Price Hikes, Patent Expiration Major Concerns for Green Mountain … · 2012-01-10 · results for Keurig brewers and K-Cups, a significant change from Blueshift’s early payment

Price Hikes Patent Expiration Major Concerns for Green Mountain

321 Pacific Ave San Francisco CA 94111 | wwwblueshiftideascom

REPORT

January 10 2012 Companies DNKN GMCR HAIN JAH KFT LCUT NC NESNVX SBUX THS

Reverdy Johnson rjblueshiftideascom 4153643782

Summary of Findings Aside from store personnel sources were more guarded in their

tone and outlook on Green Mountain Coffee Roasters Inc (GMCR) than in Blueshiftrsquos previous five reports over the last two years

Online distributors and commercial suppliers reported mixed sales results for Keurig brewers and K-Cups a significant change from Blueshiftrsquos positive January 2011 findings One distributor said Black Friday and Cyber Monday sales were a major disappointment Meanwhile store personnel said holiday sales were better YY and that brewers and accessories regularly sold out

Patent expiration and rising K-Cup prices are the most likely threats to Green Mountainrsquos dominance Three sources said Green Mountain is taking measures to address K-Cup imitations including restricting K-Cup distributors from carrying the knockoffs

Customers expressed frustration with the climbing cost of K-Cups and now search for discounts or buy in bulk Distributors echoed these reports of customersrsquo questioning of K-Cup prices The My K-Cup filter also is gaining traction and affecting K-Cup purchases

Three sources were critical of Green Mountain-supplier M Block and Sons Inc One source said excess inventory factored into his decision to promote Green Mountain products less in 2012

Shorter K-Cup expiration dates environmental waste concerns and Green Mountainrsquos negative publicity have not significantly affected sourcesrsquo purchase patterns of Keurig brewers or K-Cups

2011 Holiday Sales Better Than 2010

K-Cup Price Increases a

Concern

Patent Expiration Effect on

Online Distributors

Commercial Suppliers

Industry Specialists NA

Store Visits

Customers NA

Research Question

How are sales for Green Mountainrsquos products and is its current market share sustainable

Silo Summaries 1) ONLINE DISTRIBUTORS 4 of 6 sources said GMCR can maintain its growth though only two said sales increased in 2011 y-y One source said Black Friday and Cyber Monday sales were down dramatically y-y because of price hikes Two sources said GMCR will force distributors to choose between selling K-Cups or knockoffs once its patents expire Another said GMCR has become stingier in its early payment discounts to distributors 2) COMMERCIAL SUPPLIERS 2 of 4 sources said GMCRrsquos growth will continue The other two sources said 2011 sales were down year to year because of K-Cup price hikes One source said independent roasters that tried to work with GMCR but were rejected are now excited for patents to expire so they can compete directly against GMCR One source said K-Cup inventory is ample and that his company has held back in promoting GMCR products for fear of being stuck with excess inventory 3) INDUSTRY SPECIALISTS Of these 6 sources one said 2011 sales leveled off for GMCR because competition became fiercer Another source said GMCR had problems with plant expansion near Seattle and needed a temporary roaster to complete unfilled orders which will cut into profit margins for another six months A patent attorney said the time needed to file another patent application for GMCRrsquos next generation K-Cups and brewers is a bigger issue than the patent officersquos rejection of the companyrsquos initial application 4) PRE-CHRISTMAS STORE VISITS 5 of 7 stores said Keurig and K-Cup holiday sales were better in 2011 than 2010 Keurig was a top selling gift item for the holidays Expiration dates on K-Cups were most commonly listed between April and June 2012 though a handful of boxes were dated February 2012 5) POST-CHRISTMAS STORE VISITS 3 of 6 sources said they continue to sell Keurig brewers and K-Cups after Christmas and do not expect sales to drop off as much as with other products No source reported returns or customer dissatisfaction with GMCR products 6) CUSTOMERS 8 sources said their K-Cup consumption did not drop off during 2011 Seven sources however voiced concerns over the climbing price of K-Cups and said they will be more aggressive in seeking deals and discounts

Green Mountain Coffee Roasters Inc

321 Pacific Ave San Francisco CA 94111 | wwwblueshiftideascom 2

Background Green Mountain suffered a tumultuous autumn and its sales momentum came to a screeching halt after hedge fund manager David Einhorn made a case against the company at an Oct 17 value investment meeting including focusing on accounting irregularities with M Block the fulfillment company Green Mountain uses to fulfill orders in the retail channel Fourth-quarter earnings reported in November fell below expectations because of investorsrsquo concerns over Green Mountainrsquos valuation patent protection accounting and mergers Also the main patents on Green Mountainrsquos K-Cups will expire on Sept 16 2012 creating an opportunity for privately and publicly held competitors alike to create their own K-Cup versions and to significantly disrupt Green Mountainrsquos unit volume CURRENT RESEARCH Blueshift has published five largely positive reports on Green Mountain between October 2009 and January 2011 (Oct 30 2009 Jan 8 2010 April 16 2010 June 11 2010 and Jan 13 2011) We employed our pattern mining process to uncover trends pertaining to both Green Mountain and the single-serve coffee industry We interviewed sources in seven independent silos comprising 37 primary sources (including seven repeat sources) and six secondary sources focused on the threat of patent expiration a rise in competitors for Green Mountain the strong possibility of another K-Cup price hike and updates on litigation involving Green Mountain Store personnel interviews were conducted before and after the holidays to gauge gift purchases of Green Mountain products as well as product returns and add-on purchases

1) Online distributors (6) 2) Commercial suppliers (4) 3) Industry specialists (6) 4) Pre-Christmas store visits (7) 5) Post-Christmas store visits (6) 6) Customers (8) 7) Secondary sources (6)

Silos 1) ONLINE DISTRIBUTORS Four of six sources said Green Mountain can maintain its growth and continue to dominate the single-serve coffee market though only two said sales increased in 2011 year to year K-Cup sales were flat for another who also said Black Friday and Cyber Monday sales were down dramatically year to year because of price hikes Two sources said Green Mountain will force distributors to choose between selling K-Cups or knockoffs once its patents expire Another said Green Mountain has become stingier in its early payment discounts to distributors Two sources at the same company said M Block is a mismanaged supplier but its problems have not affected these sourcesrsquo relationships with Green Mountain because they get product directly from the company No sources reported inventory or expiration date troubles and one said product availability has improved Only one source said environmental concerns over K-Cup plastic cylinders were an issue Another source said single-serve coffee pods are growing in popularity and creating more competition for Keurig and K-Cups Sales representative for an online distributor in the Northeast repeat source

Keurig machine and K-Cup sales spiked during 2011 compared with 2010 prompting this sourcersquos company to double weekly K-Cup inventory orders to keep up with demand After the distributor set up a warehouse showroom for onsite purchases 20 people per weekend day during the holiday season came in to buy Keurig machines

ldquoFrom last year wersquove really picked up on K-Cups Last year we used to buy a tractor load each week and now wersquore getting more than a tractor load to keep up with salesrdquo

ldquoOur inventory is not sittingrdquo

From last year wersquove really picked up on K-Cups Last year we used to buy a tractor load each week and now wersquore getting more than a tractor load to keep up with sales

Sales Rep Online Distributor Northeast

ldquoWe also just recently within this past month added a showroom to our warehouse so people can come in off the street and buy coffee machines and K-Cupsrdquo

ldquoOn a typical Saturday wersquoll have about 20 customers come in and buy Keurig machines and throughout the workday we have a number of people coming in for everything including K-Cupsrdquo

ldquoMostly [Dunkinrsquo Brands Group IncrsquosDKNN] Dunkinrsquo Donuts and Starbucks [CorpSBUX] stores are getting those K-Cups We thought we would be able to get them but we canrsquot Everything has its effect but that hasnrsquot seemed to hurt us anyrdquo

ldquoWe mostly carry a lot of varieties but Green Mountain is the biggest selection we have We sell a lot of that They just picked up Coffee People and Gloria Jeanrsquos so that helps sales toordquo

ldquoTimothyrsquos pulled out of the states completely For the most part there are really only three varieties left that we can getrdquo

President of a distribution company catering to the New York metropolitan area

K-Cup and Keurig brewer sales rose 10 overall during 2011 compared with 2010 This source is worried Green Mountain will force distributors to choose between K-Cups and knockoffs once patents expire He has not seen any excess inventory Demand for one or two K-Cup flavors is so high that they are consistently unavailable

ldquoSales have continued to grow for both K-Cups and Keurig brewers since last year Wersquore up about 10rdquo

ldquoThe bigger issue for people like myself that also operate the OCD business is the patent expirations that are coming up and whatrsquos going to happen if non-licensed K-Cups come in the market and take over salesrdquo

ldquoGreen Mountain has a monopoly so they are not being forced to react to the market But once their patent is up there is going to be a big disparity in price between the licensed K-Cups and the competitionrdquo

ldquoThey have us If you pull away from [Green Mountain] then you canrsquot buy their existing product line and the existing equipment for your customers hellip It can affect our business if we are barred from purchasing [knockoffs] per our agreement with Green Mountain We would want to buy it and resell it to our customers but [Green Mountain] has agreements with distributors to avoid that from happening hellip Itrsquos going to be a messy situationrdquo

ldquoI donrsquot know anything about a [Green Mountain] inventory surplus Irsquod be surprised if that were true hellip Every time we place an order there is usually one or two of those items that will be cut because they are out of stockrdquo

ldquoA new or [Luigi] Lavazza [SpA] platform will have an effect They are antagonizing their commercial customers because the basic [K-Cup] demand is still there and customers might not be able to use the new itemsrdquo

ldquo[Kraft Foods IncrsquosKFT] Tassimo hasnrsquot gotten any tractionrdquo

Customer service manager for a distributor that sells K-Cups and its own brand of coffee pods but not Keurig machines Green Mountain and K-Cups can sustain their growth because of the productsrsquo ubiquity Consumer awareness of competitor pods is limited Areas of concern for Green Mountain include patent expiration high prices and adapters that allow owners to use pods in Keurig machines instead of K-Cups This source has not noticed any questionable dealings with M Block but she has not worked with the company for four to five years

ldquoK-Cups growth is sustainable because people love them and the Keurigs Thatrsquos what they see when they go to the doctor and the dentist office Lots of customers and friends hellip donrsquot even realize the difference between the pods and the K-Cups Green Mountain has certainly done a good job of getting their product out there and controlling the marketrdquo

ldquoPatent expiration is going to make things interesting I have a Keurig at home and I use the adapter to brew the pod You have a Keurig brewer and you can brew something a little less expensive I think wersquoll see more of that after patent expirationrdquo

They have us If you pull away from [GMCR] then you canrsquot buy their existing product line and the existing equipment for your customers hellip It can affect our business if we are barred from purchasing [knockoffs] per our agreement with GMCR We would want to buy it and resell it to our customers but [GMCR] has agreements with distributors to avoid that from happening hellip Itrsquos going to be a messy situation

President Distribution Company New York metropolitan area

ldquoI know that Rogers Family [Co] has already come out with a product And our local Wal-Mart [Stores IncWMT] carries a [TreeHouse Foods IncrsquosTHS] Sturm single-serve cuprdquo

ldquoIn the past six to seven months Green Mountain and Keurig put controls on resellers and told them what they had to sell it for Thatrsquos not the case in the pod marketrdquo

ldquoSome consumers have noticed the inventory and accounting controversy and some have called and said theyrsquore sick of what Green Mountain is doing to the market that they canrsquot find their favorite K-Cup anymore except for at a much higher price or they pay the same price for fewer K-Cupsrdquo

ldquoTherersquos been some push back from higher prices That opens the door for a new and inventive productrdquo ldquoPeople really arenrsquot aware of the pods itrsquos the K-Cups they know about We choose to sell pods because we like

the coffee better hellip Every roaster is different in what they can offer Theyrsquore hellip less mass market K-Cups are more mass marketrdquo

ldquoI see some really good things happening in the pod market now The first pod brewers werenrsquot as good and they were followed by too costly ones But now there are new ones which are much betterrdquo

ldquoOn the environmental side people mention that they look in the garbage can one day and see how much theyrsquore throwing away But they say theyrsquoll be green in another area of life Some customers went away from single serve for a while but theyrsquove come backrdquo

ldquoWe used to buy from M Block four to five years ago Whatever we were getting in was consistent It was all coming with a reasonable amount of time from the expiration daterdquo

Purchasing manager for an online distributor

Green Mountain can maintain its growth as the home market has barely been tapped leaving ample room for Keurig and K-Cup expansion in the home Consumers are willing to pay for the convenience of the K-Cup system This source said M Block is mismanaged and horrendous to deal with but his interactions with the company center around Tassimo products Green Mountain shipments have increased and products are more available than in the past The source received a shipment containing K-Cups with an April 15 expiration date despite a May 15 date on the box but this was his only experience with expiration date issues He has heard Green Mountainrsquos new platform will have a bar-code reader to better brew a drinkrsquos temperature and pressure according to individual K-Cup specifications though he is waiting to see it before making judgments

ldquoGreen Mountainrsquos growth is sustainable Theyrsquove only scratched the surface of the home brewing market which will help us since we do a lot of online businessrdquo

ldquoThe home market hasnrsquot even been touched I just think therersquos a lot more to come If wersquove tapped 40 of the homes thatrsquos pretty high Eventually you could get 60 or 70 Everyone wants things fast and easy Keurig is instant gratificationrdquo

ldquoIrsquom surprised what people are willing to spend for convenience I first thought that no way people would buy it But people didnrsquot stop driving when gas hit $3 a gallonrdquo

ldquoMy K-Cup orders go to Green Mountain We donrsquot buy K-Cups from M Block In my world M Block is strictly Tassimo and Green Mountain is Green Mountain hellip M Block is a little tougher to deal with due to product issues specifically Tassimordquo

ldquoM Block is a problem because theyrsquore a middleman If theyrsquore too slow it affects me Itrsquos a hassle getting to the person or group causing the problem M Block is just horrendous at fulfillment

ldquoWe get weekly shipments Itrsquos definitely up A lot of it is due to the introduction of several new items Green Mountain seasonal items push business up a little It leveled out a bit after some Green Mountain items were discontinued Last year we had a problem with

Therersquos been some push back from higher prices That opens the door for a new and inventive product

Customer Service Manager K-Cup amp Coffee Pods Distributor

Green Mountainrsquos growth is sustainable Theyrsquove only scratched the surface of the home brewing market which will help us since we do a lot of online business

Purchasing Manager Online Distributor

M Block is a problem because theyrsquore a middleman If theyrsquore too slow it affects me Itrsquos a hassle getting to the person or group causing the problem M Block is just horrendous at fulfillment

supply but less so this year Product availability is better than itrsquos been for a long timerdquo ldquoShipment quality hasnrsquot really changed We had one issue with boxes labeled May 15 and the product actually

had an April 15 expiration daterdquo ldquoWersquore hearing Green Mountainrsquos new platform will be a bar-coded machine Wersquove have to take a look at it We

would have to be authorized to carry it there are some products wersquore not authorized to carryrdquo ldquoEverybody wants to talk about the environmental impact until it costs them something or itrsquos inconvenient My

grandma used to reuse her teabag and I never found that appealingrdquo

IT director for an online distributor The holiday shopping season got off to a slow start for Green Mountain and Black Friday and Cyber Monday sales were disappointing year to year Overall sales were even compared with 2010 but price hikes are beginning to affect customer purchase patterns Green Mountain has told distributors they will not be able to sell K-Cups if they support knockoffs once patents expire Green Mountain also has become stingier with a 2 discount it typically has provided clients who paid within 10 days This source has not had trouble with K-Cup supplies or expiration dates and said the new Green Mountain platform may use RFID M Block is a poorly managed company with shoddy record keeping

ldquoWe expected more of a burst after Black Friday and Cyber Monday but we were off about 17 compared to the same days [in 2010] People may start realizing theyrsquore paying 60cent to 70cent per K-Cup and pull back They hit us with price hikes in March and April so it costs $1399 a box and even $16 a box at other places Some customers have called in and said they canrsquot handle the price hikes and theyrsquove gone back to conventional coffeerdquo

ldquoOverall sales are about flat from last yearrdquo ldquoTherersquos a little bit of a shift within Green Mountain to cater more to

brick-and-mortar stores than to online The market itself has gotten loaded with K-Cups Last year we had a problem with supply but less so this year Wersquove also had some issues with the brewersrsquo heating elementsrdquo

ldquoGreen Mountain has pretty much come down to folks like us and said if we sell other K-Cups [when patents expire] theyrsquoll pull our category agreement I havenrsquot seen other roasters ramping up their capacity and the investment costs $170000 each Itrsquos possible that Sturm and Rogers might come in but I havenrsquot seen anything definiterdquo

ldquoThe growth is going to level off I donrsquot see them taking off hugely in Europe where theyrsquoll have a whole different marketing issue because people are more particular about their coffee At some point the growth has to slow down hellip It depends on how lazy people arerdquo

ldquoTheyrsquove gotten kind of funny with how they accept payment We used to get a 1 to 2 discount with a 10-day payment deadline We now have to wrestle with them on discounts because theyrsquoll invoice us right when we order and even before wersquove accepted the shipment to shorten the payment deadlinerdquo

ldquoThey discontinued the Timothy line which was a good seller Theyrsquore replacing them with some of their own SKUs The only issue we have is with Caribou K-Cup line which didnrsquot do as wellrdquo

ldquoAll the pods and the Tassimo combined are about 25 of our revenue stream Therersquos still a big gap between K-Cups and the rest including the pods All the others combined including ground coffee make about one-third of our market Three percent to 5 of the customer base is on Tassimo In the past two months Kraft has introduced single-serve cups But Green Mountain has done so much marketing theyrsquore really out thererdquo

ldquoM Blockrsquos internal finances are a mess They were telling us we hadnrsquot paid and couldnrsquot even find the check after we told them the check number We buy through M Block and also buy direct There are some products you can only get through M Block When we buy from them in order to get certain discounts we have to buy whole truckloads Now theyrsquove mandated whole loads That makes it harder for most distributors because there are only about 15 online retailers that are big enough to take loads this bigrdquo

Green Mountain has pretty much come down to folks like us and said if we sell other K-Cups [when patents expire] theyrsquoll pull our category agreement

IT Director Online Distributor

M Blockrsquos internal finances are a mess They were telling us we hadnrsquot paid and couldnrsquot even find the check after we told them the check number

ldquoMost K-Cups we get are not closer to expiration The last couple of weeks wersquove seen selected SKUs with shorter expiration dates There is no way to know if this is a pattern We carry about 100 SKUs Wersquove received two to three with shorter expiration datesrdquo

ldquoIn one of their research labs [Green Mountain was] using RFID and working with an onboard computer to figure out how much water to send through the machine A bar code would work better than RFIDrdquo

Operations manager of an online retailer based in Texas

K-Cups still stands to remain the dominant player but will lose share to other single-serve formats as the market moves forward Green Mountainrsquos high price points and environmental hurdles put its market growth at risk and single-cup pods are ready to gain share This sourcersquos company is waiting until the K-Cup patents expire before committing to another single-serve provider

ldquoWe donrsquot expect K-Cups to sustain the market growth pattern that they have enjoyed over the past several years but they arenrsquot headed for a quick funeral eitherrdquo

ldquoOn the horizon we see K-Cups remaining a dominant player for some time but losing significant ground to other formats Specifically we see single-cup pods growing in popularity and qualityrdquo

ldquoAs price pressure and environmental concerns become stronger both K-Cups and Keurig brewers will become less and less attractive However brand loyalty is pretty strong in the coffee business so that will help prevent KeurigGreen Mountain from falling off a cliff quicklyrdquo

ldquoWersquore very much in a watch-and-wait phase with regards to Green Mountainrsquos K-Cup patent expiration We think there will be some exciting opportunities as a result Whether having the K-Cup market opened up will be a net positive or negative scenario for the survival of the Keurig ecosystem is to be determinedrdquo

ldquo[Our] guiding philosophy is to focus on quality products and outstanding service at a good value If therersquos a quality product out there that someone wants we will always be interested in providing that service This includes any future models of K-Cup Keurig andor Lavazza brewersrdquo

2) COMMERCIAL SUPPLIERS Two of four sources said Green Mountainrsquos growth will continue and will be backed by strong sales of K-Cups and Keurig brewers The other two sources said 2011 sales were down year to year because of K-Cup price hikes Single-serve pod solutions have become more competitive and some clients are switching to new platforms One source said independent roasters that tried to work with Green Mountain but were rejected are now excited for patents to expire so they can compete directly against Green Mountain One source said K-Cup inventory is ample and that his company has held back in promoting Green Mountain products for fear of being stuck with excess inventory Commercial coffee supplier serving the New York metropolitan area repeat source

Keurig machine and K-Cup sales were up mid-single digits in September and October compared with 2010 The source expects Green Mountainrsquos holiday sales to be strong and said Green Mountain still owns the market

ldquoIn September and October this year compared to last year K-Cup and machine sales have increased in the mid-single digits I also did more sales in October than September and more in September than August though part of that is seasonalrdquo

ldquoGreen MountainKeurig has a big holiday push with their holiday advertising They are everywhere you turn hellip They are going to do extremely well during the holiday season They always dordquo

ldquoThey own the market The system sells itself hellip They are light years ahead of anyone else I donrsquot think Green Mountainrsquos recent bad press has any impact Most of my clients couldnrsquot care less about thatrdquo

ldquoInventory is also very competitive We just recently put a clearance section up [online] We stock over 10 varieties so itrsquos very easy for us to over-order or have items expire I have some friends that have done the same thing Theyrsquove put a clearance section up on their websites Thatrsquos really helped us move inventory so ours is relatively under control We stock about monthrsquos worth of supplyrdquo

ldquoI know they have a new configured Keurig machine that will be coming out in 2012 although they havenrsquot announced its bells and whistles yet From what I hear there is also something in the works with Lavazza thatrsquos

On the horizon we see K-Cups remaining a dominant player for some time but losing significant ground to other formats Specifically we see single-cup pods growing in popularity and quality

Operations Manager Online Retailer

will come out in 2012 I havenrsquot gotten an official word from anyone but from what I hear it will be some type of espresso pod system or something compatiblerdquo

ldquoI think they had duplication hellip They took some of these lines out to simplify things They told me they were only going to make Timothyrsquos available in Canada Theyrsquore probably just setting up for another productrdquo

ldquoGreen Mountain has been pulling the espresso lines hellip Some are no longer available and they took Timothyrsquos out of the United States market My guess is that itrsquos setting itself up for something to come out with Lavazza and I think the Lavazza name may be used as well Thatrsquos supposedly going to happen in the next yearrdquo

ldquoMy prices from Green Mountain have gone up dramatically because the price of coffee has gone up and because Green Mountain can get the price We saw three price increases in 2011 the last one being about $6 a case We are paying about 35 more than we did last year at this time We have passed it on to customers but our profit margin is still not what it needs to be because there are so many competitive places discount houses and Costcosrdquo

ldquoCommercial suppliers are a little frustrated because we donrsquot have Dunkinrsquo Donuts K-Cups from the distribution side They have introduced Starbucks K-Cups in the stores and I know Costco [Wholesale CorpCOST] and a couple of other super stores have it but we donrsquot I donrsquot understand why We were told that we are going to get it in the early second quarter of 2012rdquo

ldquoPeople know Dunkinrsquo Donuts and Starbucks are out there but there is still cost Dunkinrsquo Donuts is 35cent higher than any other K-Cups People are trying it but from what I hear on the streets itrsquos expensiverdquo

ldquoGreen Mountain is not giving [commercial suppliers] the type of support they have in the past because they are exponentially more interested in the home marketrdquo

CEO of an online wholesale distributor repeat source

K-Cup and Keurig sales fell significantly compared with 2010 because of heavy price hikes in 2011 The supplier has backed away from promoting Green Mountain products to avoid being stuck with excess inventory He is increasing his focus on the growing single-cup pods that offer a better taste and a lower price Roasters already are preparing for Green Mountainrsquos patents expire in September He questions the potential of a new Green Mountain platform existing customers will be hesitant to switch brewers after investing in machines

ldquo[K-Cup and Keurig machine] sales are significantly less than one year ago We will not promote it this yearrdquo

ldquoWe did not see K-Cup sales grow this year Coffee sales are up but not on the K-Cups side and itrsquos because of the price Wersquove raised our prices for K-Cups hellip by about 30 to 35rdquo

ldquoOne difference this year from last year a lot of our customers who bought Keurig machines were expecting to pay 5cent to 60cent per cup but because Green Mountain raised the K-Cup price over 25cent per cup in 12 months customers canrsquot really afford itrdquo

ldquoI had a lady this morning tell me she couldnrsquot really afford to pay $1 a cup to use the Keurig she got as a gift There is less than 3cent in a K-Cup if you took the coffee itselfrdquo

ldquoBefore customers were buying 24 K-Cups for $10 Now hellip they are buying 12 K-Cups for $10 and the consumer doesnrsquot always realize itrdquo

ldquoThere is a lot of inventory out there We went in with a plan not to promote Keurig and the K-Cups so we didnrsquot get stuck with the inventoryrdquo

ldquoWe have been a strong proponent of Green Mountain but we will not push them this year We are selling other single-cup products and pushing them over Keurig They are pods primarily such as Community Coffee and Java Onerdquo

My prices from GMCR have gone up dramatically because the price of coffee has gone up and because GMCR can get the price We saw three price increases in 2011 the last one being about $6 a case We are paying about 35 more than we did last year at this time We have passed it on to customers but our profit margin is still not what it needs to be because there are so many competitive places discount houses and Costcos

Commercial Coffee Supplier New York Metropolitan Area

[K-Cup and Keurig machine] sales are significantly less than one year ago We will not promote it this year

CEO Online Wholesale Distributor

ldquoThe excitement will be a year from now when we will be out of the patent We have been told by several people they are buying machines to package K-Cups of their own individual coffeerdquo

ldquoSome other companies are going to come in and take over the market Therersquos a California-based company Rogers Family coffee Wersquove been trying [their K-Cup version] and itrsquos delicious They are taking the market by storm Itrsquos a better price Itrsquos a better product and itrsquos environmentally friendlyrdquo

ldquoGreen Mountain really turned their backs on some big roasters and that hasnrsquot sat well hellip There are a lot of other people out there as potential competition like 8 OrsquoClock Coffee Community Coffee hellip You will find that Green Mountain will see a bunch of competition just like the Rogers Familyrdquo

ldquoPricing and quality of product will turn customers away from Green Mountainrdquo ldquoNow yoursquove got multiple companies who Green Mountain thumbed

their noses at when they asked to have K-Cups made What are these other companies going to do post-patent expiration They are going to be selling their own K-Cups and some will sell at cost just to be competitive This will be an exciting year for the industryrdquo

ldquoI am not much of a Green Mountain supporter I have given away thousands of those machines but they are not quality They are short term Dealing with them and the management of Green Mountain theyrsquore not good I mean who would build a product like that if they were in it for the long term I understand they are going to switch the whole platform and thatrsquos not good [business]rdquo

ldquoThey are talking about $700 million expenditure of new facilities and new plans That makes absolutely no sense unless they are creating something of a new market like they did with K-Cupsrdquo

ldquolsquoSusie Consumerrsquo is not going to trade in her old Keurig machine to make a drink for a different lsquomotherrsquo platformrdquo

ldquoThe pods are the closest second to the K-Cups Green Mountain started their business with the office coffee people so the office put all the Keurig machines out there and then Green Mountain started taking it away from them in the past year so many people have turned to podsrdquo

ldquoThe new pod machines make a really nice cup of coffee that is actually better than the coffee that comes out of a K-Cup It has a better foam a better head and itrsquos half the price Red Diamond has a brand that is popular hellip Over the last year there are over 25 varieties of brands of pods that fit into [Jarden CorprsquosJAH] Mr Coffee or a Bunn[-O-Matic Corp] hellip We are promoting our own brand and Java One is one of the ones you see in the grocery storerdquo

President of a coffee service franchise serving New York repeat source

K-Cup prices and sales were steady in 2011 but Keurig sales declined compared with 2010 when they spiked Green Mountainrsquos new platform may be positioned to stave off copycat K-Cups This source said knockoffs will need a strong brand recognition and better price points to gain any market traction

ldquo[K-Cup] sales have remained consistent however requests for brewers have slowed slightly We did not see the brewer purchase spike [in 2011] that we did [in 2010]rdquo

ldquoPrices have remained stablerdquo ldquoWe still see customers in the office coffee channel requesting

alternatives such as [Mars Incrsquos] Flavia or pods to either reduce cost or stop pilferage of K-Cups by employees for home userdquo

ldquoI donrsquot believe there is any significant competition for them right now in [at-home use] The next 12 to 24 months will be interesting to see what develops It will also be interesting to see how the partnership with Lavazza will impact their ability to expand in Europerdquo

ldquoI have heard that [Green Mountainrsquos new platform] will have some lsquosmartrsquo technology possibly a bar code like Tassimo We will carry it However we are unclear as to the compatibility My thought is that Green Mountain may produce only the new K-Cups which will work in both old and new technology but the old K-Cup will not work in the new platformrdquo

ldquoWe hear companies are aggressively trying to come up with K-Cup solutions for the looming patent expiration It is going to require a significant capital investment to make a dent If they are good quality and readily available

There is a lot of inventory out there We went in with a plan not to promote Keurig and the K-Cups so we didnrsquot get stuck with the inventory

[K-Cup] sales have remained consistent however requests for brewers have slowed slightly We did not see the brewer purchase spike [in 2011] that we did [in 2010]

President Coffee Service Franchise New York

at a more competitive price they will have an impact [on Green Mountainrsquos market share] Whether someone can purchase the packaging lines and duplicate what Green Mountain has done with any price advantage or any advantage at all remains to be seenrdquo

ldquoI would assume whatever K-Cup knockoffs come to market will not work in Green Mountainrsquos new platform Irsquom not sure how much of a capital investment a company is willing to make to produce a product which may be a diminishing return as old Keurig brewers are replaced by newer brewers with the new platformrdquo

ldquoIf we assume quality [of knockoff K-Cups] will be equal price would be the main factor Competitors would also need to have a recognizable brand or brands available to impact Green Mountain salesrdquo

CEOpartner for a distributor of high-end third-wave coffee to offices competes against K-Cups

The market for K-Cups will continue to expand as consumers at home and in the workplace are captivated by the convenience speed and cleanliness of the product Patent expiration is a real threat to Keurig and will open the door to competitors to charge the same high price as Green Mountain and reap the rewards of tremendous profit margins His product is of superior quality and is gaining share in niche markets while taking some business from Green Mountain

ldquoK-Cups will continue to grow without a doubt Therersquos more market to capture which is absurd to me In an office I can understand it Nobody wants to brew coffee and nobody wants to clean uprdquo

ldquoI doubt all the negative buzz about Green Mountain is affecting consumer views Patent expiration will definitely bring more competitionrdquo

ldquoK-Cups have a very big convenience draw It sells because of how easy it is In an office itrsquos extremely convenient nobody has to be in charge It can be ordered like paper Also the cleanup is easy you just throw it away But in lots of offices therersquos a line at the K-Cup machine In an office you can stock it as an inventory itemrdquo

ldquoBut the quality is very poor Itrsquos extremely profitable Wersquove weighed K-Cups it translates into about $25 per pound and wersquore not taking cost of packaging into consideration K-Cups also brew less coffee than a traditional cup Yoursquore not getting as much caffeine so people use more of them to get the same caffeine hitrdquo

ldquo[Nestleacute SArsquosNESNVX] Nespresso is just like other coffees just roasted a little differently And they have a luxury imagerdquo

ldquoThe way K-Cups brew is problematic Thirty to 45 seconds is too short a brew for a good cup of coffee But if you can get coffee for $3 per pound and turn it into a $25 per pound K-Cup thatrsquos a lot of margin to grab The newcomerscompetitors will not lower prices theyrsquoll try to keep them and have different marketing The margins are too good to be truerdquo

ldquoWe cater to a very specific niche Ours is exclusively third-wave locally roasted coffee For us every month is better than the last but wersquore in a very specific market Lots of third-wave roasters came into New York to start so we do well in New York We do tastings in offices that have K-Cups They always like ours a lot more Nobody has ever preferred a K-Cup They say lsquoWe like yours a lot better but wersquove no time to have people brewing yoursrsquo Most of our clients have switched to us from K-Cups It depends on the culture of the office Our target companies are tech companies with lots of perks and younger employeesrdquo

3) INDUSTRY SPECIALISTS Of these six sources one said 2011 sales leveled off for Green Mountain because competition including from single-serve pods became fiercer Another source said Green Mountain continued to gain momentum and was set up for strong holiday sales at higher prices but the company will be threatened by patent expiration A third source said Green Mountain had problems with plant expansion near Seattle and needed a temporary roaster to complete unfilled orders which will cut into profit margins for another six months A lawyer outlined the timeline for the class action suit against Green Mountain with the initial complaint expected to arrive in late January during which some information may become public A patent attorney said

I would assume whatever K-Cup knockoffs come to market will not work in Green Mountainrsquos new platform

K-Cups will continue to grow without a doubt Therersquos more market to capture K-Cups have a very big convenience draw It sells because of how easy it is

CEOPartner Distributor of High-end Coffee

the time needed to file another patent application for Green Mountain next generation K-Cups and brewers is a bigger issue than the patent officersquos rejection of the companyrsquos initial application Editor of a coffee magazine California repeat source

Sales of K-Cups and Keurig brewers have leveled off amid growing competition Green Mountainrsquos agreements with Starbucks and Dunkinrsquo Donuts could mitigate the coming patent expirations unless Starbucks decides to make its own K-Cup version Pods are taking advantage of the trend toward single-serve coffee but still do not offer the same K-Cup convenience Green Mountainrsquos relationship with Lavazza is unlikely to have a significant effect in Europe where Lavazza is not considered quality coffee

ldquo[Green MountainKeurig] sales have flattened a little bit They are hitting a maturity plateau and they are getting a lot of push back now from other people who make K-Cupndashlike alternativesrdquo

ldquoThey are going to face some serious challenges One really needs to look at the strength of the branding agreements with the major brands they produce I know their agreement with Dunkinrsquo Donuts is pretty solid and long term and beneficial to everyone [The JM Smuckers CorsquosSJM] Folgers now is ready to let that slide off their plate and let Green Mountain handle itrdquo

ldquoI believe the Starbucks agreement is that Green Mountain is only a co-packer and Starbucks sends them roasted coffee and itrsquos based on mutual benefits [Starbucks] kept all the control and hired Green Mountain to pack for them hellip Itrsquos the quality of that agreement that is going to determine whether or not the loss of the patents is going to have an impact on Green Mountain If Green Mountain can keep Starbucks handy their brand power alone is going to continue to fuel their growth so I donrsquot think that losing patents is a big deal for them unless Starbuck plans to make K-Cups themselvesrdquo

ldquoThe Dunkinrsquo Donuts and Starbucks deals have a great benefit for Green Mountain Theyrsquore roasting and packaging a lot of coffee Itrsquos a huge hit hellip Everything that I have been hearing is that their sales and repeat sales [for these two brands] are going uprdquo

ldquoLavazza and Green Mountain have entered into an agreement to do mutually beneficial distribution Lavazza has no distribution to speak of in North America and vice versa with Green Mountain in Europe hellip I donrsquot think Lavazza is going to gain traction in the US hellip If you ask Europeans what they think of the Lavazza brand itrsquos considered the Maxwell House of espressordquo

ldquoGreen Mountain is ordering more large capacity roasters They have three or four Solari roasters which are these monstrous things so they put product out faster They are the biggest baddest roasters out there They are buying them like candyrdquo

ldquoThere are a lot of advantages the pod guys are going to start realizing hellip Itrsquos been pretty effective because the pod technology is so much less expensive than the K-Cup technology and a small roaster can get into that easier hellip They also can get into their regional or local market and control the quality of coffee going into these podsrdquo

ldquoI donrsquot know if [pods] translate into the convenience side for grab-and-go commuters in their homes or in the office hellip The pod still has all the little inconveniences that the K-Cup overcomes Whatrsquos happening is that the pod guys are able to attract those consumers who are looking for a great cup of coffeerdquo

ldquoThe Keurig machines are starting to break and look grimy [for some consumers] They are that appliance that you use too much and people donrsquot know to cleanrdquo

ldquoSo far these guys have been smart The accounting thing has I think jumped up and bit them in the butt a possibly honest mistake A few years ago they were this small to medium roaster from Vermont hellip I think they just did some bad accounting from poorly managed growing painsrdquo

[Green MountainKeurig] sales have flattened a little bit They are hitting a maturity plateau and they are getting a lot of push back now from other people who make K-Cupndashlike alternatives

Editor Coffee Magazine California

If Green Mountain can keep Starbucks handy their brand power alone is going to continue to fuel their growth so I donrsquot think that losing patents is a big deal for them unless Starbuck plans to make K-Cups themselves

Strategic consultant for specialty coffee businesses repeat source Advertising and merchandising indicate K-Cup and Keurig machine sales since last September have been strong This source expects higher holiday sales at higher price points year to year The upcoming expiration of K-Cup patents will open up the market and Green Mountainrsquos recent negative publicity has hurt its reputation somewhat

ldquoMerchandising and advertising since last September have been very strong Store sales are likely up and the Keurig is gaining momentumrdquo

ldquoI expect more holiday sales at higher price points than in 2010 Discounts are flatrdquo ldquoPatents on K-Cups will run out soon which will be interestingrdquo ldquoGreen Mountain has left the specialty buildingrdquo

Editor of a specialty coffee trade magazine and website

Patent expiration will result in significant revenue loss for Green Mountain particularly if a brewer that lasts longer than a Mr Coffee but priced lower than a Keurig is created Convenience is the main sales driver but the economics of the Keurig and K-Cups do not always add up when compared with alternatives Environmental complaints about K-Cups are a nonissue The source was skeptical of claims that M Block served as an extension of Green Mountain

ldquoThey wonrsquot be able to license the technology anymore so theyrsquoll lose a significant revenue source Reverse engineering the pod is easy Doing the same with the machine is harder Someone will reverse-engineer the machines but thatrsquos less of a direct threat to their profit centerrdquo

ldquoThe K-Cup has been a game changer because Green Mountain made a smart decision to license the technology to anyone who wanted to use it That greatly increases K-Cupsrsquo reach from the consumerrsquos point of view and increases the temptation to buy the brewer The brewer was the biggest obstacle and once you get it yoursquore kind of committed to buying the coffee in podsrdquo

ldquoNestleacute failed because they tried to control everything hellip which means they spent a lot of time suing people who pirated the [Nespresso] capsules Itrsquos a consistent profit center for them but who knows how far they would have gone if they had licensed it and increased its reachrdquo

ldquoConvenience doesnrsquot trump everything but itrsquos a powerful factor Regarding cost it all depends what quality you want and what yoursquore willing to payrdquo

ldquoThrowing so much plastic away sucks but consumers talk a way better game than they play when it comes to environmental concerns hellip They could look at biodegradable plastic made by Natureworks Nobody is yet doing it with K-Cupsrdquo

ldquoM Block was named in one of the lawsuits But who knows if therersquos any substance to thatrdquo

Executive at a coffee roasting company in Seattle Green Mountain had a delay in its roasting and warehouse operations near Seattle so it hired a temporary roaster in September to complete unfilled orders for a total of about nine months which will cut into profit margins Customersrsquo environmental concerns about K-Cupsrsquo plastic now can be addressed by a reusable single-serve cup called Ekobrew The sourcersquos colleaguesrsquo experiences with Green Mountainrsquos staff have been quite favorable

ldquoGreen Mountain didnrsquot plan out their roaster capacity correctly They just built a huge facility and there was a delay So now theyrsquore in transition from their Seattle warehouse and they werenrsquot able to keep up with the demand They had a lot of unfilled orders which is why they have someone else roasting for them This had to cut into their profit margins But it will likely only be for another six months or sordquo

ldquoI donrsquot work with Green Mountain directly The staff seem to like them hellip Theyrsquore very straightforward nice legitimate business people They donrsquot store anything here Wersquove learned a lot from them itrsquos improved a lot of our systemsrdquo

Throwing so much plastic away sucks but consumers talk a way better game than they play when it comes to environmental concerns

Editor Specialty Coffee Trade Magazine amp Website

Green Mountain didnrsquot plan out their roaster capacity correctly They just built a huge facility and there was a delay They had a lot of unfilled orders which is why they have someone else roasting for them This had to cut into their profit margins But it will likely only be for another six months or so

Executive Coffee Roasting Company Seattle

ldquoEkobrew is a reusable single-serve cup that started a month ago and is taking off like crazy The cups take any kind of coffee and take away the wastefulness of single serve Ekobrew advertises that it will save up to 80 on coffee Consumers love the convenience but also the ecological and economic benefits hellip Ekobrew wonrsquot dent the commercial market they donrsquot have the time for the cleanup Itrsquoll impact more the home use of K-Cupsrdquo

ldquoOur holiday sales are out the roofrdquo Attorney involved in a lawsuit against Green Mountain

The source is a partner in a law firm that plans to file a class action against Green Mountain and provided a road map for the lawsuit including the stage of the case at which nonpublic informationmdashthe amended complaint after discoverymdashmight become available The court has not yet heard the initial complaint which will occur at the end of January The most important information about Green Mountain and M Blockrsquos inventory management is that enough evidence has been provided to enable subpoenas for witnesses

ldquoThey were using M Block to manipulate demand They were using shipments and movements of inventory so they could tell investors there was more demand than there really was Yoursquore right that being incompetent is not grounds for a class action lawsuit The bar for proving intent in securities law is very high Being a bad vendor or stupid doesnrsquot raise to that bar Intent is very difficult to prove The initial threshold for proving intent is that the initial plea must have enough factual material indicating that the first stage of the case merits going forward The court hasnrsquot yet determined if therersquos enough evidence to choose a lead plaintiff Securities law requires enough facts in the case for an initial pleading which must succeed to get a lead plaintiff appointed by the courtrdquo

ldquoLook to the amended complaint by the lead plaintiff for any information showing intent to see if the case is successful and may go forward Thatrsquos where there might be previously unpublic information that would cause the case to go ahead Information that was previously nonpublic doesnrsquot come out in discovery but only at the amended complaint stage The initial complaint deadline is at the end of January then there will be a couple of months of briefing and then the next stage choosing a lead plaintiff could be immediate or take six to eight months I would give it six to 12 months for previously nonpublic information to come out Irsquom a partner and I wouldnrsquot take this case if I didnrsquot think it had no merit We work on a contingency fee so we already have invested in the case and as a partner I have toordquo

Patent attorney based in Los Angeles

The US Patent Officersquos rejection of Green Mountainrsquos patent application for its next generation platform is typical Rejection of the patent application itself should not be an alarm about the new platformrsquos prospects Rejections of patent applications as too broad occur with 80 of applications as most filers try to get patent protection that is broader than the patent office wants to give Filers then narrow the scope to get the application accepted but this can take three to four years making timemdashrather than the rejection itselfmdashGreen Mountainrsquos bigger problem with its new patents Important elements to know are if Green Mountain will be able to patent subsequent generations of K-Cups and platforms and whether the rejection was a type 102 103 or another A type 103 rejection would mean Green Mountain could not use its soon-to-expire patents to justify the new patents

ldquoThe standard for patentability is novelty beyond the previous product It may seem minor but not be for the US Patent Office examiner Itrsquos the novelty aspect that counts and deserves a new patent There are all kinds of attacks possible to move to invalidate a patentrdquo

ldquoA natural and normal part of the process is getting rejections Eighty percent of office actions are rejections and filers have to clean up their filings You can usually amend around and argue about it to get the rejection reversed But it depends what yoursquore claiming To get around the rejection you have to narrow the scope What you see as the invention and whatrsquos filed are usually two different things You would have to read the patent claim to see whatrsquos protectable Some are easily defensible and broad and some are weak and worthlessrdquo

ldquoType 102 rejection if therersquos a prior piece of art thatrsquos the same and the new invention requires only an ordinary skill to createrdquo

ldquoType 103 rejection Expired patents can serve as prior against an existing or newly filed patent if the new invention is not obvious Obviousness is when therersquos a combination of references You combined two or three prior ordinary skills in the art in that field of using or making those things If it was obvious to combine these to arrive at the current invention the filing is rejected This is a very common rejection This is common for all patents When you file it takes three to four years to get it You canrsquot just add one little thing You have to jump through lots of hurdlesrdquo

4) PRE-CHRISTMAS STORE VISITS Five of seven stores said Keurig and K-Cup holiday sales were better in 2011 than 2010 Demand increased as customers become more aware of the products and considered them an everyday appliance rather than a luxury item Keurig was a top selling gift item for the holidays Three stores reported selling out of at least one model of Keurig while others said inventory was low Discounting on brewers and K-Cups was mixed Expiration dates on K-Cups were most commonly listed between April and June 2012 though a handful of boxes were dated February 2012 Accessories like the K-Cup Carousel and My K-Cup filter also were popular and sold out in some stores One store said the My Cup filter was cutting into K-Cup sales as customers respond to rising K-Cup prices Floor manager in the housewares section at a Bed Bath amp Beyond Los Angeles

Keurig machines and Green Mountain K-Cups outsold the competitors by about 21 with the Keurig Elite topping sales The source reported a doubling in demand for Keurig purchases for gifts K-Cups and K-Cup accessories The source also said the Keurig and K-Cup coffee products are becoming more of a household staple customers are not showing any signs of slowing down on K-Cup purchases

ldquoSales are up from a year ago probably close to double Irsquove been in this store five years and Irsquove seen them get better each quarterrdquo

ldquoWersquove sold out of a few of the Keurig Elites and reordered That is the best selling machine in the store People are buying them as gifts thatrsquos all they are buying in the store right nowrdquo

ldquoGreen Mountain coffees come in so many different varieties the others canrsquot really compete We donrsquot carry Dunkinrsquo Donuts coffee Coffee Bean and Starbucks do OK but Green Mountain K-Cups are the best sellers They are the least expensive brand and they have the widest selection of flavors The [Hain Celestial Group IncHAIN] Celestial Teas are also doing wellrdquo

ldquoDemand is definitely higher than it was a year ago Irsquove noticed more customers stocking up on K-Cups in larger quantities which tells me the machines are becoming sort of a household must rather than a luxury itemrdquo

ldquoSome prices are a little higher than they were a year ago Starbucks coffees are probably higher than the othersrdquo

ldquoI have not heard anything about a new version of the Keurig makers If thatrsquos happening itrsquos the first Irsquove heard about it It could be bad if customers couldnrsquot use the K-Cups they have but I suspect they will send out new versions that can be usedrdquo

ldquoI donrsquot know anything about expiration datesrdquo Reporter Observations On a Sunday afternoon before Christmas inventory for Keurig machines and the Green Mountain Seasonal Combo packs of K-Cups was depleted Tassimo machines also were thin on inventory The Coffee Bean amp Tea Leaf Single Serve Beverage machine and kiosk had a video demo that was attracting attention but no buyers None Keurig machines were on sale but the Tassimo was on sale for $129 ($10 off) This store had about twice the selection of K-Cup carousels it had six months ago with wood drawers metal stands and mesh trays as part of a new accessory inventory

Household sales associate at a Bed Bath amp Beyond in San Jose

Sales of Keurig coffee makers and K-Cups picked up quite a bit in 2011 and flew off the shelves the few weeks before Christmas Customers do not care about Keurigrsquos business problems or Green Mountainrsquos environmental impact They just like specialty coffees and the machinersquos convenience factor Generic competition may have an effect if their prices are right and the coffee is good No expiration problems have been noted on K-Cups

ldquoThe Keurigs have continued to increase in sales Definitely it has grown from [2010] and not just by small figures This season itrsquos like people have gone nuts Everyone wants one We canrsquot keep them in stockrdquo

Sales are up from a year ago probably close to double Irsquove been in this store five years and Irsquove seen them get better each quarter

Housewares Floor manager Bed Bath amp Beyond Los Angeles

Demand is definitely higher than it was a year ago Irsquove noticed more customers stocking up on K-Cups in larger quantities which tells me the machines are becoming sort of a household must rather than a luxury item

Housewares Floor Manager Bed Bath amp Beyond Los Angeles

ldquoWe carry Green Mountain K-Cups We are the only store that carries Green Mountain Island Coconut and that flavor sells But I wouldnrsquot say Green Mountain is the most popular brandrdquo

ldquoItrsquos hard to tell what type of coffee people like to drink so we carry it all It seems like hot cocoa is popular today Wersquove got all the brands you could possibly imagine more than a dozen and almost 200 different coffee and tea flavors I just think it is a matter of taste hellip If a generic brand comes up people might try it if the price is right at least in the beginningrdquo

ldquoI really donrsquot know anything about problems with Keurig or Green Mountain I havenrsquot heard anything It doesnrsquot seem to bother our customers either Same for patent expirations I think these things are going to keep selling no matter what happensrdquo

ldquoThe big seller this year is the K-Cup holders for $24 to $34 We sell several types but the most popular is the wooden or metal drawer that sits under the coffee machine We are almost out of the wooden onesrdquo

ldquoI donrsquot think wersquove had any expiration problems These things fly off the shelvesrdquo

ldquoPeople get out 20-off coupons in the mail and use those That saves a bit of moneyrdquo

ldquoKeurig Elites are the most popular especially black Everyone wants black We are out of black Elites so we are trying to get more but people wonrsquot get them by Christmas We might have to pull from other stores but Irsquom not sure how their stocks are either The next most popular is the Special Edition [$14999] The Platinum [$17999] isnrsquot as popular as those two It all depends on the number of cups you userdquo

ldquoWersquove carried Keurigs for more than three four years and it didnrsquot do much at first Some people bought them But with Starbucks becoming so popular people are really into specialty coffees now and they can save money by making their own I think itrsquos expensive thoughrdquo

ldquoNo one absolutely no one buys a drip coffeemaker any more They stopped buying them last year We still carry all the big brands but we are cutting back on those suppliesrdquo

ldquoI donrsquot think people care too much about recycling either We donrsquot sell too many of the reusable filters The buyers like this systemrdquo

ldquoI would expect to see a recyclable or compostable container in the next year or twordquo ldquoWe have a distributor that brings supplies to the warehouserdquo

Reporter Observations On a Sunday afternoon before Christmas four Elite two Special Editions and two Platinums sold in half an hour In addition two people bought K-Cup carousels and approximately 12 people bought K-Cups The store had at least 15 different brands of K-Cups for sale No one paid attention to the Coffee Bean amp Tea Leaf display in front of the Keurig wall A large Keurig and K-Cup section was set aside from other displays and three large Keurig banners hung from the ceiling The earliest K-Cup expiration date was April 2012 the latest was July 2012

Home electronics department manager for Carsonrsquos Chicago area Keurig was the most popular holiday gift and was more popular than last year The source said a sale on Keurig machines the weekend before Christmas was tremendously successful Results were similar to Black Friday with 300 units sold The store was nearly out of inventory including back stock Keurig also is a popular item on bridal registries and drives nonholiday sales Customers often wait for the storersquos sales

ldquoThe Keurig is the most popular Christmas gift in the store We did very well with the Keurig last year over Christmas and we are going to sell even more of them this year Keurigs have increased in popularity from last year They are popular all year round and seem to be getting even more popularrdquo

ldquoWe just had a huge Keurig sale over the weekend We had four really big stacks of them before the weekend and now we are nearly sold out of the machinesrdquo

The Keurigs have continued to increase in sales Definitely it has grown from [2010] and not just by small figures This season itrsquos like people have gone nuts Everyone wants one We canrsquot keep them in stock

Housewares Sales Associate Bed Bath amp Beyond San Jose

The Keurig is the most popular Christmas gift in the store We did very well with the Keurig last year over Christmas and we are going to sell even more of them this year Keurigs have increased in popularity from last year They are popular all year round and seem to be getting even more popular

Home Electronics Dept Manager Carsonrsquos

Chicago area

ldquoAll of the stock of Keurig is on the floor We have no back stock now We had to fill some of the floor space this morning with K-Cup carouselsrdquo

ldquoWe have Keurig sales almost every other week Customers know this and purchase them only when they are on-salerdquo

ldquoWe were so busy with Keurig sales this weekend it was like Black Friday We sold over 300 Keurig machinesrdquo ldquoKeurigs are a very popular item on bridal registries That is where a lot of our nonholiday sales come fromrdquo ldquoWhen customers purchase a Keurig machine they also purchase K-Cupsrdquo ldquoPeople really like the strong coffee flavorsrdquo ldquoThe creamier drinks are popular toordquo

Reporter Observations On a Tuesday morning before Christmas the Keurig area was front and center in the home electronics department We noted a huge overhead Keurig sign and other signs in the area The 26 available machines were stacked on the floor in front of a large wall filled with multiple K-Cup flavors The store had sold out of the Keurig Mini We saw no Keurig or K-Cup purchases during our 45-minute visit

JC Penney store manager Chicago suburb

Holiday sales of Keurig and K-Cup products were stronger year to year and a store promotion was pushing holiday sales ahead of expectations Sales have been consistent since Oprah featured a Keurig in 2010 K-Cup sales have been strong too The storersquos top sellers are the B40 (Elite) and B60 Special Edition (Single Cup) Stock was low on machines

ldquoKeurigs and the K-Cups are doing even better than we expected this holiday season We are selling more of them than Christmas 2010 It is a hot sellerrdquo

ldquoEver since Oprah last year Keurigs have done well and I believe they will continue to do so Customers really like the product It is unique and easy for them to userdquo

ldquoOur top selling Keurigs are the B40 and the B60 Special Editionrdquo ldquoThis is all we have We had a huge table filled with machines on Friday

and we took it down this morning as most of the stock soldrdquo ldquoWe are sold out of the B40s now and quite low on the Keurig

Platinumrdquo ldquoWe are expecting a few more Keurigs in before Christmas but you

never know until the merchandise actually shows uprdquo ldquoI have already sold three Keurigs today They are as popular as everrdquo ldquoSince the promotion started Keurig sales have been crazy to this point

and are expected to stay strong up to Christmasrdquo ldquoWe also sold a ton of coffee this weekend We had a lot more K-Cups than we have nowrdquo ldquoKeurig has their own niche market and they have no competition It used to be [Lifetime Brands IncrsquosLCUT]

Cuisinart but now they donrsquot have any quality machines or products as good as the Keurigrdquo ldquoWe have had the Keurigs for two years now At first they did OK but ever since the Keurig was on Oprah

business has been good for themrdquo ldquoKeurigs are good sellers year-round and sales have definitely picked up even further this holiday seasonrdquo

Reporter Observations On a Monday afternoon before Christmas Keurigs were displayed front and center within the home electronics department and were promoted by a hanging Keurig sign The Keurig Mini was the only machine on display The store had 20 to 25 flavors of K-Cups No K-Cups had reached their expiration date Keurig machines were discounted 25 to 30 while K-Cups were on sale for $1399

Sales associate at Bed Bath amp Beyond in Los Angeles Keurig machine and K-Cup sales were very strong thanks to shoppersrsquo K-Cup and gift purchases The Keurig Special Edition has outsold all other models although the store ran out of the Mini on Sunday Customers buy K-Cups mostly on sale or in bulk at stores like Costco The Coffee Bean amp Tea Leaf model that came out a few weeks ago is selling thanks to an established Southern California customer base and a brew-strength control feature This source knew nothing about expiration dates or pending patent changes but expects customers will buy K-Cups from any manufacturer if preferred flavors are available and are priced right The source also demonstrating K-Cups and the Special Edition machine

Keurigs and the K-Cups are doing even better than we expected this holiday season We are selling more of them than Christmas 2010 It is a hot seller

Store Manager JC Penney Chicago Suburb

ldquoSales for Keurig are doing very well definitely up way past where they were in the fall I wasnrsquot here last Christmas so Irsquom not sure about a year agordquo

ldquoWersquove sold out of the Mini brewers and we are nearly selling out of the Special Edition models which are the best-selling machines right now A lot of people are definitely buying them as gifts not for themselves Irsquod say more than 50 of them already own Keurig machines so they are buying K-Cup replacements for themselves or to go with the giftsrdquo

ldquoI think we get everything right from Green Mountain but Irsquom not surerdquo ldquoNothing has been brought to our attention about the expiration dates

or the patents expiring I would think that most people would have said something to us if theyrsquod noticed the expiration dates were coming closer togetherrdquo

ldquoDemand is clearly strong for the Keurig machines and K-Cups Drip brewers are a little antiquated Many customers say theyrsquove either gotten rid of their drip makers or use them only when they need to make a big pot of coffee for a partyrdquo

ldquoIrsquove noticed prices are up a little but Irsquove also noticed that Green Mountain is coming through with a lot of large-quantity samplers which come out a little cheaper because it is like buying bulk I know some customers have told us that theyrsquoll buy the K-Cups here only when they are shopping for something else or if they are on sale and are buying big amounts at places like Costco But I havenrsquot really noticed that taking a bite out of our salesrdquo

ldquoCoffee Bean amp Tea Leafrsquos new brewer is doing relatively well but certainly not as popular as the Keurigs The thing that they address is the brew strength The Coffee Bean amp Tea Leaf models use a round coil drip method as opposed to the straight-through drip technology that Keurig machines have This makes it easier to control brew strength which I know is an issue for some Keurig ownersrdquo

Reporter Observations At 1130 pm on the Thursday before Christmas the store was extremely busy People were buying K-Cup samplers and boxes of different flavors rather than machines but two people were holding Keurig Elite models One customer was buying a Coffee Bean amp Tea Leaf machine for her boss The Special and Elite models were on sale but only two Elite models were on the shelves A K-Cup tea sampler was being offered for $699

JC Penney floor supervisor Florida

Sales of Green Mountain products were steady in 2011 but the growing popularity of My K-Cup filters may hurt K-Cup sales The source reported seeing more Green Mountain markdowns but had experienced no issues with inventory or expiration dates Keurig still does not have a viable competitor Accessories are selling well K-Cup carousels have sold out once already

ldquoSales of the machines and the K-Cups have been the samemdashno big changes in sales since last year They are still popular and sales of both are steady for us I think they have gotten to be more popular this year The name is spreading and once you have one all your friends and family want onerdquo

ldquoI have had a few customers who have had their machines for five years or so come in within the last few months and get a new machine because their machine was on the fritz Most coffee machines burn out at about five years They were fine with buying a new one because they got a lot of use out of the machine and still want the single-serve methodrdquo

ldquoInventory is good I think we will have enough stock to fulfill the need for machines and K-Cups Some K-Cup flavors do sell out more quickly but itrsquos hard to know what will sell because coffee is such an individual taste We have sold out of the carousels once already and very well may sell out again They have been a good giftrdquo

ldquoWe do have fewer K-Cups than last year I think the My K-Cup has been affecting the use of the K-Cupsrdquo

ldquoThe My K-Cup is popular this year customers are surprised that you can use your own coffee and tea with the accessory filter It was a great

Some customers have told us that theyrsquoll buy the K-Cups here only when they are shopping for something else or if they are on sale and are buying big amounts at places like Costco But I havenrsquot really noticed that taking a bite out of our sales

Sales Associate Bed Bath amp Beyond Los Angeles

Sales of the machines and the K-Cups have been the samemdashno big changes in sales since last year They are still popular and sales of both are steady for us I think they have gotten to be more popular this year The name is spreading and once you have one all your friends and family want one

Floor Supervisor JC Penney Florida

move to help sell the machine It makes the sale much easier when customers wonder what to do with their ground coffee when they get the machine or if they think the K-Cups are too expensive or donrsquot care for the flavors Now they can use their own coffee or teasrdquo

ldquoThere are more discounts this year than last on both the machine and the K-Cups All the models are on sale and the K-Cups toordquo

ldquoI have not noticed any K-Cups coming in that are close to expiration We do get memos every two months or so to check the boxesrdquo

ldquoNo other brand has a single-serve machine that is as popular as the Keurig It has become a household name I donrsquot think they have any competition Even when the patent runs out I think they will still have the advantagerdquo

ldquoWe have two other single servers one from Tassimo and one from Cooks [a JC Penney private label] and neither has sold well at all The Keurig is it It is the latest and greatest thing hellip even though they have been around a whilerdquo

ldquoThe Elite is the best-selling machine because itrsquos the middle model size and is at the right price pointrdquo Reporter Observations At 330 pm on the Tuesday before Christmas two people showed interest in the Keurig machines and checked prices One couple discussed if the machine would make a good gift Promotional signs listed the sale prices at the head of the aisle The Keurig machines were front and center with five models out for display The K-Cup display was fully stocked Twenty My K-Cups were stacked next to the machines Six K-Cup carousels were stacked to the back of the display Expiration dates varied February 2012 April 2012 July 2012 and October 2012 We also noted two models of Tassimo single-brew machines and one Cooks brand machine Both were on sale and displayed behind the Keurigs

Associate in the small appliances section of Kohlrsquos Florida

Keurig sales slowed in 2011 year to year but demand and sales expectations remain high All Green Mountain inventory was on the sales floor K-Cup sales were steady year to year despite higher prices Discounting were more common for K-Cups than for Keurig in 2011 Starbucks and Dunkinrsquo Donuts are the most popular flavors K-Cup expiration dates are checked every month

ldquoFrom last year I think they have slowed down This time last year we had already had to reorder more machines but they are still selling We are expecting them to sell really well In this last month I sold about one a week mostly for gifts Through the fall it was more like two a month for personal userdquo

ldquoInventory is all out on the floor I donrsquot know if there is an issue with stock but do know that what we have out is it There are none in the backrdquo

ldquoPrices are a little higher on the K-Cups compared to last year Discounting on the machines is rare There are sales on the K-Cups every now and then They sell all year long and are steadyrdquo

ldquoThe Mr Coffee Single Serve sells well too but the Keurig is more popular I donrsquot think it will affect the sales of Keurig too muchrdquo

ldquoI have never encountered K-Cups that are expired We have to check them every monthrdquo ldquoThe Dunkinrsquo Donuts and Starbucks K-Cups are popular and sell out the quickest We do have to reorder them

more frequently than the other flavors The Cider is not selling at all The teas are doing OKrdquo Reporter Observations At 230 pm on the Tuesday before Christmas an aisle display with about 25 boxes of the Special Edition and the Platinum Keurig models were stacked on the floor A table display held eight Keurig models and was directly across from the aisle display Three shelves full of K-Cups were placed about six feet from the aisle display Keurig accessories were placed on an end cap and were fully stocked One customer picked up a machine but did not select accessories or K-Cups

We do have fewer K-Cups than last year I think the My K-Cup has been affecting the use of the K-Cups

From last year I think they have slowed down This time last year we had already had to reorder more machines but they are still selling

Associate Kohlrsquos Florida

5) POST-CHRISTMAS STORE VISITS Three of six sources said they continue to sell Keurig brewers and K-Cups after Christmas and expect sales to drop off but not nearly as much as with other products Stores are not increasing Green Mountain discounts No source reported returns or customer dissatisfaction with Green Mountain products Household sales associate at a Bed Bath amp Beyond in San Jose CA

Holiday sales of Keurig and K-Cups may have doubled year to year No customers have yet returned a Keurig machine bought during the holidays The top holiday seller was the Elite followed by the Cuisinart Keurig Single Cup Brewer The store continues to discount the K-Cups but not the machines The source expects Keurig prices to rise in the next few months

ldquoThis Christmas sales of the K-Cups and Keurig coffee makers went up exponentially We may have doubled sales compared to last Christmas I couldnrsquot keep them on the shelves Generally it was not uncommon to sell 10 or more in an hourrdquo

ldquoThe Keurigs never get returned People love these machines Once someone returned a Mini for a larger machine And very rarely someone returns a defective coffee maker We havenrsquot had any returns this week and I donrsquot expect that we willrdquo

ldquoOur top seller was the Elite The second top seller was the Cuisinart Keurig coffee maker This is a joint enterprise by both companies and it is the best of both worlds We recommend this one to our customers At $19995 it is expensive but only $20 more than the Elite and you get a lot more features It has bigger water storage charcoal filter does its own cleaning and rinse and has a hot water feature It is digital and you can add your own grounds in a filter A lot of people do this and it saves money Plus everyone likes the stainless steel featurerdquo

ldquoThe top of the line is Keurigrsquos Breville [$24999] We sell a few of these but not many And we didnrsquot get many inrdquo

ldquoThe Keurigs will not go on sale after the holidays The price will stay the same If anything the price will gradually increase People love these makers We will continue to sell at least one machine per day for the rest of the yearrdquo

ldquoKeurig sells well because it is mentioned on TV showsrdquo ldquoThe Starbucks House and Beach blends K-Cups sell the best but they

also cost the most [$1499 for 18 K-Cups] The Barista French and Italian Roast are also top sellers and they cost the same as the Starbucks We keep the high-end sellers over here on the left But customers can get a $5-off coupon online The Cafeacute Express Dark Chocolate was the biggest chocolate seller because it packs in a lot more chocolate than the light version hellip The cheaper versions sell at $1199 for 16 cupsrdquo

ldquoThe cost of K-Cups keeps going up steadily They started at $999 for 16 increased to $1099 and now they are at $1199 The most popular flavors sell for more I donrsquot expect the price to go down and we wonrsquot be offering any salesrdquo

ldquoA lot of people say the K-Cups are wasteful A box of 18 well that is a lot of waste But it doesnrsquot seem to slow sales anyrdquo

ldquoThe Coffee Bean amp Tea Leaf coffee maker did not sell well this year probably because of Keurig We did sell out of their frothers and we do sell their coffeerdquo

ldquoWe donrsquot sell many drip makers any more The ones we do sell are the small 4-cup stainless steel versionsrdquo JC Penney associate Chicago suburb

Keurig was a popular seller before and after Christmas After-Christmas purchases are driven by promotional prices and customers combining the discount with a coupon The source sold more than 10 machines and around 30 K-Cups on her

This Christmas sales of the K-Cups and Keurig coffee makers went up exponentially We may have doubled sales compared to last Christmas I couldnrsquot keep them on the shelves Generally it was not uncommon to sell 10 or more in an hour

Household Sales Associate Bed Bath amp Beyond San Jose

The cost of K-Cups keeps going up steadily They started at $999 for 16 increased to $1099 and now they are at $1199 The most popular flavors sell for more I donrsquot expect the price to go down and we wonrsquot be offering any sales

shift The Elite and Mini were selling the best because of the storersquos multiple discounts Generally Special Edition and Platinum are the strongest sellers while Starbuckrsquos Breakfast Blend is a top selling K-Cup flavor

ldquoKeurig sold like hotcakes for Christmas and still is selling We are selling a ton of them post-Christmasrdquo ldquoI have personally sold at least 10 Keurig machines today and I have sold anywhere from 25 to 30 K-Cup boxes

Customers really take advantage of the sale combined with the couponrdquo ldquoI have not had any returns or exchanges of Keurig product post-Christmasrdquo ldquoPeople are using the coupon for $20 off a purchase of $100 and are getting the Mini and Elite todayrdquo ldquoMany Keurig owners wait for the coupons to load up on K-Cups They use the $10 off or $15 off whenever

ablerdquo ldquoWe always have the Keurigs on promotion They never go off sale Today machines are 20 off and K-Cups are

25 to 35 offrdquo ldquoOur customers also wait for Keurig to be a door buster It can go up to 10 lower in price than todayrsquos pricesrdquo ldquoEverybody buys K-Cups when they purchase a machinerdquo ldquoIf someone is buying K-Cups as a gift they get two to three boxes with the machinerdquo ldquoIf someone is buying K-Cups for their own use they get them on sale and use coupons They stock up and

purchase five to six boxesrdquo ldquoThe Starbuckrsquos Breakfast Blend is one of our most popular K-Cups People like the milder blends best

especially when purchasing as a giftrdquo ldquoThe best-selling Keurig machines are the ones with the built-in screens like the Special Edition and the

Platinumrdquo

Reporter Observations This store also was visited pre-Christmas On a post-holiday Friday at 4 pm the Keurig brewers remained front and center of the coffee and home electronics area and were next to a rack filled with K-Cups The store also had two freestanding racks with a few Keurig machines and K-Cups Of the 15 boxes of K-Cups only one box had a February 2012 expiration datemdashthe Celestial Perfect Iced Tea with Lemon All others had May and June expiration dates

Home electronics department cashier at Carsonrsquos Chicago area

Sales of Keurig brewers and K-Cups slowed dramatically as the items returned to full price after the holidays A very successful holiday season cleared out the brewer and coffee inventory

ldquoK-Cup sales were very strong pre-Christmas driven by the promotion Now that Keurig is off sale not much is selling in the way of machines of K-Cupsrdquo

ldquoWe were wiped out of product Most people just buy a few K-Cup boxes when they purchase a machine and everyone buys both at initial purchaserdquo

ldquoTarget [CorpTGT] has the best prices on the K-Cupsrdquo Reporter Observations Inventory was very low after Christmas The K-Cup rack was more than half empty and only one Elite machine was available

Store associate in the home goods section at JC Penney Florida

Keurig machines sales were on par with 2010 but K-Cup sales slowed because of purchases of the My K-Cup The Keurig Mini was the most popular machine and was unavailable Sales of Green Mountain accessories continue to be successful K-Cup Carousels sold out twice during the holiday season and no My K-Cup was in stock Green Mountain products have not been returned or exchanged since Christmas

ldquoThe machines were popular and sold well for Christmas They are always selling no matter what time of year Sales were about the same as last yearrdquo

ldquoMost of the machines come with K-Cups so not a lot of people were buying extra K-Cups to go with it The My K-Cup sold out It was a popular add-onrdquo

ldquoThe carousels and My K-Cups are sold out and the Mini Keurig machines are toordquo

ldquoThe My K-Cup really changed the way people use the machine I think the K-Cups have slowed down since we got the My K-Cup We have less of them in stock than last yearrdquo

ldquoNo returns or exchanges have come in so far not that I have seen People really want itrdquo

The carousels and My K-Cups are sold out and the Mini Keurig machines are too

Home Goods Associate JC Penney Florida

ldquoIt will be slower selling for everything after the holiday But the machines are what everybody wants so I think they will continue to sellrdquo

Reporter Observations Green Mountain product displays were located in the same spots as in our pre-Christmas visit Sale price signs for machines and K-Cups remained on product displays My K-Cup and K-Cup carousels were sold out K-Cup stock looked picked through No one was looking at Keurigs during our visit on a Tuesday at 330 pm

Store associate in a Kohlrsquos small appliances section Florida

Keurig sales did not meet expectations and were lower year to year but K-Cup sales were on par with 2010 Green Mountain items were not marked down after the holidays The source reported a handful of returns or exchanges for Green Mountain products but far fewer than for other holiday purchases Sales have slowed down in general for all merchandise though the Mr Coffee single brewer was sold out

ldquoKeurigs sold OK not as much as we were expecting Last year was betterrdquo

ldquoEverything has slowed down The Christmas rush is over I think we may sell more this next month because of Valentinersquos Day is coming and people are hearing their friends got one and trying it and liking itrdquo

ldquoK-Cups are selling the same as last year Sales are from people who already have had the machine for a while and see their favorite flavor while shopping here I donrsquot think people come here just for the K-Cups The machines already have K-Cups in them so people who got them for Christmas wonrsquot be buying more yetrdquo

ldquoI am not sure if we will discount anything yetrdquo ldquoWe sold out of the Mr Coffeersquos single brews and the Hamilton Beach [NACCO Industries IncNC] one did OKrdquo ldquoThere were maybe three returns I saw come in One was an exchange for another machine because the water

was not flowing The other two were credits or exchanges for other merchandise We donrsquot have a lot piled up back there A lot of home goods stuff came back but not the Keurigsrdquo

Reporter Observations Displays were in the same location on our 230 pm visit on a Tuesday The sign asking customers to limit their purchase to five machines was gone and replaced with signage promoting 15 off with a new Kohlrsquos card Stock was a little lighter than during the pre-Christmas visit The K-Cups shelves were mostly full and looked disorganized Accessories were mostly full as well

Home electronics sales associate for Macyrsquos Chicago area

Pre-Christmas sales of Keurigs were very strong A few machines also sold after Christmas because of a promotion The most popular machines are the Elite and the Special Edition and the best selling K-Cups are the Starbucks varieties This source has not had any returns or exchanges of Keurigs during her two years at Macyrsquos

ldquoSales of Keurigs were great for Christmas Before the 25th they were flying out the doorrdquo ldquoWe have been selling some Keurigs this week They are still on promotion so people are still buying them This

week we have sold a few Special Editions and Elites I also sold one Mini yesterdayrdquo ldquoOur best sellers are the Special Edition and the Elite People prefer the machines that are more than a single

cup of coffeerdquo ldquoRegular coffee drinkers like the bigger Keurigs while college kids like

the one cup ones like the Minirdquo ldquoI have not had any exchanges or returns of any Keurigs after this

Christmas I have worked here for over two years and have not heard any complaints about the Keurigsrdquo

ldquoThey have become more popular over the last two years especially last year I even bought one for myself and love itrdquo

ldquoMost of our customers buy both the flavored K-Cups and the blanks so you can put your own coffee in the Keurig I canrsquot say one sells more than the other Both are popularrdquo

ldquoPeople really like all the Starbucks coffee They are our best-selling K-Cupsrdquo

Keurigs sold OK not as much as we were expecting Last year was better K-Cups are selling the same as last year

Store Associate Kohlrsquos Florida

I have not had any exchanges or returns of any Keurigs after this Christmas I have worked here for over two years and have not heard any complaints about the Keurigs

Home Electronics Associate Macyrsquos Chicago-area

Reporter Observations The store lacked Keurig signage A few signs over the Keurig product rack simply read ldquoCoffee CollectionsmdashSingle Serverdquo Still Keurigs were positioned well in the department right across from the customer service counter The display was a freestanding stack of 24 machines and a rack with K-Cups Starbucks K-Cups are on sale for $1499 from $2199 and regular K-Cups were $1199 from $1799 Most K-Cup expiration dates were May and June 2012

6) CUSTOMERS Eight sources said their K-Cup consumption did not drop off during 2011 with most averaging at least one cup a day Seven sources however voiced concerns over the climbing price of K-Cups and said they will be more aggressive in seeking deals and discounts including going to Costco to buy K-Cups in bulk Five sources had plans to buy a new Keurig either for themselves or as a holiday gift Four sources said they need a replacement brewer because of time overuse or needing a bigger model One source is buying a Keurig because of her frequent use of the one in the office while another said she has heard various work colleagues talk about buying a Keurig for their home No sources reported experiencing K-Cup expiration issues or being affected by the negative press Green Mountain received this fall 49-year-old woman at Bed Bath amp Beyond in Los Angeles

This source was buying a machine to replace the one she has had for five years She has been very happy with her Keurig and continues to purchase K-Cups Pricing for the machine and the coffee is a consideration so she scouts for deals

ldquoI have one of the original Keurig Mini machines that just does a single cup and thatrsquos it No special featuresrdquo ldquoI wanted the Tassimo got talked out of that and bought a Keurig instead hellip The Keurig was a better machinerdquo ldquoI use my machine every day Itrsquos just for me I use it for all kinds of things like heating up soups and instant

mealsrdquo ldquoMy machine is really starting to slow down Itrsquos five years old and Irsquom

not sure it can be fixed but Irsquom going to keep using it until it completely stops working and then Irsquom going to buy the Elite modelrdquo

ldquoIrsquom hoping they will put the machine I want on sale after the holidays but even if they donrsquot Irsquom still going to buy itrdquo

ldquoI usually buy the K-Cups at [The TJX Cos IncrsquosTJX] TJ Maxx because they are always cheaper but if Irsquom in this store I will usually buy something They have the best selection of flavors I donrsquot like Starbucks or the fancier blends I buy the Donut Shop blend but not Dunkinrsquo Donuts I like the regular Green Mountain K-Cupsrdquo

ldquoI donrsquot use the filter just the K-Cups I will continue to buy them anywhere they are on sale first and where I can use a couponrdquo

ldquoThe prices for some of the coffees here are higher than other places Starbucks here is $14 for a six pack of K-Cups Irsquove seen it for about $9 at other places But the prices on the Green Mountain coffee seem to be the same as other stores unless they are on salerdquo

ldquoI hope the prices donrsquot get too high I would have to start using store-bought coffee and buy the machine I could put the filter in But that kind of defeats the purpose of having the K-Cupsrdquo

ldquoI havenrsquot noticed anything changing with the expiration datesrdquo

46-year-old Los Angeles woman This source bought her own Keurig Elite machine about eight months ago and has started buying her K-Cups in bulk at Costco because of price She prefers the Starbucks K-Cups and will pay more for them but would consider other brands if cheaper She uses the filter when she has guests but prefers to use the individual K-Cups Green Mountainrsquos negative press does not bother her but she would consider a Tassimo or another brand if it provided a better deal She prefers a stronger brew than Keurig provides and often uses two K-Cups to get the darkest roast possible

ldquoI bought the machine because a friend had one at work and I thought it was pretty cool like a toy And it seemed so simple and actually it really is You drink more coffee with it because it is so easy to make a cup I think eventually more people will own them They make the drip coffee makers look like cell phones before they came with cameras and Internet accessrdquo

Irsquom hoping they will put the machine I want on sale after the holidays but even if they donrsquot Irsquom still going to buy it

Keurig Customer Los Angeles

ldquoI use the K-Cups every day It takes two K-Cups for me in the morningrdquo ldquoI bought a filter but I hardly ever use it because it is kind of messyrdquo ldquoThey are expensive so I started to buy the K-Cups in bulk at Costco

Sometimes Irsquoll buy a box at Target if they are on sale but usually I buy a case of 30 or morerdquo

ldquoI have tried different Donut Shop coffee from Green Mountain but I like the Starbucksrdquo

ldquoIrsquom going to look for sales on K-Cups next year because I really do need to save more money I am certain I wonrsquot buy less but I will definitely look for better dealsrdquo

ldquoIt feels like a lot of the people I talk to who have the Keurig machines are upset that the K-Cups are getting more expensive but they also say they spend more money on coffee made in the drip machines because they make too much anyway and it goes to wasterdquo

ldquoIf another company offered K-Cups with the Starbucks coffee or a dark roast I would buy them I have no loyalty to Green Mountain I would switch if it were necessary and Irsquod switch my machine if I had to because I donrsquot see myself going back to a drip machinerdquo

ldquoI have never noticed expiration dates on my coffee I would be the last person to worry about thatrdquo

Woman in her early 40s at a Bed Bath amp Beyond in San Jose This source is buying a Keurig machine after wanting one for nearly a year based on her use of the machine and the K-Cups at work She said colleagues also have purchased Keurig machines for their homes The machines are convenient because family members can use them for coffee tea or cocoa without making a mess The K-Cup coffee brand does not matter She said she will seek out lower K-Cup prices

ldquoI use the Keurig Elite at work and it is great Wersquove had it for 10 months and Irsquove wanted one at home the entire time So now Irsquom buying this Keurig Elite as a Christmas present for me and for my husband Itrsquos also for my two kids And we are going to start using it right away as soon as I get homerdquo

ldquoAt work I use four to eight K-Cups a day So it will get kind of expensive buying my own But I always shop here when I get a 20 off coupon so Irsquom going to buy a lot of K-Cups today I also heard that other stores like Target sell cheap K-Cups so Irsquoll have to check into that And also into coupons theyrsquore aroundrdquo

ldquoThe K-Cups at work never last very long so I donrsquot think any of them ever expirerdquo

ldquoI mostly drink coffee all different kinds My husband drinks tea and my kids drink hot cocoa So this machine will work for all of us I really donrsquot care what kind of coffee I drink I switch it around depending on what is available Sure Irsquoll drink Green Mountain if it is around Right now Irsquom looking for cheaprdquo

ldquoI donrsquot know about the companyrsquos problems and I really donrsquot care I just want good coffee to drink at home and not have a messrdquo

ldquoHerersquos the advantage of the K-Cup for me It is mess-free My husband and boys are messy Irsquom always cleaning up after them But with the K-Cup they just put it in and theyrsquore done Sure maybe the reusable filters are more green and you can buy ground coffee for a bit cheaper but that would get all over the place and I would be the one cleaning it uprdquo

Woman in her 50s in San Jose

This source bought a second Keurig for the office because the first one was such a success and demand was growing The office machine has inspired employees and guests to buy one for their homes K-Cup consumption is steady and K-Cups are purchased at Costco Supply moves quickly She is concerned about the environmental effect of disposing the plastic containers but said this has not lessened demand

It feels like a lot of the people I talk to who have the Keurig machines are upset that the K-Cups are getting more expensive but they also say they spend more money on coffee made in the drip machines because they make too much anyway and it goes to waste

I use the Keurig Elite at work and it is great Wersquove had it for 10 months and Irsquove wanted one at home the entire time So now Irsquom buying this Keurig Elite as a Christmas present for me and for my husband Itrsquos also for my two kids And we are going to start using it right away as soon as I get home

Keurig Customer San Jose

ldquoThis is our second Keurig I bought the first one almost three years ago Everyone loved it They wore it out But it does get used a lot We have many members who pitch in $5 a month so they use up the K-Cups pretty quickly Itrsquos wearing down from all the use so everyone wanted another Keurigrdquo

ldquoMaybe nine months ago I bought an Office Pro online at the Keurig website [$12995] It seems sturdier but now Irsquom wishing I had bought the heavy duty B155 [$24995] Hopefully the Office Pro will last longer than two yearsrdquo

ldquoWe have new rules now Only a few K-Cups are put out at a time I think sometimes people were taking them home And it should be used only for one to two cups No onersquos complained too muchrdquo

ldquoSome members have said that theyrsquove gotten Keurigs at home because they like this one so muchrdquo

ldquoThe assistant manager and I buy the supplies usually at Costco I buy the big boxes of 40 or more to save money and we run through K-Cups quite oftenmdashhowever not as often since I started putting out fewer K-Cups hellip We just buy the generic kind I donrsquot think wersquove had problems with expiration datesrdquo

ldquoI would consider the reusable filter and having the members use the ground coffee that we use on the drip system But I donrsquot think people would go for it because then it would limit their choices of coffees You canrsquot buy a bunch of different ground coffees they would eventually spoilrdquo

ldquoI donrsquot know anything about the company Accounting problems eh I donrsquot think anyone here would mind that too much They just want their coffeerdquo

ldquoWe do recycle here cans bottles plastic newspaper so it does bother me that the K-Cups are disposablerdquo

Middle-aged female at Carsonrsquos Chicago area This source received a Keurig Elite from her husband for Christmas 2010 and uses it daily Her favorite K-Cup flavor is hazelnut Her boss and several friends also are happy with their Keurigs She buys K-Cups when they are on sale She has not heard about negative publicity surrounding Green Mountain

ldquoI think the Keurig can sustain its popularity My boss has one And I have several friends that have one too Everyone really likes it and they are happy with it I have only heard good things about themrdquo

ldquoI have the Keurig Elite My husband bought it for me last year for Christmas I really love it I use my Keurig every morning My favorite K-Cup flavor is hazelnut I have tried a few others but really just like that onerdquo

ldquoMy favorite thing about my Keurig is that it is very convenient and easy to use And the coffee tastes greatrdquo ldquoI usually get the coffee here at Carsonrsquos Kohlrsquos or Target It is pretty easy to find and I generally buy it when it is

on salerdquo ldquoI have not heard any negative publicity about the companyrdquo

Middle-aged male at JC Penney in suburban Chicago

This source and his wife purchased two Keurigs in 2011 They initially purchased a Mini and then an Elite the week after Christmas because they wanted a larger machine He expects Green Mountainrsquos success to continue because its products are easy to use and come highly recommended His favorite K-Cup is the Nantucket blend He was not aware of the companyrsquos legal issues

ldquoKeurigs are very popular and I think that will continue They do a great job marketing it I see ads for them on TV in the paper and in magazines Keurigs are extremely easy to use and make a great cup of coffeerdquo

ldquoI also have many friends who have them and it was highly recommended before we purchased the first onerdquo

ldquoThis is the second Keurig machine we have purchased for our home this year We got the Mini about a month ago My wife and I really love it and wanted a bigger machinerdquo

ldquoI came in today to buy an Elite Keurig The Mini works great so we figured this one would be terrific toordquo

ldquoWe are going to give the Mini to our son to take to college My wife and I are going to use the Elite nowrdquo

Some members have said that theyrsquove gotten Keurigs at home because they like this one so much

This is the second Keurig machine we have purchased for our home this year We got the Mini about a month ago My wife and I really love it and wanted a bigger machine

Keurig Customer Chicago Suburbs

ldquoI also bought some coffee K-Cups I got the Nantucket blend It is our favorite onerdquo ldquoI have not heard of any legal issues with Keurigrdquo

29-year-old woman in North Carolina

This source got a Keurig Mini as a gift six months ago after wanting it for some time She consumes 15 cups a week She buys her K-Cups from the grocery store mostly out of convenience The high cost may have her shopping around for a better deal but she expect to continue to use K-Cups and to purchase a My K-Cup If K-Cups price per cup rose to $125 her use of My K-Cup and ground coffee would increase Expiration dates have not been a concern

ldquoI got the Keurig Mini as a gift for my birthday in August I have wanted one for a while and my dad bought it for me at Bed Bath and Beyond Irsquom super happy with my Keurigrdquo

ldquoI brew a lot more coffee now because itrsquos so easy probably 15 or so cups a weekrdquo

ldquoI usually just buy my cups at my regular grocery store but Irsquove heard you can get them cheaper online so Irsquoll probably start doing that I also am going to save those coupons from Bed Bath and Beyond and get 20 off of the K-Cupsrdquo

ldquoK-Cups are expensive but I get the coffee I want for less than a dollar a day and I am on time for workrdquo

ldquoI have never even looked for an expiration date to be honest they donrsquot last that long in my houserdquo

ldquoI do not have one of the filters but Irsquod like one Irsquod probably use the cups more but if I found a deal on ground coffee Irsquod buy it and use the filterrdquo

ldquoI wouldnrsquot pay more than $125 a cup thatrsquos for sure If it increased that much Irsquod switch to the filter for surerdquo ldquoI have used the Flavia at work They are just as expensive and not as easily accessible as the Keurigrdquo

33-year-old woman in central Pennsylvania repeat source

This source is using K-Cups less frequently than a year ago because her year-old machine is malfunctioning She plans to replace it when she has enough money With her new Keurig she expects to return to her 15 K-Cup usage per week She prefers K-Cups over using the filter but would consider using the filter more if K-Cup prices become too high She purchased Starbucks K-Cups from Samrsquos Club and is unconcerned about expiration dates

ldquoI really love my Keurig but it is has not been acting normal Sometimes it works and then other times I have mess with it It is really frustrating because what I used to love about it was how easy and quick it wasrdquo

ldquoI have been buying fewer K-Cups than last year at this time because of the issue with the machine malfunctioning I plan on replacing it as soon as I can and expect my usage to return to close to the same as last year at this time I still use it but only when I have time so I went from using 15 K-Cups a week to 10 a weekrdquo

ldquoI got it last year as a gift I think it is the Elite model I would like to replace it with another Keurig because I really have gotten used to itrdquo

ldquoI havenrsquot tried other companiesrsquo single brewers I think I will stick with Keurig when I buy a new one because of the K-Cups I really like that they are portioned out for you and itrsquos less mess overallrdquo

ldquoI do have the filter but rarely use it It is all about the K-Cups for merdquo ldquoI buy them from Samrsquos Club because they have the best prices I usually buy the Starbucks brand If I am

having company I will buy a variety pack so there is something for everyonerdquo ldquoThe price of the machine has prevented me from getting a new one I have to wait until I really can afford it The

K-Cups are worth the price If they went up a lot more like to $2 a cup I would start using the filter more with Starbucks coffeerdquo

ldquoI havenrsquot noticed expiration dates becoming shorter I donrsquot think to check Itrsquos coffee not milkrdquo

Secondary Sources These six secondary sources discussed the threat facing Green Mountain once its K-Cup patents expire a rise in single-serve coffee competitors Green Mountain suing a competitor for patent infringement Green Mountainrsquos attempts to have the

K-Cups are expensive but I get the coffee I want for less than a dollar a day and I am on time for work

Keurig Customer North Carolina

accounting fraud lawsuit involving M Block dismissed and the strong possibility of another K-Cup price hike because of continued coffee price volatility Nov 17 2011 Bloomberg article

The K-Cup patent expiration is likely to increase competition for Green Mountain come September 2012 httpwwwbloombergcomnews2011-11-18green-mountain-s-expiring-k-cup-patents-attract-coffee-rivalshtml

ldquoSept 16 2012 is D Daymdashor at least K Daymdashfor Green Mountain Coffee Roasters Inc (GMCR)rdquo ldquoThatrsquos when it will lose the main patents on K-Cups the coffee pods that helped make Green Mountain the

largest player in the $1 billion-plus US single-serve coffee marketrdquo ldquoOnce the patents expire competitors can make their own version of K-cups and threaten the prospects of a

company already battling criticism hellip that its market-share gains have peakedrdquo ldquolsquoNew entrants into private label could hurt their volumersquo said Bea Chiem a San Francisco-based analyst at

Standard amp Poorrsquos who gives the company a B+ credit rating four levels below investment grade When the patents run out it could also lsquoopen up the door for other branded competitors to step inrsquo she saidrdquo

ldquoRecently the company has sought to boost sales and discourage competition by partnering with high-profile coffee brands such as Caribou Coffee Co (CBOU) Folgers and others to sell K-Cups Earlier this year the company signed deals with Starbucks and Dunkinrsquo Brands Group Inc Grocery retailers began selling Starbucks K-Cups earlier this month Green Mountain has a 71 percent share of the US market in single-serve beverages according to Mitchell Pinheiro an analyst at Janney Montgomery Scott in Philadelphiardquo

ldquoThe two expiring patents protect technology that maintain a precise amount of coffee in each pod and the means to pierce it to extract liquid If rivals reverse-engineer K-Cups they could damage Green Mountainrsquos main businessrdquo

ldquoCopying the technology wonrsquot be difficult once the patents expire Mark Rygiel a patent attorney at Sterne Kessler Goldstein amp Fox in Washington said in an interviewrdquo

ldquolsquoThe K-Cup is not a complex inventionrsquo he said Most potential rivals lsquowould understand whatrsquos going onrsquordquo

ldquoItrsquos hard to know how important the patents are to Green Mountain Rygiel said The company and Keurig own at least 37 patents that protect how the pods look and are made he saidrdquo

ldquolsquoTwo patents expiring might end up being very significant but it doesnrsquot necessarily mean thatrsquo he saidrdquo

ldquoThe company has submitted patent applications for a different K-Cup that uses more coffee Green Mountain also has a patent for its higher-end lsquonext-generationrsquo coffee machine and capsules which will be sold starting in 2012 Blanford saidrdquo

ldquoStill competitors already are emerging Rogers Family Co a closely held coffee roaster and distributor sells one-cup coffee pods compatible with Keurig brewers for a suggested retail price of $699 for a 12-pack Green Mountainrsquos 24-pack of namesake brand K-Cups sell for $1649 on its websiterdquo

ldquoWhile Keurig sued Rogers on Nov 2 for patent infringement in the US District Court in Boston the Lincoln California- based company is still looking to buy more coffee-pod making equipment Jon B Rogers the companyrsquos president said in a telephone interview last weekrdquo

ldquoRogers which is getting calls from retailers wanting to stock the less expensive single-serve pods isnrsquot planning to do any advertising for the coffee he saidrdquo

ldquolsquoThings are going so well without itrsquo Rogers said lsquoTherersquos been a lot of word-of-mouth on blogsrdquo Safeway supermarkets in California will be selling the San Francisco Bay brand one-cup coffee pods he saidrdquo

ldquolsquoThe recent rollout of a Keurig-compatible pod from Rogers Family will negatively impact longer-term K-Cup profitabilityrsquo Mark Astrachan an analyst at Stifel Nicolaus amp Co said in a research note last weekrdquo

ldquoTaking on Green Mountain wonrsquot be easy because the Keurig brand resonates with consumers according to John Staszak a New York-based analyst at Argus Researchrdquo

ldquolsquoYou can expect some drop-off from the patent expirationrsquo Staszak said lsquoBut their brand is just so well known itrsquos a plus for them in the face of patent expirationsrsquo On Nov 14 he changed his rating on the company to lsquoholdrsquo from lsquobuyrsquordquo

Copying the technology wonrsquot be difficult once the patents expire Mark Rygiel a patent attorney at Sterne Kessler Goldstein amp Fox in Washington said in an interview The K-Cup is not a complex invention

Bloomberg Article

ldquolsquoClearly the patents are expiring and everyone is going to be trying to construct a product to go into this spacersquo said Eric Anderson a marketing professor at Northwestern University in Evanston Illinois who has taught Keurig case studies in classes since 1997 lsquoWhether that can be successful or not is a different storyrsquordquo

Nov 3 2011 Investors Hub article

Green Mountain is suing Rogers Family Co saying the family-owned business infringed on Green Mountainrsquos patents by selling an unlicensed single-cup cartridge that works in Keurig machines Rogers says it does not violate any patents httpinvestorshubadvfncomboardsread_msgaspxmessage_id=68658993

ldquoThe competition is heating up for Green Mountain Coffee Roasters as it faces another rival to its K-cups for Keurig single-serve brewersrdquo

ldquoRogers Family Corsquos San Francisco Bay Coffee OneCups began selling its new OneCup line of single-serve cartridges a few weeks ago advertising that they work in various Keurig brewers Green Mountain fired back filing a complaint Wednesday with a federal court alleging Rogers Family Co infringed upon three of Green Mountainrsquos K-cup patentsrdquo

ldquoJim Rogers vice president at Rogers Family Co said his familyrsquos company was working on the product for yearsrdquo

ldquolsquoWe saw that the single-serve coffee market started emerging a few years ago and wersquove been working on a way to come out with our own without violating any patents ever sincersquo Rogers said He said the company has no idea what to expect in terms of sales but given it is a small family-owned operation it will likely be a big sales boosterrdquo

ldquoGreen Mountainrsquos lawsuit asked the court to prevent Rogers Family Co from more infringement and for money for damages as well as for the companyrsquos profits from the OneCups it sold and Green Mountainrsquos attorney and litigation feesrdquo

ldquoA spokeswoman for Green Mountain said it will take the actions necessary to protect its intellectual propertyrdquo ldquoGreen Mountainrsquos Keurig is also involved in a patent-infringement lawsuit against Sturm Foods owned by

TreeHouse Foods regarding violations of multiple patents on K-cup technologyrdquo ldquoEarlier this year a federal court denied Green Mountainrsquos request for an injunction to stop Sturm Foods from

selling its single-cup coffee cartridges for Keurig machines But the court also rejected the motion by Sturm Foods to dismiss the case for its failure to state a claim The pre-trial hearings are set to begin next year according to a Delaware federal courtrdquo

ldquolsquoUltimately there will be competition here but Green Mountain has a considerable cost advantage and distribution advantage because of its scalersquo said Mitchel Pinheiro analyst at Janney Capital Markets He said if manufacturers come out with additional generic versions it likely wonrsquot impact Green Mountainrsquos market share until fiscal 2014rdquo

ldquolsquoEveryone has a different view of how itrsquos going to play out but no one will really know until it actually does play outrsquo he saidrdquo

Jan 4 Forbes article

Inflationary pressure and volatile prices of coffee may force Green Mountain to raise its K-Cup prices yet again httpwwwforbescomsitesgreatspeculations20120104green-mountain-stock-should-heat-up-to-62

ldquoCoffee prices are dependent on various factors including weather economic and political issues in coffee-producing nations For the past year coffee prices have exhibited tremendous volatility Increasing coffee prices could have an adverse impact on GMCRrsquos margins since this is a large portion of the input costsrdquo

ldquoWe believe in the coming years due to inflationary pressures and volatile prices of Arabica coffee GMCR might have to resort to increasing prices of K-Cup Portion Packsrdquo

Dec 13 Business Week article

Green Mountainrsquos K-Cup market share fell in November 2011 because of competition in the single-serve coffee market httpnewsbusinessweekcomarticleaspdocumentKey=1376-LW5R5B6KLVR901-4N6LSK12LUDCJO89GOLAJTF30O

ldquoGreen Mountain hellip lost share in the coffee market last month as new single-serve companies entered the fieldrdquo ldquoThe share of coffee dollar sales held by Green Mountainrsquos single-serve products for the four weeks ended Nov

27 declined to 84 percent down 04 percentage points from the previous four-week period according to a

Bloomberg Industries analysis of data from researcher SymphonyIRI Group The companyrsquos share rose 34 percentage points from the year-earlier periodrdquo

ldquoIn September Green Mountain will lose the main patents on K-Cups allowing competitors to make their own versions Rivals already have emerged including one-cup pods made by Rogers Family Co that are compatible with Green Mountainrsquos Keurig machinesrdquo

ldquoGreg McKinley an analyst at Dougherty amp Co downgraded Green Mountain today citing data from researcher NPD Group Inc that showed a widening spread between the growth of Green Mountainrsquos brewer shipments and US consumer purchases of coffee machinesrdquo

Jan 5 Burlington Free Press article

Green Mountain is seeking to dismiss the accounting fraud lawsuit that involves M Block httpwwwburlingtonfreepresscomarticle20120105NEWS01120105028Green-Mountain-Coffee-Roasters-seeks-dismiss-accounting-fraud-lawsuitodyssey=tab|topnews|text|FRONTPAGE

ldquoA federal judge heard arguments Thursday on a motion to dismiss a class action lawsuit filed by individual investors alleging accounting fraud against Green Mountain Coffee Roasters Incrdquo

ldquoUS District Court Judge William Sessions III gave no indication of when he would issue a ruling on the motion The lawsuit grew out of Green Mountainrsquos announcement on Sept 28 2010 that the US Securities and Exchange Commission had launched an inquiry into the companyrsquos accounting practices More than a year later that inquiry continues to be open with no indication from the SEC whether it intends to take any actionrdquo

ldquoAt the heart of the lawsuit is the allegation that Green Mountain Coffee showed revenue on its books from shipments of product to its main fulfillment company M Block and Sons Inc in Bedford Park Ill before M Block actually shipped the product to retail chain customers This inflated the coffee companyrsquos revenue figures and misled investors the lawsuit saysrdquo

ldquoThe allegations are largely based on the testimony of several confidential witnesses but Attorney Randall Bodner of Boston-based Ropes amp Gray LLP representing Green Mountain Coffee questioned the credibility of those witnesses none of whom currently work for the companyrdquo

ldquoBodner told Sessions there was lsquoabsolutely no basisrsquo to believe that any of the confidential witnesses were in a position to know anything about the accounting practices of Green Mountain Coffee Confidential witness number one for example was a warehouse worker Bodner saidrdquo

ldquoBodner also questioned the credibility of the lawsuit based on the amount of the alleged fraud mdash $75 million to $15 million worth of product contained in 150 truckloads of product arriving at M Block and Sons in December 2009rdquo

ldquoEven the larger alleged fraud of $15 million Bodner said would represent a tiny fraction of Green Mountain Coffeersquos sales hardly making it worth the deceit In fiscal year 2010 the company recorded $135 billion in net sales growing to $265 billion in fiscal year 2011rdquo

ldquoUnder questioning from Judge Sessions to provide more specific details for the claims attorney David Rosenfeld of Robbins Geller Rudman amp Dowd LLP in Melville NY representing the plaintiffs said he didnrsquot believe the purpose of the hearing was to give specificsrdquo

ldquoPressed further by Sessions who asked lsquoWhat if you were given the opportunity to give more specificityrsquo Rosenfeld said he could lsquocertainly tryrsquo by asking confidential witnesses for more details

ldquoSessions was bringing the hearing to a close when attorneys representing the Louisiana Municipal Police Employeesrsquo Retirement System which filed its own class action lawsuit against Green Mountain Coffee on Nov 29 stood up in the gallery and asked to be heardrdquo

ldquoClearly surprised Sessions granted the request and attorney Michael Blatchley of Bernstein Litowitz Berger amp Grossman LLP of New York City the firm representing the police pension system took the podium Blatchley asked the court not to allow Rosenfeldrsquos clients to broaden their lawsuit to include the class period of his clientrsquos

At the heart of the lawsuit is the allegation that Green Mountain Coffee showed revenue on its books from shipments of product to its main fulfillment company M Block and Sons Inc in Bedford Park Ill before M Block actually shipped the product to retail chain customers This inflated the coffee companyrsquos revenue figures and misled investors the lawsuit says

Burlington Free Press Article

lawsuit from Feb 2 2011 to Nov 9 2011 That period would include Einhornrsquos presentation on Oct 17 2011rdquo

ldquoBlatchley said his client purchased Green Mountain Coffee stock during that class period at much higher prices ranging from $60 to $110 per share than Rosenfeldrsquos clients and suffered greater lossesrdquo

ldquolsquoIf I give them permission to amend their complaint you donrsquot want them to take your spotrdquo Sessions said summarizing Blatchleyrsquos requestrdquo

ldquoRemarking on the unusual nature of the request pitting lsquoplaintiff against plaintiffrsquo Sessions said he didnrsquot have to decide on the question right away but would take it under considerationrdquo

Jan 6 2012 Forbes article

The article details the different claims in two separate lawsuits against Green Mountain that are bumping into each other questioning the merits of the lawsuits and the validity of its confidential witnesses httpwwwforbescomsitesdanielfisher20120106green-mountain-coffee-case-features-dueling-plaintiffs

ldquoThe Burlington Free Press reports on a comic confrontation among securities lawyers as they try to figure out how to sue Green Mountain Coffee Roasters over its highly caffeinated stock-price movements In a hearing before a federal judge in Vermont yesterday lawyers from Robbins Geller Rudman amp Dowd got into a bit of a tiff with competing class-action lawyers at Bernstein Litowitz over who has the better claimrdquo

ldquoOn paper both suits look a little ridiculous but the Bernstein case is definitely better At least the class Bernstein represents actually lost moneyrdquo

ldquoThe crack lawyers at Robbins Geller Bill Lerachrsquos old firm filed a lawsuit in October 2010 after Green Mountain disclosed a Securities and Exchange inquiry into its accounting practices and restated $76 million of prior earnings That lawsuit looks a little silly now since Green Mountain shares subsequently tripled in price hitting a high of $115 in September At $45 the company is still worth $12 billion more than when Robbins Gellerrsquos purported clients suffered their damagesrdquo

ldquoBut class action lawyers arenrsquot paid to shelve dubious claims they make money by settling them So the Robbins Geller attorneys are dutifully pressing their suit bolstered by the recollections of 10 lsquoconfidential witnessesrsquo mdash all former employees of Green Mountain or affiliated companies mdash who offer various impressions of possibly questionable behaviorrdquo

ldquoThe problem with the Robbins Geller suit as with most securities class actions is it doesnrsquot reveal much investigative work just a rehash of information investors already knew The lawyers shamelessly cite a pair of Seeking Alpha articles for example as well as a Sept 28 2010 earnings release that lsquoshocked the marketrsquo and the observations of the aforementioned lsquoconfidential witnessesrsquo that may or may not be repeated under oathrdquo

ldquoOne of these unnamed former employees no doubt shivering in fear over being disclosed to a Green Mountain hit squad gave Robbins Geller lawyers a secondhand account of lsquowarehouses filled to the rafters with K-Cupsrsquo as part of a scheme to inflate sales by shipping the single-use coffee containers to a captive outside vendor Green Mountain in its response to the suit calls the allegations lsquofraud by hindsightrsquo based only on disclosures of an immaterial collection of accounting errors None of the confidential witnesses had access to internal accounting data the company saysrdquo

ldquoThe equally talented lawyers at Bernstein Litowitz representing their favorite plaintiffs the Louisiana Municipal Police Employees Retirement System donrsquot do much better They skip the lsquoconfidential witnessesrsquo (where are these witnesses when a fraud is actually going down) and instead rely on short-seller David Einhorn of Greenlight Capital who detailed a raft of possible accounting shenanigans at Green Mountain at an investment conference last October Green Mountain shares have since lost two-thirds of their value as the company reported disappointing earnings and the hedge funds who drove it to irrational highs abandoned itrdquo

ldquoIn yesterdayrsquos hearing Judge William Sessions III asked Robbins Geller attorney David Rosenfeld for specific details about his allegations of fraud Under recent Supreme Court decisions lawyers canrsquot just make vague allegations of accounting fraud they must cite specific facts to support the conclusion that fraud is the most likely reason a companyrsquos stock fellrdquo

ldquoRosenfeld demurred saying it wasnrsquot the time to get into specifics The judge persisted Rosenfeld said he could lsquocertainly tryrsquo by asking confidential witnesses for more details Then he slipped up citing the Einhorn report that came out a year after his class period endedrdquo

ldquoThat brought the Bernstein lawyers out of their chairs the Burlington Press reports Their lawsuit covers the period when the Einhorn report came out and they donrsquot want the Robbins Geller lawyers horning in on their

fee Judge Sessions grasped the import of the situation lsquoIf I give them permission to amend their complaint you donrsquot want them to take your spotrsquo he saidrdquo

ldquoGreen Mountain does present an intriguing case of potential securities fraud involving the oldest of schemes Shipping product to a captive vendor to inflate revenue and earnings The Louisiana plaintiffs (who are sitting on a paper loss of $286000) repeatedly cite lsquofalse sales orders and ghost shipments to nowherersquo without much corroborating evidence Einhorn in his report zeroed in on MBlock the outside vendor that his witnesses said served as a warehouse for inventory Green Mountain could report as sold One witness told Einhorn of a shipment of 500000 coffee brewers earmarked for QVC when the auditors came through then restocked to MBlock after the audit was donerdquo

ldquoEarlier Green Mountain was accused of reporting royalties on sales of K-cup single-use containers that it actually bought for its own inventory in the restatement the company also changed that practice The SEC probe appears to be focused on how the company accounted for intercompany salesrdquo

ldquoGreen Mountain says a special committee completed its investigation of the companyrsquos accounting practices in December 2010 without finding any major problems There has been no public action on the SEC inquiry mdash the fact-finding phase before an official investigation mdash since Green Mountain disclosed it in 2010rdquo

Next Steps Blueshiftrsquos next report on Green Mountain will continue to monitor price hikes and sales trends especially with K-Cups in the at-home market We will track competitorsrsquo progress in offering imitation K-Cups once the K-Cup patents expire in September We will ask online distributors if they plan to carry K-Cup knockoffs or if they will adhere to Green Mountainrsquos possible restrictions and stick with K-Cups and we will assess customersrsquo usage of the imitations Also we will learn whether retailers online distributors and commercial suppliers carry the new Green Mountain platform how much business they expect from it and if the new platform works with existing K-Cups Finally we will dig deeper into Green Mountainrsquos relationship with M Block and determine whether the fulfillment company is losing business because of recent allegations and negative publicity

Additional research by Renee Euchner Jacqueline Fox Erica Franklin Lester Golden Tina Strasser and Marissa Yaremich The Author(s) of this research report certify that all of the views expressed in the report accurately reflect their personal views about any and all of the subject securities and that no part of the Author(s) compensation was is or will be directly or indirectly related to the specific recommendations or views in this report The Author does not own securities in any of the aforementioned companies

OTA Financial Group LP has a membership interest in Blueshift Research LLC OTA LLC an SEC registered broker dealer subsidiary of OTA Financial Group LP has both market making and proprietary trading operations on several exchanges and alternative trading systems The affiliated companies of the OTA Financial Group LP including OTA LLC its principals employees or clients may have an interest in the securities discussed herein in securities of other issuers in other industries may provide bids and offers of the subject companies and may act as principal in connection with such transactions Craig Gordon the founder of Blueshift has an investment in OTA Financial Group LP

copy 2012 Blueshift Research LLC All rights reserved This transmission was produced for the exclusive use of Blueshift Research LLC and may not be reproduced or relied upon in whole or in part without Blueshiftrsquos written consent The information herein is not intended to be a complete analysis of every material fact in respect to any company or industry discussed Blueshift Research is a trademarks owned by Blueshift Research LLC

Summary of Findings

1) ONLINE DISTRIBUTORS

2) COMMERCIAL SUPPLIERS

3) INDUSTRY SPECIALISTS

4) PRE-CHRISTMAS STORE VISITS

5) POST-CHRISTMAS STORE VISITS

6) CUSTOMERS

Secondary Sources

Next Steps

Background Green Mountain suffered a tumultuous autumn and its sales momentum came to a screeching halt after hedge fund manager David Einhorn made a case against the company at an Oct 17 value investment meeting including focusing on accounting irregularities with M Block the fulfillment company Green Mountain uses to fulfill orders in the retail channel Fourth-quarter earnings reported in November fell below expectations because of investorsrsquo concerns over Green Mountainrsquos valuation patent protection accounting and mergers Also the main patents on Green Mountainrsquos K-Cups will expire on Sept 16 2012 creating an opportunity for privately and publicly held competitors alike to create their own K-Cup versions and to significantly disrupt Green Mountainrsquos unit volume CURRENT RESEARCH Blueshift has published five largely positive reports on Green Mountain between October 2009 and January 2011 (Oct 30 2009 Jan 8 2010 April 16 2010 June 11 2010 and Jan 13 2011) We employed our pattern mining process to uncover trends pertaining to both Green Mountain and the single-serve coffee industry We interviewed sources in seven independent silos comprising 37 primary sources (including seven repeat sources) and six secondary sources focused on the threat of patent expiration a rise in competitors for Green Mountain the strong possibility of another K-Cup price hike and updates on litigation involving Green Mountain Store personnel interviews were conducted before and after the holidays to gauge gift purchases of Green Mountain products as well as product returns and add-on purchases

1) Online distributors (6) 2) Commercial suppliers (4) 3) Industry specialists (6) 4) Pre-Christmas store visits (7) 5) Post-Christmas store visits (6) 6) Customers (8) 7) Secondary sources (6)

Silos 1) ONLINE DISTRIBUTORS Four of six sources said Green Mountain can maintain its growth and continue to dominate the single-serve coffee market though only two said sales increased in 2011 year to year K-Cup sales were flat for another who also said Black Friday and Cyber Monday sales were down dramatically year to year because of price hikes Two sources said Green Mountain will force distributors to choose between selling K-Cups or knockoffs once its patents expire Another said Green Mountain has become stingier in its early payment discounts to distributors Two sources at the same company said M Block is a mismanaged supplier but its problems have not affected these sourcesrsquo relationships with Green Mountain because they get product directly from the company No sources reported inventory or expiration date troubles and one said product availability has improved Only one source said environmental concerns over K-Cup plastic cylinders were an issue Another source said single-serve coffee pods are growing in popularity and creating more competition for Keurig and K-Cups Sales representative for an online distributor in the Northeast repeat source

Keurig machine and K-Cup sales spiked during 2011 compared with 2010 prompting this sourcersquos company to double weekly K-Cup inventory orders to keep up with demand After the distributor set up a warehouse showroom for onsite purchases 20 people per weekend day during the holiday season came in to buy Keurig machines

ldquoFrom last year wersquove really picked up on K-Cups Last year we used to buy a tractor load each week and now wersquore getting more than a tractor load to keep up with salesrdquo

ldquoOur inventory is not sittingrdquo

From last year wersquove really picked up on K-Cups Last year we used to buy a tractor load each week and now wersquore getting more than a tractor load to keep up with sales

Sales Rep Online Distributor Northeast

Chicago area

Platinumrdquo

Bloomberg Article

Summary of Findings

6) CUSTOMERS

Secondary Sources

Next Steps

Chicago area

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

Next Steps

Chicago area

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Chicago area

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Chicago area

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Chicago area

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Chicago area

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

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Chicago area

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Chicago area

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Chicago area

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Chicago area

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

Next Steps

Chicago area

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

Next Steps

Chicago area

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

Next Steps

Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Platinumrdquo

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Bloomberg Article

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6) CUSTOMERS

Secondary Sources

Next Steps

Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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Bloomberg Article

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6) CUSTOMERS

Secondary Sources

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6) CUSTOMERS

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6) CUSTOMERS

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6) CUSTOMERS

Secondary Sources

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Summary of Findings

6) CUSTOMERS

Secondary Sources

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Documents

Price Hikes, Patent Expiration Major Concerns for Green Mountain … · 2012-01-10 · results for Keurig brewers and K-Cups, a significant change from Blueshift’s early payment