Keurig Green Mountain (GMCR) stock always scared me. The company seems like a great growth play in its earlier days, although GMCR stock always seems way ahead of itself.
Sure enough, back in 2011, GMCR stock went nuts, before crashing back to earth … only to resurrect and soar even higher!
Alas, the current chart looks like a perfect parabola, complete with sell spikes on the way up and buy spikes on the way down. These charts usually resolve badly … but let’s not get ahead of ourselves.
In the early incarnation, GMCR business was about the Keurig brewing machine and its “razor and blades” strategy, which was pretty darn smart. Create a unique coffee machine and charge consumers a good chunk of money to buy it. Then, sell special brewing cups that will only fit in a GMCR machine.
Even better, sell them at a rate of $40 per pound, when people can buy great coffee for under $10 per pound.
Once the patent expired on the brewing machine, GMCR created a new brewing machine, one that only worked with its own branded cups. The difference was that in the earlier version, you could use brewing cups made by anyone. Not anymore.
Consumers hated it, and they also hate the single-serve packages the coffee is sold in. Machine sales have crashed, falling 23% YOY in the most recent quarter.
The Move That Will Kill GMCR Stock
Now GMCR has made what I think is one of the dumbest moves ever, and I think it will drive GMCR stock down to the levels I’m expecting.
GMCR has come up with the ridiculous idea of the Keurig Kold, which will allow people to make their own carbonated water, soft drinks, ice teas and… wait a second, does this sound familiar?
That’s because this is just another version of SodaStream’s (SODA) product! That’s the one that started out big, and, as I repeatedly predicted, ultimately failed because it was a fad without any substantive base. Then SodaStream moved away from soda into sparkling water. The results have been equally disastrous.
So GMCR thinks it can boost sales by introducing a product that another company has already saturated the market with, and is now failing to get any traction with.
How unbelievably stupid is this? I’m supposed to think it’s different because instead of having CO2 cartridges, Keurig’s carbonation comes from little beads that release CO2 naturally in the liquid?
Where’s that button that says “Short Sell” in my brokerage account?
Still, the true believers will scream at me about what a good idea this is. Really? SodaStream isn’t good enough for you? How about the cold beverage machine that Esio (ESWB) had for awhile? Don’t remember it? Of course not. It failed.
Walmart (WMT) stuck it into its stores at $199 price point. Within a year, it was discounted to $49, and now sits alongside the Pet Rock as a prank gift.
Bottom Line for GMCR
The problem with The Keurig Kold is the same as with SodaStream — why should I pay a premium for the device and the beverage creation pods when I get any cold beverage I could ever desire at my local supermarket for pennies?
GMCR will be right back where it was with its current brewing system which everyone hates.
My suggestion: Look for that button that says “Short Sell” in your brokerage account.
Lawrence Meyers has no position in any stocks mentioned.
