GMCR stands for Green Mountain Coffee Roasters. They joined forces with Keurig, the guys or gals that make coffee machines that use very specific cartridges to make coffee by the cup. It is a little bit like the printers and the ink cartridges. It is not always easy to keep full control of the cartridges as you get into trouble with monopolistic behaviour sooner or later

Keurig is Dutch and means neat, tidy, arranged and perhaps even preppy. There is nothing about coffee that is either neat or tidy. There never really was. The Dutch East India Company, the first in the history of mankind to operate as a limited liability company based on shares, spent a lot of time importing things like nutmeg but also an awful lot of coffee from Indonesia and tea from Ceylon. So much so that one of Dutch literature’s high points is Multatuli’s Max Havelaar which is entirely about the coffee trade and how badly the locals were treated. However, coffee is an acquired taste and once acquired is almost irresistible as is evidenced by that other work of American literature “Coffee, tea, or me”

This politically incorrect book is the product of an overactive imagination even at that time ,1966. I can attest to that having worked as cabin crew with KLM. There is, unfortunately,  nothing true in this book but what is interesting is the order in which things are presented in this bestseller. Coffee is right at the top! So with coffee in such a prominent first place what did these guys do to deserve a 2/3 drop in little over half a year ? In my opinion they priced themselves out of the market. They are essentially selling convenience under the guise of coffee. Once clients and competitors caught on it was game over and quite abruptly. It is now trading around $52. The only significant resistance occurs around $30. That should be the end of 3 of C. 4 and 5 still to go after that.

The math is simple. You can buy a bag of coffee beans for $8 and brew for about 15 days at 12 cups a go. That works out to 800/ 180= 4.4 cents. A single cartridge is about $16/30=53 cents, more than 10x as much. Of course you can go to Starbucks and pay $4.75 for a latte.

Through an acquisition of “Keurig” in 2006 this company effectively got a stranglehold on the single cup coffee brewing distribution system. The patents related to the K-cup system run out soon and this caught the attention of David Einhorn, a prominent hedge fund guy. Margin calls against the founder and other company heavyweights followed and here we are  at $22, not $115. Interestingly the “great recession” barely made a dent in this stocks progression, proving once again that you can open the monetary floodgates but you cannot control where the water will flow. By the way, “Keurig” in Dutch means exquisite, meticulous, perfect etc. and that describes the marketing niche that this company, or it’s founder created and capitalized on very well. In a way it is comparable to Krispie Kreme Dougnuts , KKD. Both are shown below on a semi-log scale;

Notice that the count on this semi-log scale chart is different from the one above as it puts the 4th wave on the way up at under $10 instead of around $20 to $30. No idea which is correct but in any event KKD goes from $50 to $1, so if GMCR does anything like that it could ultimately get to a little under $3. The irony is that much of the margin calls are allegedly related to a sizeable position by the founder of GMCR in the KKD stock. Birds of a feather, do flock together! Looking at it in more detail:

It would appear that the C leg of the A-B-C is incomplete, still requiring a 5th wave down. Presumable, if it does that it could enjoy an exquisite bounce like KKD has had.

Comparable branding was done by Melitta, now more than 100 years old. As a private company no stock comparisons are available.