The Green Mountain saga: a cup of joe to go
By Matthew Goldstein
In some ways, the story of Green Mountain Coffee Roasters is one of those quirky only in Vermont business stories, with a founder who made a small fortune in the 1970s selling rolling papers to potheads and a board member who helped invent the sports bra. Yet at the same time, Green Mountain is very much a Wall Street saga, with all the requisite highs and lows for its stock and questions about where the fast-growing company is going.
And right now, with shares of Green Mountain trading around $20–down sharply from the all-time high of $115 reached last September–it’s the Wall Street story that matters most.
Critics of the company question whether Green Mountain can maintain a stranglehold on the market for single-cup coffee products with other competitors joining the fray and some patents expiring. And, of course, there’s questions about that ongoing SEC investigation into the company’s accounting practices and how it recognizes revenues.
On Monday, Emily Flitter wrote a story that began taking a close look at the SEC probe and in particular focused on the little-known distribution company, M. Block and Sons, that’s responsible for processing about 40 percent of Green Mountain’s single-cup coffee product.
One thing Emily found was that on at least two other occasions, the SEC investigated accounting practices at two M. Block customers and in both cases M. Block executives were deposed by SEC lawyers. In neither case did the SEC charge M. Block or its employees with any wrongdoing, but regulators did file civil fraud charges against executives of M. Block’s customers.
One of those charged by the SEC was Al “Chainsaw” Dunlap of Sunbeam Corp. The SEC’s lawsuit against Dunlap, which he ultimately settled, became one of those textbook cases for B-school students on the dangers of channel stuffing to juice revenues.
Now maybe it’s pure coincidence that M. Block was one of the distributors for Sunbeam and iGo Corp, the other company investigated by the SEC. And maybe the SEC’s current probe of Green Mountain ends without any finding of wrongdoing.
But Emily’s story also had an intriguing interview with a former M. Block worker, Patrick McCoy, who worked as a loss prevention supervisor at an Illinois warehouse from June 2010 to Jan. 2011. McCoy said that during his brief tenure, M. Block would give out industrial-sized, 44-gallon garbage bags for its employees to fill with outdated single-cup Green Mountain coffee pods. McCoy said the giveaways of Green Mountain coffee to M. Block workers happened four times during his roughly six-months with the distribution company.
Now, in and of itself, it’s not clear what to make of the giveaways. The fact that M. Block employees get to periodically lug home bags of coffee may simply be an indication that Green Mountain needs to better manage its production and inventory. McCoy himself said he knew nothing about Green Mountain’s revenue recognition practice. So maybe the giveaways are just a perk that M. Block gives it employees.
For its part, a Green Mountain spokesman says, “once inventory is accounted for as “excess or obsolete” in accordance with GAAP it may be disposed of in any number of ways.” And the spokesman further notes that Green Mountain produces several billion single-cup coffee pods each year.
But one thing you can count on is that Emily, Jenn Ablan and myself will keep digging because questions deserve answers.