|I posted this on 11/9, some probably thought I was nuts...|
Pinheiro on GMCR
Mitch Pinheiro, managing director of Equity Research at Janney Capital Markets in Philadelphia, has another opinion about the K-Cup patent expiring. Pinheiro owns Green Mountain Coffee stock.
Contradicting Einhorn, Pinheiro says Green Mountain Coffee is actually the lowest cost producer of K-Cups, not the highest. And he points out that big coffee companies are flocking to Green Mountain Coffee to make their K-Cups.
“Why did Caribou sign for five years back in December 2011? They knew the patent was expiring,” Pinheiro said. “Snapple just signed up a month ago. They could have had somebody else manufacture their K-Cups. Why haven’t they? Folgers, Starbucks, Dunkin’ Donuts, they all knew the patent was expiring. Why have they joined Green Mountain? It’s pretty obvious.”
Pinheiro also says there are currently only two companies with any real capability to produce K-Cups: Treehouse Foods, a public company worth about $2 billion, or a little less than Green Mountain Coffee; and Rogers Family Co., a privately held company that Pinheiro calls “tiny,” at less than $100 million in sales, although Rogers does not release revenue figures.
Treehouse, Pinheiro says, is extremely well run and well capitalized, but only produces for the private label market, meaning they need Green Mountain Coffee to succeed.
“Here’s the deal, they’re experts in private label, they understand private label and understand where private label fits in the grand scheme of consumer products,” Pinheiro said of Treehouse. “For private label to work, you need a strong brand with strong pricing so they can fit underneath there to attract demand.”
As for Rogers, Pinheiro said they’re too small to threaten Green Mountain Coffee.
Finally, Pinheiro points out that Green Mountain has launched a new brewing system based on the K-Cup, the Vue, for which it has a patent through 2021, and which Pinheiro believes will essentially take over the market.
“So here you are as a manufacturer, ‘OK, I’m getting into K-Cups,’” Pinheiro said. “You have to worry you’re investing in a shrinking market. You can do well for the next year or two, but then do you want to keep investing, particularly if it comes to fruition that the installed base of Vue will take over?”
Here’s what Green Mountain Coffee itself had to say about its expired patent in a prepared statement issued in response to Free Press questions:
“While we consider out patents very valuable, we don’t see any single patent as critical to the Company’s success. GMCR has anticipated for some time that unlicensed brands and/or manufacturers will look to enter single-serve business upon expiration of two of its several patents and has factored this into its forecasts for 2013 and beyond. We offer 30 licensed brands and more than 200 varieties of products to our customers at varying price points and we expect this broad portfolio, along with the overall convenience and value proposition, will continue to drive the rapid adoption of our Keurig Single Cup brewing system.”