
Owner of Peet's to buy Keurig for almost $14B - mdesq
http://www.latimes.com/business/la-fi-keurig-sale-20151207-story.html
======
atourgates
I hope this encourages them to kill off the horribly conceived Keurig Kold
project, or at least wait until it's ready for prime-time before releasing it.

Some highlights:

* A single-serve soda maker.

* The machine costs $369

* Each 6oz flavor pod costs between $1 and $1.50

* It takes 90-seconds to make a single 6oz drink

* It takes 2-hours to come on and cool down enough to be ready to make a drink.

Even without the cost of the machine itself, you're paying about $0.20/oz of
soda (which people say tastes slightly worse than the canned variety),
compared to $0.12/oz just buying it by the can. Add the nearly $400 purchase
price, the fact that it'd take 6-minutes to "brew" 4-cups for, say, a family,
and the gigantic machine on your kitchen counter, and it's hard to imagine why
anyone would buy this thing.

Keurig's coffee machines make sense. But at some point during the $200M 6-year
development cycle for the Kold, someone should have stepped back and said,
"Wait, this is a horrible idea and we should stop."

EDIT: I should add that Coke has invested a total of $2.4 Billion in Keurig
(specifically to support the Kold) thus far. They should be doing a dance in
the street, since an acquisition is the only way I can imagine them getting
that money back.

~~~
Johnny555
When I read this, I thought you were mistaken on the cost of the pods, but
sure enough, they cost from $1.00 to over $3.00 per pod (on Amazon).

I can buy Coke cans at Costco for around 35 cents/can or close to 3 cents an
ounce. Why would Keurig think that I'd want to pay 5+ times more for the
"convenience" of buying a big expensive machine to let me "make" coke at
home!?

And those capsules look big (which is probably because there's so much sugar
in soda, they can't make them tiny. Probably about 1/4 the size of a 8 ounce
can of coke.

~~~
beau26
The pods are awful. My friend, who buys lots of useless stuff, has described
the Kold as "the most useless thing I've ever bought."

A mini-fridge + 20 cases of Coke is cheaper upfront and in the long run.

~~~
profmonocle
Plus it doesn't take 90 seconds to get a can out of the fridge!

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arturadib
Few know that Green Mountain Coffee (now Keurig Green Mountain) was started is
still headquartered in Vermont. (GMC slowly acquired Keurig in the 90s, based
in Massachusetts).

I have been living in VT for the last several years, and I'm pleasantly
surprised by the sheer scale of unicorns this state has produced over the last
10 years: IDX (sold to GE Health for $1B+), Dealer.com (sold to Dealertrack
for $1B+), and Keurig ($10B+).

Let this be an inspiration for entrepreneurs outside of Silicon Valley and
other innovation hubs!

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shostack
Looks like the investors are trying to cover all the bases on their coffee
portfolio...

From the article:

> "Peet’s recently acquired “super-premium” coffee companies Stumptown Coffee
> Roasters and Intelligentsia Coffee."

> "Keurig said the acquisition was done in partnership with “strategic
> minority investors” that are already shareholders in Netherlands-based
> global coffee and tea company Jacobs Douwe Egberts B.V., including Mondelez
> International and entities affiliated with investment firm BDT Capital
> Partners. Jacobs Douwe Egberts owns Maxwell House and Keurig rival Tassimo,
> among other coffee and tea brands."

~~~
pasbesoin
Per my other comment on this thread, all I can say in response to this is,
"Argh!"

Big outfits continue to acquire and... "beat down" the better shops, in our
area. Make money, I guess -- but the product invariably seems to suffer.

~~~
RogtamBar
>Make money, I guess -- but the product invariably seems to suffer.

They have to make up the acquisition costs. Why do people sell though?

~~~
shostack
> "Why do people sell though?"

The simple answer is "to cash out." Think of it this way... you have a small
business that has been growing successfully, but the space is incredibly
crowded and has giants like Starbucks, Peet's, Keurig, etc.

You're still on track for great growth, but there's a big risk you could
stagnate and die off. Then on the other hand you have these investors coming
who want to throw large sums of money at you. And since the coffee business
isn't necessarily like the technology startup space where a lot of your
employees have equity, there's a decent chance you're keeping a lot of that.

So when you're looking at the possibility of banking 10's or 100's of millions
now, vs. a gradual payoff for a business with steep competition that adds a
massive amount of stress to your life, for some people the answer is quite
simple.

Of course some are very passionate about the business to the point where they
can't see themselves doing anything else, and they might not sell, or might
not sell the entire stake. But you honestly can't fault someone for taking a
guaranteed payout after busting their hump on a business that, statistically,
should have failed (and still might).

Life has other priorities beyond coffee.

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chollida1
A few interesting things about this deal.

Keurig is getting a 78% premium over their Friday share price. That's a huge
premium. C

The company had a lot of short interest( about 8% which puts it above 89% of
the companies on the S&P), so today alot of funds(Einorn is particularly
upset) are receiving huge margin calls.

When you claim to not like a stock and someone else asks why don't you short
the stock if you don't like it, this is what you point to. Just because you
don't like a stock doesn't mean someone else with deep pockets won't love it.

The CEO of Keurig just sold a bunch of shares last week to pay the taxes on
his options. Not being able to wait a week cost him close to $1,000,000.

see: [http://kiddynamitesworld.com/green-mountain-coffee-the-
most-...](http://kiddynamitesworld.com/green-mountain-coffee-the-most-non-
insider-trade-in-history/)

~~~
will_pseudonym
You should look into put options. They're how you short a stock without a
massive downside. If the stock goes down you win, if the stock goes up you
lose nothing, and all it costs is a small up front premium.

~~~
sk5t
To say you "lose nothing" seems a strange way to describe an option you have
to pay for and which has no value without clearing the contract cost.

~~~
jonknee
> To say you "lose nothing" seems a strange way to describe an option you have
> to pay for and which has no value without clearing the contract cost.

Well you can only lose what you put in and the option itself costs a fraction
of the share price. Put option owners were certainly feeling a lot better
today than short sellers (though call option owners were feeling best--some
lucky owners of the Dec 11 65 calls are up 239900%!).

~~~
samstave
Can you please provide some examples with real numbers on puts... I do not
understand them. Thanks -- and Apologies for not turning to google, as opposed
to asking you to ELI5

~~~
will_pseudonym
Puts are, simply put, insurance (pardon the pun). You pay a premium for the
_option_ to sell the stock to someone at $X at a future date. Let's say you
think that AAPL is going to go down in price. You could for example buy a put
option to have the option to sell AAPL stock at $118.28, in 6 months, to the
person who sold you that option. If the stock goes up, you don't exercise the
option. If it does, the option writer (guy who sold it to you) pays you the
difference between the stock price at that time, and $118.28. The only cost to
a put option is the premium (maybe a few dollars, depending on the forecasted
price of the stock and forecasted interest rates) that you paid at time 0. So
if you paid $10 for the option, and the stock goes down to $105, your total
cashflow is +$3.28. If the stock went up to $200, your total cashflow is -$10.

~~~
jonknee
This is essentially true, though the pricing is quite a bit more complex
(implied volatility is important in pricing and that can swing wildly).

The tl;dr is it's a way to be short a stock with more limited risk, but with
the added variable of having to be right on timing.

~~~
will_pseudonym
Indeed. it was an Explain Like I'm Five explanation. I have learned far more
than I've ever cared to learn about pricing options. Actuaries get paid well
in part because the exams are difficult. :)

Also, the timing is only applicable to European options which expire on a
specific date. American options have no expiration date!

~~~
chollida1
> Also, the timing is only applicable to European options which expire on a
> specific date. American options have no expiration date!

Umm, American options still have an expiry date. They can be called earlier
than their expiration date, though unless there is a dividend to be paid, its
never advantageous to do so.

But American options absolutely have an expiration date. They wouldn't make
sense otherwise.

I mean at price would you sell someone a put or a call if they could wait
forever to exercise it?

No matter what implied vol you put on the underlying, you would still have to
price it at infinity wouldn't you?

~~~
will_pseudonym
My bad! Sorry about that, my brain wasn't working well yesterday... :)

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EvanKelly
K-Cups are a really interesting product to me as someone who loves coffee.

We have almost every different way of making coffee at our office (normal
machine, chemex, french press, aeropress, big machine that grinds beans fresh
and makes cup in ~40 sec) and people still use the K-cup machine.

I know that most of those methods are a bit more time intensive and daunting,
but we have a big machine that makes a cup from fresh beans with one button
push. I've talked to my co-workers and a lot of them simply like the K-cup
coffee better. To me, it's almost objectively worse coffee, but people still
love it.

I'm not sure whether it's branding or just what they're used to, but if you
give people the option of coffee from a pot or from a k-cup, it seems they'll
almost invariably choose the k-cup.

~~~
atourgates
It blows my mind too.

I'm a coffee nerd, but not a snob. I can enjoy a cup of Starbucks, gas-station
coffee, and even be fine with a cup of instant.

I would choose any of those over the best Keurig I've tried. To me, the taste
goes far beyond "not good" into "awful" territory.

But like you say, people genuinely like it. We added one to the waiting room
of my wife's medical office, and from her patient's reactions you'd think we
were giving them world-class coffee for free. I wonder if Keurig coffee is one
of those weird foods like cilantro where only some people can taste the
"awful".

------
coldcode
Building terrible DRM technology does seem to pay off in some cases.

~~~
hyperliner
No different than the Starbucks coffee many of us have in our hands as we read
your comment: terribly killing small coffee producers in Third World countries
does seem to pay off.

~~~
Relys
Starbucks is leveraging it's economy of scale to out price it's competitors in
a free market. Keurig is using it's position in the industry to enforce DRM on
it's hardware to stifle free market competition and exert it's power over the
customer. Now, you may agree or disagree with Starbucks business practices or
Keurigs DRM. However, I stand to argue that a direct comparison between the
two is unfair.

~~~
hyperliner
It's more than leveraging scale. See these:

[http://businessethicscases.blogspot.com/2013/02/exchange-
inc...](http://businessethicscases.blogspot.com/2013/02/exchange-inc-
v_3188.html)

[http://www.theguardian.com/environment/green-living-
blog/201...](http://www.theguardian.com/environment/green-living-
blog/2011/feb/28/coffee-chains-ethical)

[http://www.economist.com/node/8355026](http://www.economist.com/node/8355026)

------
pasbesoin
Peet's bought up a bunch of Caribou locations in our area. My father has been
holding his breath, waiting to perhaps finally be able to get a decent
espresso (or coffee).

Instead, the location sat empty for more than a year. Now, the wraps just came
off -- and it's a Dunkin Donuts.

So... Not too fond of Peet's, now. And acquiring Keurig doesn't help.

It's looking like Peet's is primarily a money game, now. Fortunately, a good
local independent has finally opened -- near to me, but something of a drive
for Dad.

~~~
justin66
The parent of Peet's (and Caribou) closed all our local Caribou a few years
ago and replaced them with a much smaller number of Peet's. It was a downgrade
(the nationwide Peet's is nothing at all like the great ones I remember from
the Bay Area) and a year later, they closed those Peet's and abandoned the
region entirely. The Peet's they closed did a decent business (as did Caribou)
so it was all just mysterious.

It sounds like they just skipped a step with you guys. Efficient!

~~~
joezydeco
We had half the Caribou stores in our area convert to Peet's, and the other
half were shuttered. Then the Peet's that remained closed about a year later.

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JustSomeNobody
I hope Peet's doesn't get so big now that their coffee suffers. That would be
a horrible shame.

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smlacy
Yuck. Keurig is a horrible company and this will stain Peet's reputation. Too
bad.

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silentplummet
A stain on the history of human civilization. A few men will become rich
beyond imagination by a skillful appeal to base laziness and apathy. It's the
renaissance of the disposable generation. Just toss the cup away. Toss the
whole maker away when it breaks, too.

Make no attempt to contemplate where all of this trash ends up.

What's wrong with taking a few minutes to make the coffee and clean up after
yourself? Did you know coffee grinds make a great nutritious supplement to
household plants and gardens?

~~~
cm2012
Eh - there is actually plenty of room for pretty much all the trash humanity
could possibly create. A hole ten miles square and couple of hundred feet deep
could hold all of the U.S.'s trash for the next 100 years (this is not a
controversial statement). And recycling is energy inefficient for pretty much
everything but aluminum and steel.

Keurig solved a huge problem in offices - how to always have coffee available
when people en masse are pretty bad at refilling the coffee. No amount of hand
wringing will make people better at things like refilling coffee.

~~~
JustSomeNobody
What was the problem? There were already machines that self filled with water.
Just toss coffee in a filter and go!

I promise you, it's NOT that hard.

~~~
cruise02
And yet, people still don't make a new pot when they take the last of the old.

------
jMyles
The next time somebody tells you there's no startup capitalization bubble,
point them to this frothy cup of craziness.

edit: Hmm - downvotes. So I guess people genuinely think that this (pretty
shitty) company is worth $14b?

For reference, Mariott International, which just opened its 4,000th hotel, has
a market cap of around $18b. In January of this year, freaking Nintendo had a
market cap of only $12b (though, for reasons that are debated, it is now
nearly double that).

There's no way on earth that this company is in the same realm as Mariott or
Nintendo. Come on now.

~~~
cm2012
Mariott had $214 million net income in 2014. Keurig had $500 million.

EDIT: Mariott actually had 753m net income in 2014.

~~~
adventured
I happen to think that Keurig is worth acquiring at 28 times their trailing
four quarter earnings (it might be a bit high, but that's the price of
acquiring). However, you're partially mistaken on those numbers.

Marriott had $753m in net income in 2014. You're referring to just one
quarter. They've done $854m in net income the last four quarters (20.8 pe
ratio or so).

~~~
cm2012
You're totally right - my mistake.

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schwarzrules
I hope this isn't an acquihire. Would be a shame if they shut down the k-cup
business.

~~~
jhall1468
No company is going to spend $14B to acquire talent.

