Background and Background of GMCR and Keurig Green Mountain Espresso Roasters Inc. (GMCR) was founded in season 1981 as a small café and mixed its procedures with Keurig in 2006; they have its hq in Waterbury, Vermont. Currently, it is considered as the market innovator in specialty espresso industry since it is offering top quality coffees, employing progressive technology for brewing and gratifying various socially dependable business methods. GMCR and Keurig possessed to master various skills to obtain top position on the market. GMCR is operating in coffee maker business and area of expertise espresso sector; it obtains, manufactures and then sells various sorts of coffee, teas, cocoa and other form of drinks in K-cup part packs and caffeine in conventional product packaging style. It is believed that it's offering more than two hundred varieties of hot beverages. In addition to above mentioned products, GMCR offers wide selection of whole coffee beans, ground caffeine in fractional packages and ground caffeine selections in totes that may be easily utilized by customers of At-home (AH) and Away-from-Home (AFH) marketplaces; AH and AFH has much more potential of growth as no coffee brand has been concentrating on these attractive markets.
GMCR is reselling its products mainly in THE UNITED STATES via team stores, convenience stores and golf club stores; to office caffeine vendors; in hospitality industry companies and restaurants along with direct offering to consumers through its website. It is well-known searching for manufacturing of making equipment and premium single-cup brewing systems. GMCR even sells AH single-cup brewers, caffeine, tea, hot cocoa, accessories and tea in K-Cup part packages and offers other roasters that contain been licensed to department stores, suppliers and mass development merchandisers. The brand portfolio of GMCR comprise of Brûlerie Mont-Royal, Truck Houtte, Orient Exhibit and Brûlerie St. Denis along with certificate for Wolfgang Puck and Bigelow brands.
In 1998, Keurig was founded with an progressive theory that everyone can make one cup of coffee at the same time rather than a pot at the same time; it is considered as the pioneer of one cup coffeemaker and specialty coffees and teas. Lately, GMCR did acquisition and mergers with various specialty caffeine brewers; Keurig is licensing the patents for developed of solo glass known as 'K-cup' espresso packages that comprise of Starbucks Caffeine and Dunkin Donuts. Currently, there tend to be than 5, 600 employees in the business and Mr. Lawrence J. Blanford is Ceo of GMCR. The financial shows of the company are shown in the following figure (ttm means trailing a year, yoy stands for year over time and mrq means most recent one fourth).
("Key Ratios of GMCR", 2012)
Valuable strategic collaboration with Keurig - It is GMCR's biggest durability as incorporation of Keurig that is the leading maker of single-cup making systems allowed it to enter specialty espresso market quickly. It obtained Keurig License and all its licensees in 2006. It enhanced its position from small caffeine company to pioneer in area of expertise coffee market with K-Cup one serve making system of Keurig.
Top rated single-cup brewer - Keurig is most regularly sold single-cup coffee making machine in USA and four top placed sold brewers are products of Keurig.
Focus on coffee consumers - GMCR focuses on its valuable customers by offering them high quality coffee that is easy to make and can select from wide selection of choices. It provides specialty coffee in simplified brewing machine that allows customers to choose from twenty-seven brands and about two hundred beverage types.
Young professionals comprise of new market - It has been able to broaden into young pros market with Keurig sole server systems. These professionals love the idea of having one cup of caffeine quickly and easily. The best part of the systems is the fact quality of caffeine remains constant as it includes measured amount of warm water with controlled heat along with low pressure technology that brews floor coffee which is kept in paper filter to provide great cup of coffee every time.
Collaborations with well-known brands in market - GMCR has got into into collaborative agreements with various multi-channel marketers so that sales and awareness of GMCR and Keurig products can be increased. It really is trying to reach as many consumers as it can be by using various marketing strategies especially partnerships with leading brands such as Starbucks, Aramark, JC Penny's, Cusinrt, Starbucks and Costco. All of these providers are providing vast selection of promotional and merchandising support.
Well-organized enlargement plan - It includes expanded its businesses in Southern California and Canada by acquisitions and is opening new production plant life in Virginia and California to aid its fast growing extension plan.
K-Cup load up patent expiration - In September 2012, K-Cup packages patent of GMCR will get expired and it can cause tremendous competition among universal competitors.
Dependency on one supplier creating sales awareness - Almost 84% of GMCR's sales are made via sales made from K-Cup packs and Keurig Brewers. It demonstrates company is intensely reliant on one product portion.
Business is seasonal - The first and fourth quarters of annually are high sales period as there may be change in weather and holiday season is detected as well. In summertime and spring moths, there is decline in coffee brewers and that is why GMCR is trying to do promotion of its new products that comprise of both hot and frigid beverages.
Litigation charges - GMCR acquired to face an investigation procedure launched by SEC in Sept 2010 about its practices related to earnings recognition. During that time frame, numerous multi class-action lawsuits were registered against GMCR; however, no significant data has been yielded as yet.
Unstable partnerships with dominating brands - Although partnerships with big brands offers GMCR advantage in marketing area but it could be dangerous when GMCR is having short end of deal based on its size. For example, Starbucks announced launching of its solitary server coffee brewer Verismo which is immediate rival of K-Cup; it caused GMCR to reduce 16% of its stocks value.
Problems with structural designs - GMCR ahs three proper business units i. e. GMCR Canada, Specialty Coffee Business and Keurig Business. It really is difficult to integrate different cultures for showing of resources, reducing costs and creating synergy; as there are a few inner problems within each device such as Diedrich Coffee has troublesome financial position. A lot of the manufacturing division is within China which can cause too much fluctuation in costs when there may be any change in administration policy of China; it offers low control on stock and creation cost.
Launch of Keurig Vue - Recently, GMCR launched Vue brewing machine which is a mid-high end brewer machine that offers various advanced features as compared to regular and modern day Keurig machines. They are developed with advanced technologies that help consumers in getting coffees according to their tastes and choices. By using Vue machine, consumers can have control on their drink's strength, temperature that needs to be set for making, amount to be brewed and vast range of options to choose from for brewing other refreshments like café drinks. GMCR can enter into affluent market and do campaign of its specialty espresso as a supplement to the latest benefits i. e. Keurig Vue.
More awareness in the market via opponents - By partnering with other caffeine manufacturers like Folgers and Caribou Coffee, GMCR can enhance its brand image in the market. With increase way to obtain K-Cup packages for challengers, GMCR is making its Keurig products popular on the market.
Wide options for enlargement in other areas - In the last couple of years, coffee use has been increased in Asia, Europe and Brazil so by focusing on and influencing more caffeine drinkers in these countries, GMCR can gain competitive benefits by entering in these marketplaces before its competition identify this opportunity.
Decline in caffeine utilization - In USA, caffeine consumption has dropped significantly and it accounts of only 20% of coffee consumption worldwide. Europe and Asia will be the countries which have potential of targeting caffeine drinkers.
High competition - Majority of companies are joining specialty coffee industry and since there are low obstacles to entry, there exists huge chance that amount of competitors are certain to get double in next five years.
Price Volatility - The price tag on commodities is unstable which can be threatening for GMCR as it is wanting to maintain its low cost production advantage. The coffees suppliers can even change their prices and could start charging high rates taking into consideration the growth in this industry. There may be high uncertainty for coffee distributor deals in future that can cause doubt in future income.
Heavy reliance on area of expertise coffee farms - GMCR relies on these farms to get best coffees for creating perfect coffee combination. If crop produce is poor or climate are unfavorable, then farming of niche coffee beans will be adversely influenced which would create problem for GMCR as it has low degree of inventory and you will be unable to match customer orders promptly.
Porter's Five Pushes Model
According to Dess, Lumpkin and Eisner (2012), Porter's five causes model is important for assessing the position of any company in its industry.
Threat of Substitutes
The threat of substitutes for GMCR is of medium level; US is among those countries which may have highest coffee ingestion consumers. There are many products such as soda pop, energy drinks and other beverages you can use as substitutes but their usage rate is lower than that of coffee. More than 54% of Americans aged above 18 years, have a cup of coffee daily and volume of coffee cups each day can go to ten mugs as well.
Threat of new entrants
There is medium degree of risk of new entrants as K-Cup pack patent expiration will attract more competition from those coffee manufacturers who are not present in single server making market. Many of these manufacturers have either same or large sized distribution channels that could be exploited to increase market talk about fastly. However, new entrants will have some difficulty in creating systems for distributions and even licensing partnerships.
Rivalry among competitors
There is high rivalry among rivals as there are numerous immediate and indirect opponents present in the marketplace. GMCR's patent on K-Cup packs is expiring on September 2012 which means that common brands or competition will have enormous opportunities for processing at lower prices their own labeled K-Cup packs.
Power of buyers
Currently, ability of clients is medium. In terms of pricing, GMCR has had the opportunity to control it because of K-Cup pack patent but after its expiration, consumers will be able to pick from various options apart from products of GMCR.
Power of suppliers
The supplier electricity is high as you can find heavy reliance on area of expertise coffee farms for GMCR's product line; suppliers bill high prices. In case of shortages of coffees due to drastic climate, GMCR reputation can get harmed and it can impact their important thing severely.
According to GMCR's management team, its strategy is recognized as Razor Cutting tool Strategy and it offers taken its creativity from P&G's strategy of reselling razor rotor blades. GMCR has guaranteed that Keurig machines sold by them are reasonably priced but they impose higher price of all K-Cups which work only with Keurig machine. The principal reason behind offering expensive products in this category is that coffee costs about $2. 5 per pound and customers are paying 35 dollars a pound for the amount they are receiving in every K-Cup. The goal of the strategy is to set-up awareness about brewing machine that will ensure that consumers continue buying unlimited K-Cups that are solely sold by GMCR only till September 2012.
GMCR has been successful in creating consciousness about specifically high quality products and has even increased customer basic by capturing devoted K-Cup market. It includes even inserted into partnerships with Starbucks Espresso and Dunkin Donuts to carefully turn their customers into their devoted people. Considering Porter's general strategies, GMCR is pursuing differentiation strategy as it is focusing on thin market with high quality products; it offers focused on low cost distribution channel within the gourmet espresso niche that comprises of unique buyers.
Issues and issues faced by the company
There is transfer in coffee intake industry as there is decline in number of coffee consumers in USA and upsurge in caffeine drinkers in Asia and Europe.
K-Cup pack patent of GMCR is getting expired which can make entrance of common opponents easier and consumers will have more options for single cup making system at lower prices.
Since GMCR is counting on specialty farms because of its coffee beans, it will have to consider other alternatives when crop yield is leaner. When customer purchases are not fulfilled, dissatisfied customers create negative reputation on the market and it influences their sales significantly.
There is insufficient synergy in three Strategic SECTIONS (SBU) which is posing many problems for GMCR to smoothen their performing. Every SBU has its own group of problems and decentralization is impacting their business operations significantly.
Course of action recommended
In order to take care of the problems that are experienced by GMCR, it has to take steps for vertical integration that will help it in managing fluctuations in item prices. It could do integration with manufacturing companies that allows GMCR to demand prices equal to or above than those offered by Keurig. It will continue using its technology strategy by launching new products on the market. By using integration, it will be able to lower its transaction costs and keep its efficiency cost as well. The structural design must be revamped that will ensure that SBUs are interlinked and there is centralized way; it's important to generate synergy so that resources can be effectively allocated and used. The production facilities have to be developed in other parts besides China so that it has alternatives available for modifying production of its products. Hence, it will have to make changes in its strategies to ensure that it's able to catch its desired market show.
GMCR and Keurig coffee research study helped in understanding the value of strategy development along with factors that require to be taken into account when designing the strategy. In addition, it highlighted the problems being confronted by the business along with competitiveness running a business environment. Some environmental issues were raised by its procedure however they were properly addressed by its management team. When businesses don't function properly, they have to pay penalties for doing misconduct. The case study highlighted the importance of creating partnerships with opponents along with following right technique for acquisition and mergers so these decisions are advantageous for company's successive progression in the market.
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