Green Mountain Brews Profits a Cup at a Time

The days of drip coffee may be numbered. From the sleepy skiers' town of Waterbury, Vt., Green Mountain Coffee Roasters is brewing up a revolution in the form of airtight capsules of coffee that are prepared one cup at a time. Although machines that make single-cup brews account for just 6 percent of the 90 million brewers in U.S. homes, the trend is gaining steam as consumers rein in spending and trade old-school pots for machines that make gourmet coffee at home. Considering the sluggish sales of coffee makers overall (the entire category posted a 3 percent drop over the past year), a 50 percent jump in sales of single-serve units is a huge coup for these new brewers on the block.

Green Mountain staffers put a series of brews through quality control tests.

While coffee chains duke it out with fast-food joints trotting out their own lattes, Green Mountain dominates a niche of the java market with few competitors. The company's roots are in specialty coffee sales, but its crown jewel—the Keurig machine—is the market leader among single-cup brewers, accounting for more than half of all machines sold. Other players in the single-serve category include Kraft's Tassimo system, made primarily for at-home use, and Mars's Flavia, which targets offices. Keurig, on the other hand, is making a play for the home, office, and upscale hotel crowds. "The idea is to surround our target consumer, so wherever they are, they see our brewers," says Chief Executive Larry Blanford, 54. (Keurig's target market is households earning more than $50,000.)

Brewing with a Keurig machine is simpler than spooning grounds into a filter and pressing a button. The capsule, which contains its own filter, fits into a slot, combines with pressurized hot water, and turns out one fresh cup of coffee in seconds.

Keurig isn't the only thing going for Green Mountain. From beer to coffee and even olive oil, Americans have been trading up across the food and beverage spectrum. Although coffee consumption has remained relatively flat over the past few years, a consumer survey by the National Coffee Association reveals that the percentage of people drinking gourmet coffee on a daily basis increased from 14 in 2007 to 17 earlier this year.

Coffee convert. The shift bodes well for Green Mountain, a company that sold almost 27 million pounds of coffee through various retailers in 2007 (up 10 percent over 2006), including more than 100 gourmet coffee varieties under its namesake brand as well as Newman's Own Organics. Gourmet coffee "tastes different—for the most part, it's better than commercial-grade coffee—and people are waking up to that," says Dan Cox, owner of Coffee Enterprises, an independent coffee-testing company in Burlington, Vt. Green Mountain's chairman and founder, Bob Stiller, admits that even he wasn't much of a coffee drinker before starting the company in 1981. "I grew up with instant and the percolator, and I just had never had good coffee before," says Stiller, 65, a free spirit who made his first fortune selling rolling papers under a brand called E-Z Wider. He attributes his coffee conversion to a life-changing cup of joe from the rural Vermont roaster that eventually became Green Mountain. (These days, Stiller kicks his days off with a Colombian fair-trade brew.)

Over the past 27 years, Green Mountain has grown from a small-time brewer focused on social responsibility and environmental stewardship to a $617 million publicly traded company that still champions social and environmental causes. Each year, the company donates 5 percent of pretax profits to charity, and its eco-savvy business practices include using renewable materials in to-go coffee cups. (The K-Cup's petroleum-based packaging remains an issue for environmentally focused Green Mountain, but the company is busy researching alternatives.)

"Early on, Stiller imposed a certain culture that said we're going to be on the leading edge and we're going to take care of farmers and not rape our producers, because this is our lifeline," says Cox, who was an early employee of the company. "He put a stake in the sand with fair trade."

Trips. In fact, Green Mountain is one of the largest dealers of organic and fair-trade coffee. Fair trade guarantees farmers a minimum price that's often higher than the market rate and also ensures that producers meet social and environmental standards. Building strong relationships with farmers' co-ops in countries like Guatemala, Mexico, and Nicaragua is a big part of the process, which involves sending groups of U.S. employees there "to take in the experience," Stiller says. "It's equally motivational for the farmers to know we care about how the product is made."