David Einhorn Comments on Green Mountain Coffee Roasters
At the recent Value Investing Congress, David updated our view of Green Mountain Coffee Roasters (GMCR), elaborated on our General Motors (GM) and Cigna (CI) theses, and disclosed our short position in Chipotle Mexican Grill (CMG).
Regarding GMCR, we pointed out:
- It is implausible that the GMCR audit committee conducted a serious investigation of our allegations in a mere 23 days after last year's Value Investing Congress;
- GMCR management has trivialized the competitive threat posed by Starbucks' new Verismo coffee and espresso maker, and we see a risk that Starbucks will renegotiate or even walk away from its partnership with GMCR;
- GMCR's key patents for K-Cups have expired leaving the company in a vulnerable position because:
- It is the high cost producer in what will become a highly competitive commodity manufacturing business;
- GMCR does not control any important brands (its license deals with Starbucks, Dunkin' Donuts and Smuckers are subject to renegotiation);
- There are nine competitors who are either already producing or about to launch competitive K-Cups and will have substantial capacity by the end of next year;
- GMCR recently lowered the list price of many of its leading products by about 8 cents per K-Cup. This will likely have a large impact, as last quarter GMCR only made 8 cents per K-Cup.