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Coffee Tea Business Mag


Green Mountain Coffee Roasters: Doing Well by Doing Good

By Mark Pendergrast

We are an association of 125 members and right now we are going through a crisis.” The spokesman for the Asociacion del Baluarte in the San Marcos region of Guatemala speaks in Spanish to the small group from Green Mountain Coffee Roasters. It is February 2003 and they are visiting Baluarte (which means “precious little jewel”) at the urging of Mireya Asturias Jones, owner of the neighboring Finca dos Marias. When the former Baluarte owner sold the farm to the workers with government funding, the families remained with new-found excitement for their future. They had faithfully harvested this year’s coffee, but they could not sell it for enough money to survive to the next coffee crop season. This meant losing their livelihood. “We need a way to sustain ourselves,” the farmer says. “Are you interested in our product?”

Jon Wettstein of Green Mountain tells him that he can make no promises and that the company has already purchased most of its coffee for the season. “We have your samples,” he said. “We will cup them back in the U.S. Much depends on the cup quality as we evaluate it.” Company c.e.o. Bob Stiller remains silent, but later he agonizes over it. “Here you have all these families with land and opportunity. They all want to work hard, support their families. They want to live a life. And we don’t have an easy answer.”

Back in Vermont, when Lindsey Bolger, corporate coffee manager, and her fellow cuppers sample the coffee later that month, they are pleasantly surprised when they score them on their 100-point quality scale. Green Mountain has agreed to buy three containers and will pay a 10 cents per pound quality bonus if the coffees score an 82 or better. All of them score in the higher bracket, which means an $11,000 quality bonus for Baluarte. Happy ending. Families and farms saved. And this year Green Mountain hopes to buy five Baluarte containers.

This anecdote illustrates the hard decisions that well-intentioned coffee roasters must make. Although Green Mountain prides itself on its social activism - it is a leader in sales of Fair Trade and organic coffees, supports Coffee Kids, Grounds for Health, Cup for Education and the Heifer Project, and donates 5% of pretax profits to good causes - it must maintain quality above all else. “To help the world, we have to be successful,” Stiller explains. “If we help the world and go out of business, we’re not going to help anybody.”

There’s not much question that Stiller knows how to succeed in business. First he made millions in the 1970’s from founding and selling EZ Wider papers. Then one day he had an extraordinary cup of coffee in a Vermont restaurant and asked where it came from. He was directed to Green Mountain Coffee Roasters, a small Waitsfield shop started in 1979 by Doug and Jamie Balne. They roasted exotic, high-quality beans in the store’s small batch roaster. Literally smelling (and tasting) an opportunity, in 1981, Stiller founded Green Mountain Coffee and bought Doug’s and Jamie’s shop. A year or so later the Balnes pursued an opportunity to open coffee shops in Florida and left Stiller the sole owner.

From that tiny shop, Stiller has built a large regional, and now national, business, even though the path has not always been smooth.

In 1993, Bob Stiller took the company public with an IPO that raised money to shift the company’s growth and increase roasting capacity. The company invested $4 million in plant and equipment, including the first machine for one-way valve bags. Jon Wettstein, a former Digital Corporation manager, came aboard as vice president of operations, and Paul Comey, who had been a consultant, now joined the firm as v.p. of facilities and process engineering. Together, Wettstein and Comey continue to run the plant along with Curtis Hooper, one of the company’s first employees and today’s plant manager.

Within a few years, Green Mountain had 12 stores throughout New England and upstate New York, with one outpost in Naperville, Illinois, but they didn’t turn a profit, so in 1998 Stiller took the company out of the retail business, selling most of the stores to their employees.

In the meantime, the wholesale, institutional, and direct mail sales had been growing apace. New England supermarkets such as Hannaford Brothers were selling Green Mountain Coffee, and Mobile Oil, subsequently purchased by Exxon, sold the coffee in its convenience stores, including the upscale On the Run outlets across the country. What drove sales was clearly quality: Deb Crowther sourced the best beans; meanwhile, Todd Curtis, the roastmaster, took pains to bring each varietal to its optimal roast level, and good storage, freshness, and proper brewing were emphasized along the line to the consumer.

“We realized that we added most value by working with customers to provide the best coffee experience to the consumer,” Stiller says. “It goes beyond just the quality of the coffee and training manuals, to developing relationships within organizations and inspiring them to do a great job with the coffee. You can provide a great product, but unless the customer really wants to do a good job, the end product won’t work out.”

Nell Newman and Lindsey Bolger at the La Voz Cooperative in Atitlan
Meanwhile, stockholders were not initially thrilled. In September 1993, the first shares sold for $11, climbed over $14 the next month, then gradually subsided to languish in the single-digit range for years. By September 1998, the share price had sunk to $4.50. But then things began to turn around. With Green Mountain focusing on its wholesale, OCS (office coffee sales), and direct mail sales, the stock began to climb, breaking above $10 early in 2000, then spiraling to $46 in January 2001, when the stock split two-for-one. Since then, it has had its ups and downs but has remained essentially flat in the $20 range.

Mitch Pinheiro, who follows GMCR stock for Janney Montgomery, is impressed with Green Mountain’s “disciplined management team that has a strong potential to take a regional product and turn it into a national brand.” Pinheiro, who owns GMCR shares himself, says that most coffee companies get into supermarkets by paying slotting fees, but that Green Mountain has gotten onto the shelves strictly through quality, demand, and a socially responsible image. Pinheiro recently distressed Bob Stiller, however, by switching from a “buy” to a “hold” recommendation, asserting that ExxonMobile may be rethinking their commitment to sell Green Mountain Coffee. “On the contrary,” says Stiller. “While anything can happen, we have a great working relationship with them and the impact of losing them was significantly overstated.” He says he is sure that the Exxon business is as strong as ever.

Pinheiro is also concerned about the company’s involvement with Keurig Corporation, an innovative Massachusetts company that has developed a brewer that produces one high-quality cup of drip coffee at a time with its K-Cups. Green Mountain Coffee Roasters worked closely with the company during its startup in the 1990s, and now manufactures and sells K-Cups, as well as owning 42% of Keurig Corp. The Keurig office brewer has done extremely well, but in the last few years Keurig has invested heavily in a new home brewer, betting on a large domestic market, and this up-front R&D expense has caused bottom line losses. The home brewer costs $200, both the brewer and K-Cups are available through Green Mountain’s website and mail order continuity program.

Pinheiro believes that Green Mountain should eventually purchase Keurig outright. Then, it could sell the home machines much cheaper, almost as a loss leader, in order to hook consumers on the profitable K-Cups. “It’s like razors and razor blades,” Pinheiro says. “The more razors there are in the marketplace, the more razor blades you will sell. But the same company needs to own both of them.”

Bob Stiller is coy about plans to purchase Keurig, but he does not deny this logic. Regardless, he says, “our goal is to get the brewer under $100. But there are over 15 million coffee brewers sold every year, so getting a mere 200,000 Keurig machines out there isn’t asking too much, given the quality and convenience of the coffee.” Stiller sees the Keurig brewer as the high end product (Procter & Gamble and Kraft are selling the lower-end single pod brewers) and as the culmination of a natural evolution from percolators to automatic drip to single-serving brewers. And, he emphasizes, there is no flavor contamination between servings, whether you use Rainforest Nut or Celestial Teas or Breakfast Blend.

Despite his current reservations, Pinheiro regards Green Mountain Coffee Roasters as a long-term buy-and-hold. “I like the company culture. Bob Stiller is a big believer in really supporting his employees and helping them grow. I think that’s good for the bottom line in the long run. Also, the company’s support for Fair Trade/Organic is one of the distinguishing factors for the brand. I don’t think it is a cynical marketing ploy, mind you - they really believe in these good causes - but it’s clearly a marketing advantage. In 10 years, I think Green Mountain will be a popular coffee in Hawaii and California.”

Jon Wettstein, v.p. of operations for Green Mountain Coffee Roasters, on the drying patio of the La Voz Cooperative which was financed by the company.
People tend to stick with the company - 17 employees have been with Green Mountain over 15 years, while nearly 200 of the 575 employees have been with the company for five years or longer. After asking GMCR employees to reveal how they feel about the company and to give examples of how they use their CAFÉ (Community Action For Employees) time, in which employees may take an hour of paid time per week for a cause they believe in, I received a flood of positive responses. Employees have helped with everything from canine rescue to the local elections, from a local food shelf to building houses for the poor.

Andy Gordon, who is sub-project manager for the construction of a new distribution center, said, “GMCR encourages and provides opportunities in personal and career growth almost continuously.” Gordon has used his CAFÉ time to do trail work for the Green Mountain Club, sort books for the Children’s Literacy Foundation, and work at an orphanage in Mexico.

For over a decade, more than 20% of Green Mountain employees from all parts of the business - from the production floor to sales and marketing - have been flown down to Central America for Coffee Source Trips. Steve Sabol, who plans and hosts many of the trips, observed, “The effect is profound. I have seen it bring people to tears. The knowledge of the care that goes into the coffee is important, but when they see the social part of it, and how dependent these growers are on us being a quality partner, it hits right home, the obligation we have to do well.” During the trips, cross-departmental friendships flourish in a way that would never happen back in Waterbury.

Rick Peyser’s trips to origin transformed him as well, particularly after importer Karen Cebreros took him to organic farms like La Voz on Lake Atitlan in Guatemala. “The coffee knocked my socks off,” Peyser, now the director of social advocacy and public relations at GMCR, recalls. “It’s got so much life to it, it’s nearly fermented.” Then they drove up into a Mayan coffee-growing community in Chiapas, Mexico, where Peyser took part in a religious ceremony with a shaman in a thatched hut with mud walls. “I came back a convert to organic coffee,” he says, and he encouraged Bob Stiller to begin buying organic beans in 1996. That same year, Peyser took a month of vacation time and went down to Mexico for an intensive Spanish language course, which he did again for many successive summers. (Now some GMCR employees are taking company-paid Spanish lessons right in Waterbury.)

Following the 1999 launch of TransFair USA, Green Mountain committed in May 2000 to make at least 3% of its sales Fair Trade. It was a natural outgrowth of the company’s Stewardship Coffee program, which supported estates and cooperatives that treated workers extremely well, providing for education, health, and housing. It happened that the company’s three organic coffees from Peru, Sumatra, and Mexico were already certified as Fair Trade, so the company decided that henceforth all of its organic coffees would be double certified as Fair Trade and organic. This provides farmers with a minimum price of $1.41 per pound of coffee.

The company sent its Buzzmobile, replete with Fair Trade insignia, down to Boston Common for the Fair Trade launch on the East Coast. Columbia University signed on for Green Mountain’s Fair Trade, then other colleges began to follow suit, and ExxonMobil did the first national promotion of Fair Trade coffee in a convenience store.

In December 2000, as the coffee crisis was deepening, Peyser visited the Huatusco coop in Mexico. “The farmers expressed a sense of real desperation. Prices had fallen to 70 cents a pound.” And they would fall much lower. Huatusco’s beans supplied the basis for Rainforest Nut, a flavored blend, some of whose profits supported the Rainforest Alliance. The decision was made to convert Rainforest Nut to Fair Trade status, even though the beans were not organic.

In June 2001, for Employee Appreciation Day, the company invited Paul Rice, the TransFair c.e.o., and Bill Fishbein, head of Coffee Kids, to speak. Partly as a result, the non-profit Green Mountain Coffee Foundation gave $100,000 to fund a documentary about Coffee Kids for the public television show “Visionaries” to help raise consumers’ awareness about conditions for coffee farming communities. (Rick Peyser is now the president of Coffee Kids, which helps coffee communities diversify so as not to rely only on coffee.) That same week, Green Mountain purchased Frontier Organic Coffee, adding substantially to their organic offerings and giving them entrée to Fred Meyer supermarkets in Oregon and Washington.

The same year, Forbes Magazine ranked Green Mountain as one of the 20 fastest growing small companies in America and named Stiller “Entrepreneur of the Year”. The company lured Don Holly from the Specialty Coffee Association of America to serve as Green Mountain’s corporate quality manager. A few months later, Lindsey Bolger, a widely respected cupper for Batdorf & Bronson, came aboard as corporate coffee manager. By the time the fiscal year ended in September 2001, Green Mountain had bought 832,000 pounds of green beans under Fair Trade terms. Paul Rice, of TransFair USA, was happy.

“Green Mountain Coffee Roasters has played a key leadership role in developing the Fair Trade market in the U.S.,” Rice says. “That speaks to their social mission and identity as a company. The proof point that GMCR’s success with Fair Trade gives us is huge, allowing us to say to everyone, ‘You can get into Fair Trade to help your business, not just because it’s the right thing to do.” Rice points to the annual Impact Report TransFair creates for Green Mountain, detailing the extraordinary effect its support of Fair Trade has had in seven cooperatives (in Mexico, Huatusco, La Trinidad, and ISMAM; in Peru, La Florida; in Sumatra, Gayo; in Guatemala, La Voz; in Colombia, INGRUMA). “In just one year, Green Mountain paid farmers enough so that they themselves could build schools, give scholarships, build new mills, drying patios, community centers. This model is so much more powerful than charity,” Rice says. “Don’t give people fish - teach them to fish!”

Yet Fair Trade is not the only way Green Mountain helps coffee farmers, as Bob Stiller is quick to point out to critics who insist that GMCR should sell only Fair Trade beans. “There are other farms that don’t meet the coop certification standards for TransFair but which treat their workers well, try to help the environment, and generally do good things,” Stiller says. “So it isn’t Fair Trade or nothing. For instance, if we just sold Fair Trade, we couldn’t have helped those desperate farmers at Baluarte.”

Green Mountain has been on a whirlwind course recently. In December 2001, Green Mountain switched to new Fres-co Corner Seal packaging that doesn’t lean over and allows graphics and messages to occupy all four sides of the bag. In 2002, Aramark Food Service and Sodexho began to carry Green Mountain Coffee, as did Wild Oats Market, a natural foods supermarket with some 70 stores nation-wide. Wild Oats sells only double-certified Fair Trade/organic Green Mountain beans in handsome one-way valve bags. That same year, the company launched Newman’s Own Organic line, co-branded as Green Mountain Fair Trade/organic. The bags, featuring c.e.o. Nell Newman and her famous actor father Paul, gained Green Mountain long-sought entrée into the Publix Supermarket chain in Florida.

Bob Stiller arranged for Wild Oats c.e.o. Perry Odak and Newman’s Own’s Nell Newman to accompany him on a trip to origin in February 2003, with Odak going to Mexico and Newman to Guatemala. Both customers were moved. “I grew up on a farm,” Odak says, “so I understand the hard work and dedication to the land. But most important, I saw people not getting a living wage and local communities being torn apart. Young people were leaving with coyotes, risking their lives to cross the desert to the United States. Our selling Fair Trade beans can tip the scales for them.” The trip inspired Odak to add Fair Trade bananas to Wild Oats shelves, and now he is looking at Fair Trade chocolate, tea, tropical fruits and vegetables.

Similarly, Nell Newman says, “It’s one thing to read about it and see pictures, but it’s totally different to actually come down and experience it for yourself. I’ve seen the passion of these people who have spent so much time and effort getting their crop certified organic. It makes everything we are doing to sell their coffee worthwhile.”

In 2002 and 2003, Forbes Magazine again selected the company as one of the fastest growing in the country. Business Ethics magazine ranked Green Mountain eighth on its 2003 list of the “100 Best Corporate Citizens,” and the same year the Leeds School of Business at the University of Colorado at Boulder chose GMCR as one of its three finalists for its “Award for Social Impact.” In May 2003, the PBS program Frontline/World aired a show about a Green Mountain trip to Guatemala. GMCR employees serve on the boards of worthy organizations such as Coffee Kids, Ground for Health, Cup for Education, Fair Trade Labeling Organizations International, American Red Cross, the SCAA, March of Dimes and Vermont Earth Institute. C.e.o. Bob Stiller serves on the board of Vermont Businesses for Social Responsibility and the Board of Advisors for the School of Business Administration at the University of Vermont.

The pace of growth has only increased in 2003 and 2004, with partnering ventures with USAID, Ecologic Enterprises Ventures, National Wildlife Federation, and Heifer International. In November 2003, the company broke ground for an enormous new six-story distribution warehouse, which is now nearing completion. It will feature a computerized push-button retrieval system to streamline orders and will continue the company’s emphasis on environmentally friendly heating and engineering. The company has also purchased two large bowl roasters that spin the beans like a huge salad bowl and are basically fluid bed roasters with a very high air flow.

The Probat RZ-4000s hold an 880-pound charge of green beans and are designed to roast in four minutes, but Green Mountain has adjusted them for a lower temperature at 10-12 minutes. They also still have their two drum roasters, mostly used for smaller batches. Since around 1997, Green Mountain has done computerized roasting, where roastmaster Todd Curtis first figures out a “roast profile” for each type of bean (Guatemalan Antigua, for instance), then programs that into the computer for that particular type of bean.

After taking a tour into the innards of the factory, I was impressed. They have a new transport for green and roasted coffee and have seven different screenings for the green bean cleaning. They’ve got a Roast Cyclone that gets chaff out of the air stream, as well as a Destoner Cyclone.

Green Mountain’s factory also has a computerized system that tells where everything is at the touch of a screen. They have a new dumping station so that an entire pallet can go into the system rather than one bag at a time. An estimated $4 million has been spent on refurbishing and installing a totally new system, with CIP (Clean in Place) so that the whole system can be flushed with nitrogen, etc. The beans fall in stepped ladders instead of free-falls that might break them. The set-up looks like a giant octopus with twisting arms going out of it - the bins are specially designed so that the coffee drains evenly instead of in a funnel. The system is FIFO - first in, first out - in a steady flow, and they clean out rancid oil regularly, about once a month, unlike many roasters that never clean their bins and equipment, for years at a time.

The company’s bagging machines run most of the time (the 10 and 12 ounce bags) and there are a variety of shifts - some 8 hours, some 10 hours, and some 12 hours. From 1 AM -- 5 AM, machines are not running.

Green Mountain also has some other very environmentally sound practices -- they run generators while roasting in the event the Waterbury electricity would go off in the middle of a roast. They take the heat from the stacks and use it to heat the building and also take heat from their cooling system to heat their hot water. They are about 70% efficient.

From its tiny beginning two decades ago, Green Mountain’s growth is astonishing. It now employs nearly 600 people (over half are in Waterbury, VT), purchased 16 million pounds of green beans last year, and for the first time more than half of its total business came from outside of New England in Fiscal Year 2003 on total net sales of $116.7 million. Fair Trade sales accounted for about 13% of the total poundage, nearing the two million pound mark. Within a few years, the company aims to make Fair Trade at least 25% of its total business.

SCAA executive director Ted Lingle credits Bob Stiller with the success of Green Mountain because of the way he empowers his employees. “Bob Stiller has been a remarkable boss,” Lingle says. “He’s hired some great people and he’s allowed them to build their hopes, dreams, and goals into his company, which is why they end up as true leaders in the coffee industry.”

Mark Pendergrast is the author of Uncommon Grounds: The History of Coffee and How It Transformed Our World (Basic Book, 1999) and writes frequently about the coffee industry. He can be reached via email at markp@nasw.org.

Tea & Coffee - April/May, 2004
Modern Process Equipment


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