Milestone One: Investment Project and Justification

Milestone One: Investment Project and Justification

Matthew Bogdanowicz

Southern New Hampshire University

MBA 640

Background Information

Keurig Green Mountain is a beverage company that’s reshaping how people enjoy and consume their beverages. Keurig Green Mountain has become a household brand through innovative technology and strategic brand partnerships (Keurig Green Mountain, Inc.). Keurig Green Mountain is a personalized beverage/brewing system with over 445 beverage choices from over 70 brands, letting each individual create a single brew of their choice that compliments their taste palette (Keurig Green Mountain, Inc.). Currently, the company is a North American company, based in the United States and Canada (Keurig Green Mountain, Inc.). In 2016, Keurig was considered the number one brewer brand in the United States (Keurig Green Mountain, Inc.). Keurig Green Mountains vision: “Become the world’s leading personal beverage systems company.” (Keurig Green Mountain, Inc.)

In order to become the world’s leading personal beverage systems company, Keurig Green Mountain needs to become a global organization outside of North America. The proposal for this is the begin global expansion by starting with India.

India’s long been a country of tea drinkers until recently where it’s become common and on trend with India’s younger generations to consume coffee (Hannon 2012). Today, more than half of India’s population is under the age of 25 (Fuller 2015). The cultural shift has created a dramatic increase in coffee houses where it’s become a popular place to hang out (Hannon 2012). India is privy and heavily influenced by American culture even with their coffee. There’s been an increase in brands such as Starbucks and Lavazza (Hannon 2012). This trend is so deeply in effect that over the past decade, coffee consumption has doubled in India over the past decade (Hannon 2012). This is a perfect opportunity for Keurig Green Mountain to partake in global expansion.

One of Keurig Green Mountains biggest downfalls is their dependence on the United States market and their ever-growing competition (Keurig Green Mountain, Inc. SWOT Analysis 2016). In 2012 when the company’s patent on K-cups expired the market was saturated with competitors less expensive coffee pods, hurting the company’s market share (Govindarajan 2016). The company keeps trying to protect their industry and create products that give them control in the US market with items such as Keurig 2.0 and Keurig Kold which have done nothing but upset and alienate the consumer (Govindarajan 2016).  While there are more competitors than ever, the constant growth of the coffee industry is a perfect opportunity for the company.

India is currently experiencing significant growth with the power to become one of the top three largest economies in the world within the next ten years (Fuller 2015). Currently, India’s population stands at 50 million with 5% of that number accounting for India’s middle class (Fuller 2015). With the significant growth in place, economists believe that India’s middle class will expand from 2.5 million (5 % of 50 million) to 200 million within the next 5 years and soar to 475 million by the year 2030 (Fuller 2015). India is the world’s fastest growing economy and retail demand is soaring due to the expanding middle class, urbanization, and more women entering the work force (Pahwa 2016). India’s retail has grown at the compound annual rate of 8.8% between 2013 and 2015 (Pahwa 2016). Major retailer, Walmart, plans on expanding their stores in India, opening 70 more stores by the year 2020 (Pahwa 2016). In the US, Keurig Green Mountain relies heavily on their contract sales with Walmart (Keurig Green Mountain, Inc. SWOT Analysis 2016).

Keurig Green Mountain has always had great investment in the strategic partnerships. They have a distribution partnership with Walmart making them the only single-cup brewing system available at Walmart (Keurig Green Mountain, Inc.). Other partnership deals made have been with Kraft, Nestle’, Subway, Starbucks, Dunkin Donuts, and more (” Distribution Deals With Major Coffee Brands To Help Keurig Green Mountain Gain Market Share” 2014). If Keurig Green Mountain can expand on these partnerships, they can begin expanding and moving their products into India’s retail sector. Nescafe, a product of Nestle, is the most famous and oldest coffee brand in India and has the strongest hold on the Indian coffee market (website). Other popular brands to partner with in India would be Tata, Bru, Davidoff, Narasu’s, Leo, Lavazza, Bayar’s, and Café Rio (“Top 10 Best Coffee Brands in India 2017” 2016). Keurig Green Mountain can create distribution contracts with major department store retailers in India with stores such as Walmart and Future Group, a company in India that runs the largest chain of department stores (Sanjai 2016).

Future Group is expected to grow between 25% and 28% over the next year and aims to reach 1 trillion rupees in sales by 2021 (Sanjai 2016). Everyone believes and that there is no stopping the Indian economy and that inflation is under control. (Sanjai 2016). Real estate costs are also beginning to decline making it a good time for Keurig Green Mountain to have a location there (Sanjai 2016). Keurig Green Mountain already has a supply chain in India and believe in community outreach to improve the lives of people in the communities where their products originate by reducing poverty and hunger, improving agricultural practices, and promoting environmental sustainability (Keurig Green Mountain, Inc.).

I propose we invest in an Indian expansion by setting up a factory in India or in a relatively cheap Asian market to reduce transportation costs, import taxes, and to reduce slow supply chains (Govindarajan& Bagla 2016). To make the expansion of manufacturing in India, creating partnerships, and marketing, we would need to infuse $2 billion dollars into the expansion over the next 5 years to have financial stability in the country by the year 2022. In 2014, Keurig purchased a 585,000 square-foot building for renovation and plan on investing $337 million into the building (McQuiston 2014). Investing in the manufacturing plant will help reduce the cost long-run of the product as it hits the shelves. Smart phones in India are also skyrocketing, making online ordering become increasingly popular. By 2020, India expects online merchants will be as large as their brick-and-mortar stores (Govindarajan& Bagla 2016). With every company putting their efforts into expansion in India, this makes perfect sense for Keurig Green Mountain based on current consumption trends and economy. Keurig also already has strategic partnerships with many of the companies that are already successful or seeking expansion in India making the transition easier for the company. Keurig Green Mountain could get investments to help pay for the venture from Nestle, Walmart, and Coca-Cola.

Conclusion

Keurig Green Mountain needs to make some fast and productive changes to sustain their company. In 2015, their stock plummeted 72% from $157 to $44 per share (“Keurig Green Mountain: Can A Positive Guidance Pull The Company Out Of Its Misery?” 2015). This was due to declining sales of the brewers, unimpressive launch of new products, and a declining single-serve market (“Keurig Green Mountain: Can A Positive Guidance Pull The Company Out Of Its Misery?” 2015). Clearly Keurig Green Mountain is suffering a huge blow due to their major weakness of relying solely on their US and Canada customer base. Their products have not been innovative enough and they are selling off portions of the company for cash flow. Keurig Green Mountain needs to expand outside of North America and find an economy where they can flourish.

With an infusion of cash to invest in an expansion in India, Keurig Green Mountain has the potential to reach a whole new level of success and consumers that are young and looking for hip American trends. A lot of the youth that is making the coffee industry soar in India are enjoying the social benefits of it and using it as way to substitute grabbing an alcoholic beverage with their friends as in their culture it is still frowned upon. India is catching on to American trends and the economy is skyrocketing to new levels. The population of the country will continue to increase as well as the level of middle class making the country a top contender within the next ten years. Keurig Green Mountain should stabilize themselves now to be part of the economic expansion. They have not reinvented the wheel with their updated brewers and consumers are having a hard time finding reason to repurchase something they already have causing a decline in brewer sales and making the company rely solely on their beverage products. It is time for new countries to be introduced to these products and to place new strategic partnerships in place so that they can limit the competition.

References

Distribution Deals With Major Coffee Brands To Help Keurig Green Mountain Gain Market Share. (2014, August 28). Retrieved from http://www.forbes.com/sites/greatspeculations/2014/08/28/distribution-deals-with-major-coffee-brands-to-help-keurig-green-mountain-gain-market-share/#4ef980e61c27

Fuller, E. (2015, September 11). India: Asia’s Next Economic Dynamo? Retrieved from

http://www.forbes.com/sites/edfuller/2015/09/10/india-asias-next-economic-

dynamo/#5a9e9f403ae6

Govindarajan, V. (2016). What Innovative Companies Can Learn from Keurig’s Highs and Lows. Harvard Business Digital Articles, 2-4.

Govindarajan, V., & Bagla, G. (2016, October 10). Two Ways to Break into India’s Consumer Market. Retrieved from https://hbr.org/2016/10/two-ways-to-break-into-indias-consumer-market

Hannon, E. (2012, February 8). India’s Coffee Consumption Doubles Over Last Decade.

Retrieved January, from

http://www.npr.org/2012/02/08/146565901/young-people-get-

india-interested-in-coffee

Keurig Green Mountain: Can A Positive Guidance Pull The Company Out Of Its Misery? (2015, November 17). Retrieved from http://www.forbes.com/sites/greatspeculations/2015/11/17/keurig-green-mountain-can-a-positive-guidance-pull-the-company-out-of-its-misery/#4fe4f97b7c74

Keurig Green Mountain, Inc. (n.d.). Retrieved from http://www.keuriggreenmountain.com/

Keurig Green Mountain, Inc. SWOT Analysis. (2016). Keurig Green Mountain, Inc. SWOT Analysis, 1-8.

McQuiston, T. (2014, March 10). Green Mountain Coffee Roasters changes name to Keurig Green Mountain Inc. Retrieved fromhttp://www.vermontbiz.com/news/march/green-mountain-coffee-roasters-changes-name-keurig-green-mountain-inc

Pahwa, P. (2016, June 06). India ranks second in retail potential. Retrieved from http://www.business-standard.com/article/economy-policy/india-ranks-second-in-retail-potential-116060700007_1.html

Sanjai, P. R. (2016, October 06). Biggest India Department Store Expects Record Growth for Year. Retrieved from https://www.bloomberg.com/news/articles/2016-10-06/biggest-india-department-store-expects-record-growth-for-year

Top 10 Best Coffee Brands in India 2017. (2016, December 09). Retrieved from http://www.wlivenews.com/top-10-best-coffee-brands-in-india.html

 

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