by James Brumley | September 19, 2013 9:16 am
Once Apple (AAPL) proved its retail store idea was valid back in 2001, it was inevitable that other consumer-oriented manufacturers would look to become their own middlemen, too.
But it’s not just consumer-technology companies like Microsoft (MSFT) that have recognized there’s a clear advantage in controlling the point-of-sale experience. Undergarment wholesale supplier Spanx decided to take a shot retailing. Electric carmaker Tesla Motors (TSLA) set up a handful of sales offices in a few of the nation’s higher-traffic malls last year and this year, some complete with demo vehicles.
Even a handful of insurance companies are opting for retail stores in malls rather than the more traditional office/agent model.
Given just how far an automobile maker and an insurer stretch the limits of what qualifies as a marketable retailing premise, the fact that Green Mountain Coffee Roasters (GMCR) is planning on opening a store to sell coffee-makers and K-cup refills doesn’t seem farfetched at all.
Yes, you read that right — the company that makes Keurig coffee makers and K-cup coffee packets has decided to take a shot on dealing its goods directly to the consumer by opening one Keurig store in a Massachusetts mall.
So far the company has said little about the shop other than letting coffee drinkers in the area know it will offer all of the company’s brewers, as well as refill packs that shoppers can piece together themselves with a full variety of flavors. Fans and followers can reasonably assume the Keurig store also will be an experienced-oriented setting, complete with lots of hands-on demonstrations, wonderful smells and plenty of well-qualified salespeople.
In other words, it’ll be the Apple Store of the coffee world.
What’s not been said is whether this store is the shape of things to come. It’s a pretty good bet Green Mountain Coffee Roasters wouldn’t bother setting up one such shop, however, unless this was going to the prototype for an eventual nationwide network of Keurig stores.
So, the question investors should be asking isn’t if more stores are being planned, but rather, if the (no pun intended) brewing effort will take Green Mountain’s revenue to the proverbial next level.
Most likely, it will.
A new retail arm for a coffee maker company that has to date relied entirely on other retailers to hawk its goods may seem like a misguided notion … on the surface. After all, coffee makers have been around for decades, and coffee itself has been around for centuries. How much specialized attention can these very basic consumer goods need? It’s not as simple as that, however.
While a Keurig machine is broadly categorized as a coffeemaker, with a retail price starting at $109 and going as high as $290, these are clearly not your ordinary coffee machines. The average consumer might be willing to drop less than $100 for another brand of coffeemaker, but passing that $100 threshold is when most potential buyers might need a little extra convincing.
For evidence of that idea, one only has to look at the relative success of Apple Stores, where most everything costs more than $100. Through the first nine months of the company’s current fiscal year, the company’s 407 retail locales have generated $15.7 billion in sales … about 12% of the company’s revenue. Meanwhile, tens of thousands of other retailers and wireless service providers also offer Apple’s product line, and haven’t produced anything close to comparable success on a square-foot or per-visitor basis. The difference is simply that Apple has established an environment that’s actually conducive to selling.
If you doubt me, go to your nearest Walmart (WMT) and see what happens when you ask for an iPad demo.
It’s not just the price point that lends itself to specialty shops, though. It’s likely that Green Mountain Coffee Roasters will be able to shape its retail locations as a vanity-driven, premium experience, not unlike what consumers find at a Starbucks (SBUX). That’s something the brand hasn’t been able to do for itself yet.
In all fairness, the coffee at Starbucks is very, very good. Comparably good coffee is available in other venues, however, and at lower prices. It’s just that Starbucks has created such a strong positive consumer experience, holding that white cup with a green logo on it simply makes customers feel good. Look for K-cup refill purchases and Keurig shopping bags to become a similar feel-good, indulgent experience that drives lots of repeat business.
Keurig stores might not be seen as a real game-changer, but the advent of the retail effort is apt to make a bigger impact than the market’s giving it credit for. Green Mountain has learned a great deal from all the other companies that have thrown their hat into the retail store ring, and the fact that it’s doing it at all speaks volumes about the company’s expectations.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
Source URL: https://investorplace.com/2013/09/should-investors-really-care-about-green-mountains-keurig-store/
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