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GMCR » Topics » Dave Manly - Green Mountain Coffee Roasters, Inc. - VP & GM, Away from Home and Consumer DirectThis excerpt taken from the GMCR 8-K filed Nov 12, 2009. Dave Manly - Green Mountain Coffee Roasters, Inc. - VP & GM, Away from Home and Consumer Direct It’s a combination of things, Scott. Number one, when new hotels come online, clearly they look for a coffee solution. And more and more, as new hotels come up, they look for Keurig in room as a standard of excellence, given our strength with the consumer in retail and office. But also every hotel generally has a coffee solution that they look at every couple of years to renew their contracts or make a change. So we are in a combination of both new hotels and also hotels that are looking to upgrade. And I would say it’s split almost 50-50 between the two of those. So it’s very healthy for us.
Scott Van Winkle - Canaccord Adams - Analyst And on the at-home side, if we look at this market share, and I’m looking specifically at unit share quarterly, as you build throughout the year then all of a sudden you get the big pop and jump in the holiday selling period of market share, is that all because of the ad spend in the December quarter, or is Keurig more of a gift-giving item than some other coffee maker? And I’m wondering if we should extrapolate that increase in ad spending onto last year’s market share gain.
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Michelle Stacy - Green Mountain Coffee Roasters, Inc. - President, Keurig What I will tell you we always see is that, as we get into the Christmas period, gift-giving becomes more important. And therefore, the Keurig brand tends to have a big pop in the holiday period, our first quarter and the calendar fourth quarter. And that tends to give us a big pop. As we go into the rest of the year, our shares come down a little bit as the more price-value brands that are more routine purchases tend to gain a little bit of unit share. So we will see a high rise in our share that will be driven by our advertising, by heavy gift-giving. And then we’ll start to see our share come down a little bit, but not down all the way to — we don’t expect it to drop back down to current levels. We would expect it to continue to remain high, as it did last year.
Larry Blanford - Green Mountain Coffee Roasters, Inc. - CEO If I could just add, if you look at slides 11 and 12 in the deck that was posted to our website, I think that is a great description of what Michelle was talking about. And we have continued to see more than doubling, if you look at our share by dollars or units, in any quarter over the same quarter of prior year. And we would — certainly, we are looking forward to this particular quarter with great anticipation, and we would expect to continue to see our numbers rise.
Scott Van Winkle - Canaccord Adams - Analyst Is there any structural limit to how high you can take that unit share? I have always assumed that it would be hard to get past like a 15 share or something, just because of the way the market is. But do you guys think that there’s some level where you just can’t go any higher, or can you run the world kind of thing?
Larry Blanford - Green Mountain Coffee Roasters, Inc. - CEO We have never provided our projections of how high is high, or what percentage of North American households we believe, or offices, will ultimately have a Keurig Single-Cup brewing system. I would suggest, though, that, again, those charts are very encouraging that I just referenced as we continue to see growth in share — and those shares, of course, are much higher than our current share of the installed base in the country, which would be probably low-single digits, maybe rising to middle-single digits. These numbers are much higher. So, even if these were to level off, we would expect we’ve got significant growth in the installed base. And so far, we have not seen any sign of it leveling off. But I would not want to hazard a guess of how high is high.
Scott Van Winkle - Canaccord Adams - Analyst If I look at the 83% consolidated K-Cup sales growth driving the Keurig business unit compared to the 70% system-wide K-Cup sales growth, obviously Keurig had a higher share of the K-Cups going into all channels. Where does that come from? I would have assumed before Keurig expanded K-Cups into retailers and put more per door in more doors, that Keurig.com was doing a strong business. I’m wondering where that share came from.
John Whoriskey - Green Mountain Coffee Roasters, Inc. - GM, Keurig at Home The one thing we would comment on — I think if you again look and do your store audits and your store visits that you will see the presentation at retailers like Bed Bath & Beyond or a Kohl’s, etc. And I think we could probably go down the list of all the key retailers. And I think, over the past year or so, you would have seen dramatic expansion of space allocation and merchandising, etc. So that is certainly contributing to some of what you’re asking. Without giving you — we don’t talk specifically about share by channel and that sort of thing. But I think, again, the visual presentation I think really says a lot about what’s happening.
Larry Blanford - Green Mountain Coffee Roasters, Inc. - CEO Just to add to John’s comment, just in general, because we don’t share specific data — but certainly, our take-up sales have been growing at retail and now also significantly at grocery. The channels that are still growing but maybe not as fast certainly have been our office coffee channel demand and our Consumer Direct, although they are still growing very nicely. But obviously, we are seeing some shift in the share by channel. But that’s very much in sync with our mass-market approach. The whole notion here was that we believe that this opportunity to go mainstream, and as it would go mainstream, we wanted to make K-Cups broadly available.
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I might just turn to Jim just very quickly, to talk about our success in grocery on using some IRI data.
Jim Travis - Green Mountain Coffee Roasters, Inc. - VP of Sales This is just a great story. So we, as you can imagine, Scott, track IRI very carefully on the syndicated consumption data. And in the Northeast, where we have these 24 items in the four-foot set, the K-Cup dollar sales are actually larger than some of the national packaged coffee sales for either 12 or 24 weeks, which ever period you would choose to look at. So there’s some exciting news coming out of sales for K-Cups at grocery, for sure.
Scott Van Winkle - Canaccord Adams - Analyst And sticking on the specialty coffee side, if I take the specialty coffee revenue and divide it by the pounds shipped, I get an average revenue per pound down about 10.5% year-over-year. I kind of worked under the assumption that that would be rising, given the average selling price of a pound in a K-Cup is higher than bagged, and you’re shifting towards K-Cup. Is there something there or is something I’m missing in the number?
Fran Rathke - Green Mountain Coffee Roasters, Inc. - CFO We’re still definitely seeing the majority of growth for specialty coffee coming from the K-Cups where we do have a higher realized price per pound than the more legacy bagged coffee business. So some of that could be just we are reporting after elimination; I think that’s some of the data. What happens in the pound is the pound data includes K-Cups that the specialty coffee business basically manufactures and ships out. And, because we are seeing higher growth of K-Cups in the retail channel, what happens is those K-Cups that the specialty coffee business makes for the retail channel and all the other channels is in those pounds. And on any given quarter, we might be having higher sales that get eliminated in the intercompany — I’m sorry about this, for accounting — so that the net sales number, the $133 million, for example, this quarter ends up being lower because we’re having some of those K-Cups really being reported, if you will, to the third-party customer in the Keurig division. So one idea — I don’t have the numbers right in front of me; I can do them quickly — is let’s look at the average realized price before intercompany eliminations on the total pounds reported. It should actually show a higher number, and I can do that quickly.
Scott Van Winkle - Canaccord Adams - Analyst Well, I can add that back and do the math, too. I didn’t want to take up all the time. That’s all my questions. Thank you very much.
Operator Jon Andersen, William Blair.
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