Green Mountain’s Unilever Tea Deal Could Spur Vue Sales And More Deals

Green Mountain Coffee Roasters (NASDAQ:GMCR) has entered an agreement with Unilever which will make Lipton cold and hot teas available in K-Cups and Vue packs. ^[1] The deal could help lift the sales of Vue brewers in particular, which haven’t really grown as much as the company would have liked. Vue machines managed to generate sales of around $19 million in the previous quarter. ^[2] The stock jumped 3% after the announcement of the Lipton deal and crossed $50 for the first time in nearly a year.

If Vue brewers were to replicate the success of the traditional single-cup brewers, they need to be compatible with a large variety of beverages, or else its sales will be limited to coffee aficionados who don’t care about the higher retail price. The company realizes that the high tag price acts as an impediment for potential customers, and consequently decided to lower the entry point of the Vue brewers by introducing the new V500 at an SRP of $170 recently. ^[3]

See our full analysis of GMCR here

How Does The Deal Help GMCR?

Besides Unilever, Green Mountain also has a deal with Dr Pepper Snapple (NYSE:DPS), to make available the latter’s iced teas in K-Cups and Vue packs, beginning this summer. If Green Mountain’s agreement with Unilever could spark several other such deals, then we could have meaningful upside to our current valuation.

Deals like these set up a positive feedback loop. Greater availability of private labels and third party companies will only enhance the adoption rate of Vue brewers. And the higher the Vue sales, then the more third party labels will want to forge an agreement with Green Mountain. Besides selling more brewers, the company’s royalty revenues would get a boost as well.

Two of Green Mountain’s patents expired in September last year, which opened the doors for private labels to introduce their own K-Cups without having any obligation to pay royalty to the company. However, Vue uses a different technology for which it still holds the patent, and therefore any private company looking to introduce its own Vue packs will still need to pay royalty to Green Mountain.

We have a $36 price estimate for Green Mountain Coffee Roast, which is about 30% below the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Green Mountain Shares Up As It Brews Global Tea Deal, March 7, 2013, investors.com [↩]
2. Green Mountain Falls as Sales Forecast Trails Estimates, February 8, 2013, bloomberg.com [↩]
3. Green Mountain Coffee Roasters, Inc. Expands the Keurig Vue Series, Adding the Vue V500 Brewing System, February 28, 2013, marketwatch.com [↩]