Jim Cramer loves Green Mountain Coffee Roasters. In a recent episode, the hyper-caffeinated host of Mad Money said GMCR stock, which has already risen over the past year from around $30 a share to nearly $100, is positioned to go even higher. “It is a fabulous business model,” Cramer said. I agree. But chances are we are not using the same measuring stick.
Why does Cramer love GMCR‘s model? Probably because the company’s phenomenal growth in recent years has been driven in large measure by its acquisition of Keurig and its K-Cup brewing system, for which Green Mountain Coffee is the sole provider of K-Cups. The model is brilliant in the same way as Standard Oil’s distribution of kerosene lamps in China or the sale of cheap razors with expensive blades. In all three cases, the initial investment creates a dependence on future purchases, making income streams stable, which Wall Street loves. From what I can tell, K-Cup brewers continue to sell like mad, which only means more future sales of Green Mountain K-Cups.
Why do I love the GMCR model? Because the company donates 5 percent of pre-tax profits to charitable causes. And it channels a serious chunk of that reinvestment to coffee-growing communities overseas, where, as far as I can tell, the company is investing in some pretty innovative ways.
GMCR has conducted serious household-level research on the impact of participation in the Green Mountain supply chain on such basic indicators of human wellness as hunger. Then it has gone in search of opportunities to invest in projects designed to improve its impact on food security. To Green Mountain’s credit, it has not made these investments part of any public relations campaign, but has invested seriously and quietly, which I take to mean that the investments are more about building a more equitable and sustainable business model than building the Green Mountain brand.
The company has also invested mightily around the issue of climate change through its Changing Climate Change initiative.
Jim Cramer recommended investment in GMCR because he likes the company’s model for making money. I like the company’s model because when it makes money, it generates investment of a very different kind here in the coffeelands.
(In the interest of full disclosure, I should note that CRS is receiving GMCR funding to work on issues of food security and climate change here in the coffeelands. More on those projects later.)