Diedrich Coffee, known for its “K-Cup” was doing well in the late-90′s, but has remained dormant for the past 8 years. Now, reminiscent of the Starbucks craze, coffee stocks are making a comeback. Caribou, Green Mountain, and Starbucks have all garnered investors’ attention, but only Diedrich has seen exponential growth. Why such growth? Consumers are looking for a do-it-yourself approach, and have turned to single-cup coffee machines that incorporate a coffee pod, or “K-Cup”. Diedrich is one of only four licensed providers of the K-Cup for the Keurig brewer, hence the extraordinary growth vs. Green Mountain who markets the machines, but must rely on Diedrich for the replacement pods. The brewing machines are priced near $100, but the K-Cups go for about 50 cents a piece.
Prepare to see even more of Diedrich in the coming months. A June 16th press release seems very optimistic and explains how the company plans to exceed demand:
The company will be adding equipment for a sixth K-Cup production line and upgrading the equipment of an existing line, which together will increase the facility’s K-Cup output capacity by more than 40%. The upgrade and new installation is expected to cost approximately $3.1 million and come on line by this fall.
Unfortunately, as greater numbers of potential investors find out about the brilliant business model, the stock price heads closer to a realistic value. In the past week alone, DDRX is down nearly 12%. Blame it on the summer, I guess.