wider offered smokers wider papers, so they did not have to lick and splice two papers together to make bigger joints. As the high flying days of the 1970s came to a close, Stiller and his partner Burton Rubin sold the company to English tobacconeer Rizla for $6.2 million.

Then, one day while lounging at a Vermont ski resort, Stiller found a cup of coffee so good that he bought the company. At the time, Green Mountain was a small specialty store, begun in 1981, that sold to the public and a few restaurants. Stiller bought out the owners, prospective snowbirds, for $200,000. The couple went to Florida to start another coffee business.

The specialty coffee industry had been growing at a seven to ten percent clip a year since the late 1960s. Still, Stiller discovered that competition was keener in coffee than in cigarette papers. Green Mountain floundered for four years, competing at the highest end of the market: prized arabica beans (versus the lower quality robusta variety). Although he turned a profit on retail sales, Stiller had a hard time convincing restaurants to pay premium prices. Eventually, however, his company’s coffee would be served at some of the Northeast’s finest restaurants.

Free samples, distributed through such charitable organizations as the Kiwanis club, helped spark demand. The company was making money by 1985. Advertising in gourmet magazines helped build a mail order business. Promotions continued with high-end products like Muesli cereal.

Stiller convinced a doubtful convenience store owner to let him sell coffee there, competing with Dunkin’ Donuts across the street. Attention to details not only kept the sales flowing, it increased traffic to the gas station. Stiller took this to the next level, placing Green Mountain coffee in Mobil Corporation’s 1,000 stores nationwide. Green Mountain similarly segued an opportunity to sell cups of fresh coffee at a supermarket chain into shelf placement.

Getting Earthy in 1989

In 1989 Green Mountain Coffee Roasters formed an environmental committee to steer it on conservation issues. The company cut its refuse in half through a recycling program and switched to oxygen-whitened filters, deemed less hazardous than standard bleached filters. It began selling these Green Mountain Earth Friendly Filters to the public soon after. In 1990 Green Mountain introduced Rain Forest Nut flavored coffee to sponsor the cause of rain forest preservation. It divvied ten percent of net profits between Conservation International and The Rainforest Alliance.

Stiller focused on streamlining operations and applying contemporary principles of quality manufacturing. He invested in a $30,000 computerized roaster at the company’s store in Winooski, Vermont. The company began a database management program to keep beans moving in clients’ stores. In the fiscal year 1991, Green Mountain boasted seven retail outlets, plus a thousand wholesale clients. Sales were $11 million, producing profits of $200,000.

Going Public in 1993

Serving 2,400 wholesale accounts, Green Mountain had sales of about $10 million in 1993. The holding company Green Mountain Coffee, Inc. was formed and an initial public offering was completed in September. Green Mountain opened its ninth store, in Waterbury, Vermont, in December. It was selling 80 varieties of coffee, roasting 25 different types of arabica beans.

A link-up with a large New England food service distributor helped solidify Green Mountain’s position among restaurants and institutions. Jordan’s Food Corporation, based in Maine, reported that it had been fielding customer requests for the brand. Wholesale continued to account for most of Green Mountain’s business, although its retail chain then operated in Vermont, New Hampshire, Maine, Connecticut, and upstate New York.

Green Mountain continued to tout its environmental consciousness. In 1994 it joined the national Buy Recycled! Alliance. Aside from using paper with recycled content for its letterhead and invoices, the company reduced its roasting emissions. Its Stewardship line of coffee declaimed “respect for the land and workers.” These beans came from specially inspected farms in Mexico, Hawaii, Peru, Guatemala, and Sumatra. Locally, the company sponsored “Dr. Trash,” who lectured children about environmental responsibility. (Another interesting mascot was “The Green Mountain Coffee Buster,” who became something of a celebrity for serving rush hour Boston commuters five-second cups of coffee.) The company also gave away its bean chaff and burlap bags to gardeners.

Social causes were supported as well. Apart from standard charities like the United Way, the Salvation Army, and the Red Cross, Coffee Kids Conservation International worked to improve living conditions for children in coffee-producing areas. Customers were invited to contribute through coin drops and the sale of gift boxes.

Exporting in 1994

Green Mountain began exporting to Canada and Taiwan in 1994. This brought in revenues of $80,000 the first year. Frosts in Brazil, where Green Mountain did not buy coffee, sent the worldwide price of coffee up, prompting the company to raise its own prices by 30 percent. Sales for 1994 were about $22 million; the company lost nearly $3 million. The next year produced an income of $179,000 on sales of $34 million.

Green Mountain Coffee Roasters became the launch customer for sophisticated, Window-based roasting control software developed by Praxis Werke, Inc. in New Jersey. In addition to providing unprecedented consistency, the software also promised reduced costs and greater safety.

In 1996 Green Mountain sponsored a study of the comparative economic benefits of traditional shaded coffee growing systems with full-sun systems. Traditionally, coffee plants were raised in the shade of trees. New sun-resistant hybrids offered higher yields but were more reliant on synthetic pesticides and fertilizers.

The company announced an assault on national supermarket chains in June 1996. By the end of the year, its retail stores had increased to 12, in Vermont, Connecticut, Illinois, Maine, Massachusetts, New Hampshire, and New York. Its wholesale clients by then included Weight Watchers International and the L.L. Bean Catalog.

Business Express was one of the first airlines to offer Green Mountain coffee. By October 1996, Green Mountain Coffee was also being served on more than a hundred Delta Express flights per day. Enthusiastic Delta Shuttle customers helped Green Mountain land the Delta Express contract. The next month, Amtrack added the brew, putting it in the cups of even more commuters. While two million passengers flew Delta Express each year, eleven million rode Amtrack’s Northeast trains. Midway Airlines added Green Mountain Coffee in 1997. The carrier’s reputation for customer satisfaction enhanced the roaster’s own reputation.

Green Mountain started 1997 in a big way. It signed up as exclusive supplier to The Coffee Station, Inc. The retailer had only been in business since 1994 but already operated the largest specialty coffee stores in the United States: its two locations in New York’s World Trade Center served more than 7,500 customers a day. The Coffee Store operated 25 other locations in downtown areas in Los Angeles, Atlanta, Charlotte, and Seattle. The agreement brought the Green Mountain brand to one million consumers.

Company Perspectives:

In the beautiful mountains of Vermont, where time is measured more by the change in seasons than the tick of a clock, and where a faster way of doing things is not always a better way, you’ll find the home of Green Mountain Coffee Roasters. At Green Mountain Coffee, we are dedicated to providing the richest aroma and flavor, for the highest quality coffee experience. We travel the globe to purchase the finest coffees, small batch roast them to peak flavor, and vacuum package them fresh for your enjoyment. We take our time… and taking our time has its own reward… perfect coffee.

NASDAQ in 1997

In March 1997, Green Mountain’s shares began trading on the Nasdaq National Market System, instead of the SmallCap Market System and the Boston Stock Exchange. Green Mountain’s 1996 income qualified it for the listing. The company earned $1.26 million on revenues of $38.35 million for the fiscal year ending September 28. Sales had increased 145 percent during the three previous years.

In 1997 the growing company licensed PeopleSoft software for manufacturing and accounting applications. The cost of implementing the new system was reported as about $1.5 million. A year later, Green Mountain reported good results. The company’s IT personnel praised the new efficiency it brought to communicating with suppliers and distribution centers. Bar coding and online inventory tracking were two key features speeding the process. Electronic data interchange (ETI) also was becoming a prerequisite for doing business with large customers such as grocery chains.

Green Mountain struck a deal with office supplies discounter Staples Inc. in May 1997. This put the coffee in 600 office superstores throughout North America and in the Staples mail order catalog and marked a major step into penetrating the office coffee market. The company revamped its packaging, beckoning patrons to “Sip and relax— you’re on Green Mountain time.”

In September 1997, Green Mountain made another significant move into the office market by teaming with Poland Spring Natural Spring Water Co. (a subsidiary of the Perrier Group of America). Poland Spring’s existing distribution network brought Green Mountain Coffee to thousands of offices in the Northeast. In the first year of the five-year agreement, Green Mountain expected to ship more than one million pounds of coffee through this channel. Coffee and bottled water were the fastest growing categories in the beverage industry. Although a regional brand, Poland Spring sold more bottled water than anyone else in the country. Poland Spring’s sales were $248 million in 1996.

Exiting Retail in 1998

According to Stiller, Green Mountain remained passionate about its social and environmental responsibilities. In April 1998, as one of its Earth Day tie-ins, the company introduced “bird-friendly” coffees grown without synthetic fertilizers or pesticides. It expanded its support of its Coffee Kids micro-lending projects in Mexico.

With wholesale trade booming, Green Mountain announced plans to leave retail entirely in May 1998. The company kept its mail order business operational, devoting energy to its new consumer online business, which, although it accounted for only a fraction of sales, was deemed promising because of the unprecedented convenience it offered customers. Sales through www.GreenMountainCoffee.com increased fivefold within four months of the introduction of secure online ordering in 1998. Green Mountain aimed to have 30 percent of its 5,000 resellers order online by 2000. The company promoted the site on www.CNN.com.

Green Mountain distributed its first corporate gifts catalog in the fall of 1998. Businesses had long turned to the company to remember their clients, vendors, and friends at the holidays. The catalog offered volume discounts on gift baskets, mugs, and Vermont products. It also introduced filtered hospitality packs for in-room coffee service at hotels. The company continued to use brewed cups as a tool to introduce itself to new customers.

The American Skiing Company picked Green Mountain coffee for its resorts in November 1998. The group operated nine resorts that had more than five million visits per year; the coffee was to be served at its six eastern resorts during the first winter of the five-year contract. Maine-based American Skiing was the largest alpine ski, snowboard, and golf resorts operator in the United States. It had previously served Starbucks coffee.

In late 1998, Mobil Corporation’s On the Run shops became the first national convenience store chain to offer certified organic coffee. To match the pace of hurried shoppers, espresso-based drinks were not offered, only brewed, to-go cups of coffee. In addition, since most households did not own coffee grinders, whole beans were not sold either. The program brought Green Mountain certified organic coffee to 283 stores in the United States and more than 300 abroad.

International Expansion in 1999

About 70 percent of coffee was purchased in supermarkets, making this segment a key priority for future growth, as Stiller reported to shareholders in 1999. In the previous year, Green Mountain had been able to expand its supermarket distribution from 180 to more than 500 stores. Stop & Shop and Shaws were two chains that had added Green Mountain coffee.

Another area for growth was the overseas market, particularly Great Britain. Green Mountain teamed with the Scottish company Banana Brothers to open outlets offering juice, soup, and coffee. The first debuted in Glasgow in September 1999. An additional 12 outlets were planned. It was hoped the soup and juice offerings would encourage customers to linger in the stores. Green Mountain also was developing mobile coffee bars for shopping centers and examining acquisition targets. Exports were worth about $500,000 a year at the time.

In September 1998, Green Mountain had begun buying back about $500,000 of its shares, feeling they were undervalued. In the five years prior, the company averaged a growth rate of 30 percent a year, with international sales nearly doubling.

Principal Subsidiaries

Green Mountain Coffee Roasters, Inc.

Key Dates:

1981:: Robert Stiller purchases the Green Mountain coffee store in Vermont.
1985:: Green Mountain Coffee turns a profit.
1989:: Employees form an environmental steering committee.
1991:: Company installs $30,000 computerized roaster.
1993:: Green Mountain holds initial public offering.
1994:: First exports shipped to Canada and Taiwan.
1997:: Shares listed on NASDAQ.
1998:: Company closes its retail stores; secure ordering is added to its web site.