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9.1 Green Mountain’s Sustainable Business Model

Learning Objectives

  1. Describe both a local and a global sustainable business practice. Explain how they are related.
  2. Understand how company performance and sustainable practices can be related.
  3. Describe how fair trade practice can be a source of competitive advantage in the coffee industry.

Chairman Stiller and Larry Blandford, president and CEOThe top executive responsible for a firm’s overall operations and performance. He or she is the leader of the firm, serves as the main link between the board of directors (the board) and the firm’s various parts or levels, and is held solely responsible for the firm’s success or failure. One of the major duties of a CEO is to maintain and implement corporate policy, as established by the board., in the letter accompanying the company’s corporate social report, “Brewing a Better World: VOICES,” declared their commitment to a sustainable business approach by

  • reducing energy use,
  • continuing development and marketing of Fair Trade Certified coffees,
  • giving grants to coffee-growing communities,
  • installing a solar power array on the roof of its Vermont distribution center.Green Mountain Coffee Roasters, Inc., Brewing a Better World: VOICES, accessed May 30, 2010, http://www.gmcr.com/PDF/gmcr_csr_2008.pdf.

The challenge for Green Mountain Coffee Roasters (GMCR) management was trying to incorporate sustainable business practice in a market that traditionally did not take account of external costs, such as environmental and social impacts, and was focused on low costs to consumers. Green Mountain was able to develop a core competenceCapabilities that are a source of competitive advantage and that cannot be easily imitated. They are what give a firm competitive advantage in creating and delivering value to its customers. in its ability to apply its sustainable business modelHow a company makes money by means of sustainable business practices. across the supply chain, and the company has been able to use its sustainable business practices to differentiate itself in the highly competitive coffee industry in ways that have been difficult for rivals to copy.

How Is GMCR Doing?

Green Mountain’s success is best reflected in the rise of its stock price. From 2007 to 2010, GMCR’s stock rose by more than 2,700 percent, while the S&P 500 declined by 8 percent. From Green Mountain’s initial IPO in September 1993, its stock had increased by 15,400 percent, significantly better than the S&P 500’s 165 percent gain.Green Mountain Coffee Roasters, Inc., Annual Report 2009, accessed April 16, 2010, http://www.gmcr.com/Investors/AnnualReport.aspx.

Java Man Is Newest Billionaire

Bob Stiller Profile

Sometimes entrepreneurs really do become billionaires overnight. That’s what happened to Robert Stiller, the founder of Green Mountain Coffee Roasters (NASDAQ: GMCR). The value of his 12% holding in Green Mountain perked up 42% last Thursday and is now worth just over $1 billion. The jump came just after his Vermont coffee company announced a strategic relationship with Starbucks (NASDAQ: SBUX). Green Mountain, also the owner of Keurig Single-Cup brewing system, will now make, market and sell Starbucks and Tazo tea K-Cups.

I profiled Stiller as Entrepreneur of the Year nearly a decade ago in a 2001 Forbes cover story. At the time, his stake in the company was worth $89 million. I tried to reach him again this week, to no avail, but I recall his story well.

Stiller, who is probably now 67, was a born entrepreneur. His first big hit was selling rolling paper on the drug-sodden campus of Columbia University in the early 1970s. His brand, E-Z Wider, had double the width of competing brands. The paper wouldn’t feed into the machine properly, causing tearing. Stiller figured out a way to prevent ripping and eventually made a small fortune. “People expected to see potheads, but we were more efficient at paper conversion than any manufacturer at the time,” he told me back then. He and a partner sold out in 1980, each pocketing $3.1 million.

After cashing out, Stiller found himself at his ski condo in Sugarbush, Vermont, looking for his next opportunity. Enjoying a rare cup of good coffee at a restaurant one night, he started roasting his own beans, using a hot-air popcorn popper at one point, a cookie sheet at another, brewing batches of coffee for friends. Stiller ended up buying the store that had sold him that memorable cup of coffee in 1981 and after some twists and turns built it into Green Mountain.

One of his smartest bets was investing in, and eventually, buying the Keurig single-cup system, created by three entrepreneurs. That business is now driving much of Green Mountain’s growth these days. Fiscal 2010 sales were up 73% to $1.36 billion, with majority of revenues coming from Keurig.

Stiller stepped down as chief executive in 2007 but is still chairman. In addition to his holding in his coffee business, he apparently has a stake in Krispy Kreme Doughnuts and owns a small private air charter, Heritage Flight, according to a story in a Vermontbiz.

Along with continued outstanding growth in sales, profits, and earnings per share, Green Mountain has received numerous industry, social, and humanitarian awards. The company reported that 2011 “was another step on our path to creating a more sustainable future. Along the way, we were pleased to be recognized for our efforts to create both profit and positive change.” (See the following sidebar.)Green Mountain Coffee Roasters, Inc., Brewing a Better World: VOICES, accessed May 30, 2010, http://www.gmcr.com/PDF/gmcr_csr_2008.pdf.

GMCR 2011 Awards and Recognition

  • Readers’ Choice Award for New Products of the Year (Best Cold Beverage) on Automatic Merchandiser Magazine for the Green Mountain Coffee Brew over Ice K-Cup Pack
  • Ranked number 2 on Fortune Magazine’s “Global 100 Fastest-Growing Companies List”
  • Humanitarian of the Year Award from Medicines for Humanity (MFH)
  • Largest purchaser of Fair Trade Certified coffee in the world for 2010
  • Leader of Change Award from the Foundation for Social Change and United Nations Office for Partnerships
  • Business of the Year Award from Northeastern Economic Developers Association (NEDA)
  • One of the Boston Globe’s top places to work in Massachusetts, Keurig, Inc.

To view Green Mountain Coffee Roasters Information from its Annual Report, 2011, visit http://files.shareholder.com/downloads/GMCR/1903981470x0x540307/c799e76f-7e06-418d-9bb2-b105a85ee3ea/GMCR_AnnualReport_2011.pdf

GMCR keeps track of its social and sustainability efforts in three areas: the amount of fair trade coffee (organic and nonorganic) purchased as a percentage of total coffee purchased (with a goal of at least 30 percent of all coffee purchased to be Fair Trade Certified coffee); the price it pays to farmers for premium coffee over the prevailing market price; and the dollars contributed in grants to aid its numerous supply chain partners, especially to its farmers and community partners (with a goal of at least 5 percent of profits going to aid supply chain partners and other community partners). Fair Trade USA, the leading third-party certifier of fair trade products, named GMCR the largest purchaser of Fair Trade Certified coffee in the world for 2010. GMCR purchased more than twenty-six million pounds of Fair Trade Certified coffee in 2010.

With its purchase of Fair Trade Certified (FTC) coffee, GMCR was able to identify early on and exploit market opportunities in the United States for the growing consumer interest in Fair Trade Certified organic and nonorganic coffee. With FTC coffee purchases, GMCR was able to help address the well-being of farmers in coffee exporting countries. The company did this by providing farmers and their workers a fair (also known as “living”) wage and grants to help them with medical, educational, and other economic and social needs. With the purchase of Fair Trade Certified organic coffeeCoffee that is grown under standards and guidelines that attempt to reduce the environmental impact (devastation) that is occurring in coffee-producing countries., GMCR also attempted to reduce the environmental devastation that occurred in coffee producing countries brought on by mass clearing and mass production of coffee crops. Management used these innovative supply chain practices and associated social investments as a source of a competitive advantage in the highly competitive specialty coffee industry.

GMCR senior managers believed that once consumers understood the company’s sustainability goals and practices—protecting scarce resources, strengthening communities, reducing poverty, and ensuring equity in commercial relationships—they would be more likely to purchase the company’s products and thereby “partner” with the company to help build a better world.Green Mountain Coffee Roasters, Inc., Brewing a Better World: VOICES, accessed May 30, 2010, http://www.gmcr.com/PDF/gmcr_csr_2008.pdf.

GMCR’s Fair Trade Coffee Goals and Statistics

Management believed that its fair trade approach also created a “win-win” situation for the company and supply chain partners. By improving the quality of life for farmers, their families, and workers, Green Mountain sought to foster trust and closer working relationships in its supply chain. And management viewed this as investments that could help GMCR more effectively monitor quality and lower costs by assisting and negotiating directly with farm cooperatives. By lowering dependency on other supply chain intermediatesFirm or person (such as a broker or consultant) who acts as a mediator on a link between parties to a business deal, investment decision, negotiation, and so on. In the coffee supply chain, a trader, for example, acts as intermediary between farmers seeking a fair price for their coffee and roasters looking to buy coffee at a fair price. Intermediaries usually specialize in specific areas and serve as conduits for market and other types of information. Also sometimes called a “middleman.” in procuring its coffee, the company could lower supply chain logistical and procurements costs, improve turnaround time, and respond more quickly to customer preferences.

By 2009, Green Mountain was one of the largest purveyors of fair trade coffee in the United States. Fair Trade Certified coffee represented about 30 percent of Green Mountain’s overall coffee pounds sold in 2009, which was a 36 percent increase over 2008.

Partnerships and Outreach in the Supply Chain

In 2008, GMCR began sharing and measuring vendorAlso known as a supplier. A firm that provides raw materials or services to another firm. A vendor can be a manufacturer, producer, or seller. compliance to a set of guidelines. These guidelines outlined what Green Mountain expected from its vendors regarding environmental, health, and safety standards. These standards included vendor legal compliance, labor conditions, and environmental responsibility. For measuring compliance, GMCR created a set of tools, including self-assessments, surveys, on-site assessments by GMCR staff, and commissioned audits of vendor facilities. Management tested these tools by auditing its Waterbury, Vermont, facility.Green Mountain Coffee Roasters, Inc., Brewing a Better World: VOICES, accessed May 30, 2010, http://www.gmcr.com/PDF/gmcr_csr_2008.pdf.

GMCR’s goal for its coffee supply chain was ambitious: to help the people in coffee-growing communities lead healthier and more prosperous lives. To facilitate the accomplishment of this goal, GMCR’s used two outreach initiatives. First, the company provided on-the-ground assistance by helping suppliers improve their ability to deliver high-quality specialty coffee to the marketplace. Areas of assistance included advice on cultivation techniques, training on cupping skills, and connecting suppliers with industry resources to help farmers strengthen and grow their business. Second, GMCR provided financial grants to nonprofits that both provided technical skills and helped communities achieve a more sustainable future.John M. Talbot, Grounds for Agreement: The Political Economy of the Coffee Commodity Chain (London: Rowman & Littlefield, 2004), 44.

Key Takeaways

  • Sustainability practices in the supply chain can result in lower costs, shorter cycle times, and improved opportunities for product and process innovations.
  • Sustainable business practices can help differentiate a company from rivals in profitable and meaningful ways.

Exercises

  1. Visit your college cafeteria or food service area and poll students on what they know about coffee, and especially about the role fair trade coffee plays in the lives of farm workers, in their families, and in protecting the environment. What are some of the key points or lessons that you would like these students to know about GMCR and fair trade coffee?
  2. Go to Green Mountain (http://www.greenmountaincoffee.com) and Starbucks (http://www.starbucks.com). How does each company demonstrate its commitment to buying and selling fair trade sustainable coffee?
  3. Go to the International Coffee Organization homepage at http://www.ico.org and download its annual review for 2010 and 2011. What is the International Coffee Organization’s (ICO) mission? What programs has the ICO recently adopted in support of coffee farmers in destitute coffee-growing countries? What has driven coffee prices to all-time highs? How have coffee farmers and their families’ benefited, if at all, from the higher coffee prices?