Rising Star: Green Mountain Coffee Serves Up Social Responsibility

WATERBURY, Vt. (MainStreet) -- Green Mountain Coffee Roasters (GMCR) has watched sales and share prices percolate from its Keurig coffeemakers and K-Cup portion packs recently, but it's not just the company taking a bigger sip of the profits.

The Vermont-based coffee company's sales increased 56% each year from 2006 through 2009 before spiking by 73% last year to $1.4 billion from $786 million. Last quarter alone, sales increased 127%, to $717 million, as it sold 1.1 million Keurig machines.
Its caffeine high of $1.4 billion in sales just has Green Mountain Coffee looking for more chances to do right socially and environmentally.

The $105 million made from those brewers is up 66% from third-quarter 2010 as K-Cup deals with Starbucks ( SBUX) and Dunkin' Donuts ( DNKN) added to a coffee cabinet that already included Caribou Coffee ( CBOU) and Folgers ( SJM) and helped increase sales of those shot-sized pods 136%, to $485.4 million. Within the past year, Green Mountain's share price has risen more than 180%.

With each step forward, though, Green Mountain has poured out a little more of its profit in the name of corporate social responsibility. Green Mountain dedicates 5% of its pretax earnings to social projects ranging from paid volunteer time for its employees and matching donations to the groups they help to food and medicine programs for their South American and African coffee suppliers.

Last month, Fair Trade USA named Green Mountain the largest buyer of fair trade coffee in the country after it bought more than 26 million pounds at a premium in 2010 and helped provide $9.8 million in community development funds for farmers since 2002. Nonprofit international organization Medicines for Humanity, meanwhile, named Green Mountain its Humanitarian of the Year for getting medicines to coffee-growing families in Rwanda.

Michael Dupee, Green Mountain's vice president of corporate social responsibility, has overseen Green Mountain's philanthropic efforts for the better part of the past decade and has watched them expand more than sixfold since taking the job. We spoke with Dupee about moving from Goldman Sachs to a coffee country, helping coffee growers make it through the lean months and making a company realize that sometimes the best options for dealing with disaster on its doorstep is to get out of the way:

You were a vice president at Goldman Sachs (GS) before arriving at Green Mountain and had a job description much different than that of your current position -- making and managing opportunistic investments in distressed financial assets. What steered you toward Green Mountain and corporate social responsibility in general?

Dupee: I think there were two threads to it. There's an old Chinese proverb I've heard about that says the best time to plant a tree is 20 years ago, and this is a story a little bit like that.

Before I went to grad school, I was at Green Mountain Coffee Roasters from 1991 through 1996. I was in the purchasing department and I was a buyer, but I was doing a lot of what was, at the time, pretty progressive work that they didn't have a name for, but would have been considered corporate social responsibility. I wrote the company's environmental mission, I led the Green Team and I was getting some source reduction projects started with respect to our packaging. I was doing all of that stuff before there was necessarily a really solid kind of concept of corporate social responsibility.

I don't mean to say this the way sometimes other companies say "We were doing this before there was a name for it," but just to make a point that I was doing this kind of work with the company in the way that existed at the time.

The second thread just has to do with my experience in grad school and ending up in New York. Like a lot of people, I had a vision in my head about where I was going to go in my career; that I would get smarter and go and make a lot of money and everything was going to be great after that. In reality, that was never really the case.

I don't think I was ever really happy in New York for a lot of reasons. I was in New York on Sept. 11, and that had a big influence on how thousands of us thought about what we were doing every day for a living, but I had given up so much and sacrificed so much just to get there that I didn't want to walk away until I was really sure why. I took me about three years of reflection and inquiry until I felt comfortable, and I knew why -- and it essentially boiled down to a realization that for who I was, who I wanted to be and what I had to offer, Goldman Sachs wasn't really the best fit for where I was right then, either geographically in New York City or working in distressed debt in the world of high finance.

I put some feelers out there and went through a standard job search process and got in touch with some people I knew at Green Mountain Coffee Roasters from my prior tour of duty. I grew up in Vermont and had some deep roots and contacts here, so I started a conversation with them not really looking for a job or thinking that there was a job here for me, but thinking that these were people I knew and that I trusted.

This opportunity presented itself. They were, at the time, looking to hire a senior-level person on corporate responsibility and I have to believe that they thought "Here's a guy who used to do this for us and he's gotten smarter and more experienced on a bigger stage. Maybe this is a good fit."

We started the conversations and it took a few weeks to figure out, but it wasn't a hard decision for me to make the change.

Green Mountain earmarks 5% of its pretax earnings for socially responsible projects. What does that add up to on an annual basis?

Dupee: That 5% predated my return to Green Mountain. It's linear with our pretax profit and there's no base per se because the company's been growing so fabulously and the number's been growing. When I arrived here the number was probably under $1 million and at the end of fiscal 2010 it was $6.9 million.

We've been on a nice run as a business and the philanthropic resources are benefiting as well.

Green Mountain's employees can spend 52 hours a year volunteering during work hours. How many take advantage of the time and how are volunteer projects assessed and approved by the company?

We've been at 60% to 65% of employees participating or doing at least one event. In fiscal 2010, that number was 55%, and what we're running into is that we're adding employees very quickly and adding a lot of folks who probably haven't had that kind of program at their previous place of employment. There's a ramping period where people learn about the program and then think about how they want to take advantage of it.

As for qualifying process, we try to provide guidelines and create conditions that allow people to do the things they're passionate about because we think that has a greater payback for the individual, the community and the business. That said, we do support employees in their efforts by creating organized events and each year we have a signature corporate event. Every year, we partner with the folks who do the National River Cleanup and do big river cleanup here in Waterbury and have been expanding that work in Boston and Knoxville, Tenn. We're hoping to bring that out to our other facilities.

The support can also vary by location. In some locations, employees may want more support. In Vermont, it's a very organic kind of activity. The Vermont employees have enjoyed this benefit for a very long time and are going to do what they're going to do. In some of the newer locations, it's more helpful to have organized events. Reading, Mass., is the headquarters of our Keurig business and they've organized more than 60 different events this year.

Green Mountain employees recently had even more reason to volunteer in their own backyard after Hurricane Irene flooded out many communities. How strong are Green Mountain's ties to its home state? What was Green Mountain's response in the aftermath of Irene?

Dupee: It was a powerful experience in a lot of ways. I actually live in Moretown, Vt., which was one of the hardest-hit cities in the entire state and then, of course, our headquarters and our original production facilities are in Waterbury, Vt., which also got hit very hard.

In a sense, you kind of want to just get out of the way. That's one of the challenges when you have a corporate social responsibility department: People for better or worse end up thinking that it's our job to do all of the responsible stuff. It's not true in theory and it's not true in practice, because there are people all over this company and this continent who take this commitment to heart and do great things every day.

With our employees, the biggest and most important thing we did was change our volunteer policy right out of the gate. Right now, our guidelines require that volunteer for a 501(c)(3), an official nonprofit. Knowing that there was immediate need for people to just help their neighbors, we waived that requirement. You still needed to get your supervisor's approval, but if you needed to go help your neighbor, fine, help your neighbor. Do what needs to be done.

It's been really inspiring to hear a lot of the conversation about how the recovery in Vermont has gone because of that kind of spirit in Vermont. It's not like a lot of other places where there are natural disasters and people are waiting for some kind of guidance or direction. In Vermont, people got right out of their houses and went and helped immediately.

Were you out there with them?

Dupee:I was not for two reasons. That week there were a bunch of people coming into town for an event related to the corporate social responsibility work and I didn't feel comfortable canceling it just so I could go and volunteer.

Secondly, the second phase of our response within our social responsibility team was to figure out what kind of philanthropic resource we could put behind this recovery effort. I thought that was of higher value for the community than me shoveling out somebody's basement.

At the end of the day, we were able to put $300,000 out there to help with Irene recovery: $50,000 in Massachusetts and the remainder in Vermont going for four different causes.

That seems to be in keeping with Green Mountain's long-view approach to corporate social responsibility. Green Mountain had a role in making the After The Harvest documentary about the months coffee growers spend in hunger and poverty between the months coffee is picked and replanted. How did Green Mountain help the documentary get made, and what is it doing to aid the plight of Rwandan, Sumatran, Nicaraguan and other coffee growers?

This one goes back a little bit. Back in 2006 and 2007, we were engaged in some work related to our supply chain outreach trying to gauge some key performance indicators and we knew we wanted to work on key issues like poverty and hunger, but didn't want to be all over the board.

We commissioned some research over the course of two years and the first round of research came back with some suggestions for key performance indicators, and that research was primarily community participation group interviews: Did you have a good year versus a bad year? Where does your income come from? Where does it go, etc.?

The following year, we did a second round of research to establish some baseline data to see if we did a good job or not, and the difference was that these were individual interviews. The research was conducted by a Colombia-based group of scientists and agronomists and Rick Peyser, who leads our supply chain outreach team, went on the research trip in a couple of places and did his own interviews.

What emerged out of those interviews was this phenomenon of "the lean months" -- los mezes flacos -- and Rick came back from that trip angry and disappointed that the industry and our company in general wasn't talking about this issue and doing more to combat it. I don't think it's too strong to say that he's taken it to heart personally and has reoriented our supply chain outreach mission dramatically and has focused it on human and economic development and food security work.

I have a list in front of me of all our projects from 2008 to now and it's in countries like Mexico, Peru, Guatemala, Ethiopia and Kenya with seven or eight different organizations including Catholic Relief Services, Heifer International, Save the Children. These are projects totaling $15.7 million that is going to reach around 46,000 families or north of 200,000 people.

But Rick's big concern was why people weren't talking about this, so we presented at conferences until someone hit on the idea of doing a short documentary and trying to engage people with the story in a way that your typical kind of presentation or article wouldn't do. We funded the production of the documentary and brought it to the Specialty Coffee Association of America for its debut and it's been entered at film festivals internationally. It's a bit of an experiment for us, and it's a little embarrassing for us if we find ourselves in a place where it looks like we're tooting our own horn too much, because we know we have a lot to learn about this issue and a lot of other issues. It's not a promotional device for Green Mountain, so you have to look pretty far down in the credits until you see that we have any involvement in this.

The company has also helped fund Medicines For Humanity in its attempts to bring medication to needy children in Rwanda. How does Green Mountain decide which groups are the best fit for helping out the grower communities?

Dupree: The community itself might come to us knowing who we are and what we do and say "We have this issue and we know who we want to work with." We'll do our best to match them with an organization we know.

Another approach that we'd use with larger organizations like Catholic Relief Services, Save The Children or Heifer is to go to them and say the projects we're doing are working and are great and that we'd like to expand our services to Sumatra or Africa. Do you do any work there? You learn what their priorities are in some areas and it can be a little bit of a back-and-forth.

Medicines For Humanity in particular came to us through an employee. A guy named Mike Degnan, who was an attorney through the Keurig division, was friends with some folks during one of his prior roles at a law firm involved with Medicines For Humanity. When Keurig joined up with Green Mountain, he came to us and recommended them. It turned out it was a great fit.

Green Mountain sales and income rose last year and continues to rise as companies such as Starbucks and Dunkin' Donuts embraced the K-Cup. Has it changed Green Mountain's approach to corporate social responsibility as a result?

Dupee: I hope not, and I haven't seen that yet.

More resources create more opportunity. That's true, but it also increases your profile, so we have more eyes on us than we would have had a year ago, five years ago or 10 years ago.

We like to think that the approach we're taking is a good approach, so whether you have $1, $100 or $1,000, that approach ought to still play through. We're still trying to understand in a collaborative way what's going on with the communities we touch and trying to understand how we can help, whether that's through supporting a nongovernmental organization or volunteerism or product donation. That's still going to be the same approach until we see reason to change it.

Corporate social responsibility was also one of the pillars and differentiators that helped recent K-Cup adopter Starbucks establish itself in the marketplace, but has come under scrutiny as the brand has grown. Does Green Mountain see parallels to that program, and what has it learned from similar corporate responsibility efforts?

Dupee: I think we keep an eye on the broad environment.

Lots of companies make mistakes and get challenged on their commitment to sustainability. There's lots of reasons for that, but we keep an eye on all of that and try to learn lessons.

For me it boils down to three things. One is authenticity and an appropriate level of transparency, which is something I think we've worked hard at. You try to share with people as much as you can about what you're doing, why you're doing it, where it worked and where it hasn't and what questions you still have. I think stakeholders in general really appreciate that.

The second is good governance. Hopefully you have the right processes in place so you're making your decisions in a considered way and not just off the cuff. I think we do a good job at that.

The last just has to do with the overall tone of the whole problem. We think of the word "sustainability" more as a verb and less as a noun. It's not a place you get to and then you're done. You have to be constantly thinking and learning and asking questions and trying to do better, just like with any other part of the business.

The K-Cup is a big part of Green Mountain's business and, as head of corporate social responsibility for a company that deals with disposable plastic cups quite a bit, how do you address that issue and bring awareness to disposal and recycling of that product?

Dupee: I mentioned before that I think that the best approach is authenticity and an appropriate level of transparency. I think we have done both of those things with the K-cup portion pack.

The challenge around its environmental profile is one that we've been aware of for a while, been working on for a while and have been talking about what we've been working on for a while to the extent that we can. We have a history of innovation around packaging that supports the assertion that we're working on this and that we're going to figure it out.

We brought the Eco-tainer to market a few years ago with International Paper. That's a paper to-go hot beverage cup made with a biopolymer. Just a year ago we were also able to bring out the lids for those cups with the biopolymer.

We've been trying to get at the environmental impact of the K-cup in a particular way. We adopted life-cycle analysis at the tool because we didn't want to guess at what the impact was. We wanted to understand it in a quantitative way. It's very simplistic and easy to look at a product in your wastebasket and think that's where all the impact is. In reality, for a lot of consumer packaged goods, that's not where the impact is.

We've commissioned the life-cycle analysis and we're in the process of trying to use it to inform ongoing evolution in future design decisions to minimize the impact. It's challenging because materials science is really not where we'd like it to be. We're ready to invest in materials that don't yet exist because the package itself is a very demanding package. It needs to have certain thermal properties, it needs to have rigidity because of the needle that punctures the portion pack for brewing, tt needs to have a moisture barrier, it needs to protect the product inside it from light.

When you lay down all the different design requirements for that package, there is no biopolymer right now that fits the bill. We're continuing to investigate lots of other options. For instance, earlier this year we tested a paper-based K-Cup portion pack for tea and it didn't perform as well as we needed it to perform, so we pulled that back and are continuing to work on it. We have a pilot take-back program in our office channel right now that lets users put the cups into a box and it goes through a recovery process where the coffee grounds are composted and the remaining materials are used to generate energy.

We have a bunch of things in the hopper that we're working on. We continue to focus on this and significant resources continue to be invested for a bunch of issues, not the least of which being our core heritage of sustainability values.

-- Written by Jason Notte in Boston.

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Jason Notte is a reporter for TheStreet. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, the Boston Phoenix, the Metro newspaper and the Colorado Springs Independent. He previously served as the political and global affairs editor for Metro U.S., layout editor for Boston Now, assistant news editor for the Herald News of West Paterson, N.J., editor of Go Out! Magazine in Hoboken, N.J., and copy editor and lifestyle editor at the Jersey Journal in Jersey City, N.J.

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