Keurig Green Mountain (GMCR, Financial) shares plunged 9% on Friday as investors grew worried regarding the companyâs new cold drink machine thatâs been priced too high. Company shares closed at $94.26. The company is a leader in specialty coffee, and other beverages. It sells both single cup brewers and traditional whole bean and ground coffee in bags, fractional packages as well as cans. Keurig Green Mountain is popular for its K-cup brewing system.
However, its latest unveiled its new at-home âKoldâ brewing system got the cold shoulder from analysts. Investors immediately reacted to the expensive price tag of nearly $300 for the system, and the companyâs shares took a beating.
About the new brewer
Keurig launched the Keurig Kold investor presentation after markets closed on Wednesday. During the presentation, the company said that it expects the cold beverage business to gather steam faster than the hot coffee brewing system. The company would be making use of robust multi-brands with strong partnerships with beverage heavyweights such as Coca-Cola (KO, Financial).
The new cold brewing coffee machine, called the "Keurig Kold," will not be launched in all of the companyâs retail outlets until 2016. It would be available online and in a few specific retail stores from this fall.
The cold-beverage system is expected to bear an impact on the U.S. beverage market which is worth $50 billion. That compares with the economyâs hot-beverage market of $10 billion. Keurig Green Mountainâs planned undertaking of bringing a cold beverage system amid rising competition may even make beverage behemoth PepsiCo (PEP, Financial) and other comparable companies to strive for an innovative offering.
High price â a roadblock?
Analysts seem to be quite impressed with the technology but believe that the initial high price has taken âthe âfizzâ out of the system.â Analysts say price may have to come down to around $200 or below to generate strong customer demand. Mark Astrachan, a Stifel analyst said âWe believe the high price points could meaningfully limit Kold adoption near-term unless pod and brewer prices are reduced post launch, which the company said was unlikely.â
Management has said that the brewer will initially cost customers around $299 - $369, while Kold pods will come in the range of $0.99 - $1.29. Analysts had already estimated the Kold machine to be priced high. So the initial price point didnât come as a big surprise, though it was higher than what was thought.
Thereâs a reason why itâs been priced higher than the hot brewers. Koldâs making required stronger material so that it can withstand the high pressure generation. Some have viewed the high price point as a negative attribute to attract consumers, but management says that itâs already witnessing strong interest among prospective buyers. The company said that it expects prices to reduce over time when the business scales up.
Final takeaway
Keurig Green Mountainâs latest introduction may have impacted stock prices, but the productâs potential looks pretty good. The company has numerous positives that should drive its overall growth in the future and more than offset any weaknesses. Investors shouldnât worry regarding the new Kold brewer. The stock has sound upside potential and should reward investors over the long run.
Keurigâs strengths may be sensed in several areas, including its revenue growth, product portfolio, sound financial position, conservative debt levels compared with other similar stocks, attractive return on equity, and improving margins. The new brewing system is a great offering too and should gain traction over time once price points come more in line with buyer expectations.
