MICROCAPITAL STORY: Green Mountain Coffee Roasters Pledges $450k Over Five-Year Period to Non-Profit Social Investment Fund Root Capital

On September 26, Green Mountain Coffee Roasters, Inc. (GMCR), a Vermont-based coffee company, pledged a grant of USD 450,000 over five years to Root Capital, a non-profit social investment fund focused on grassroots businesses in the developing world.  This is the single largest grant in Green Mountain’s history.  The announcement was made at the 2008 summit of the Clinton Global Initiative (CGI), an annual meeting of world leaders aiming to address global development challenges. 

 

Since its inception in 2000, Root Capital has provided more than USD 100 million in loans across 30 countries to farmers, artisans and other small-scale entrepreneurs, many of whom are Green Mountain suppliers.  A few years back, Root Capital saw the need for sharper financial management and accounting skills among grassroots business owners.  With Green Mountain’s support, Root Capital in 2006 created a pilot financial education and training program for a group of 50 Latin-American agro-businesses that included twelve Green Mountain suppliers.   The announcement at the 2008 CGI marks the most recent development in the partnership between the coffee retailer and the investment firm.  Root Capital will use the grant to expand its program into South America and Africa, focusing on both the financial management training of small businesses and the long-term growth of rural communities in those regions.

Root Capital operates on a factoring model that hedges its investment risks well.  In an interview with The Miami Herald, the founder of Root Capital, William Foote, explained that Root Capital relies on future purchase contracts from food distributors like Green Mountain in order to provide banking services to more of the rural poor.  The firm takes cash flows tied to consumer demand for natural products as collateral against the credit it provides to small businesses.  After the goods are shipped to buyers, buyers pay Root Capital, which in turn remits these payments (net of loan principal and interest) back to the original small-business producers.  This system has worked so well that Root Capital boasts an average repayment rate of over 99 percent on loans seven years or older.  Mr. Foote said that lending to those without bank accounts in rural communities can show “local financial institutions that [microfinance loans are] an asset class they can penetrate profitably.”

The grant comes at a time of rapid expansion for Green Mountain, which in August of this year purchased a distribution and manufacturing facility in East Knox County in Tennessee for USD 10.4 million.  Earlier this month, the company also purchased the Seattle-based retailer Tully’s Coffee along with its wholesale business for USD 40.3 million in cash.

Green Mountain Coffee Roasters, Inc. is a Waterbury, Vermont-based coffee company that has been publicly traded since 1993.  It trades on the NASDAQ under the ticker symbol GMCR.  For the fiscal year ending September 2007, Green Mountain had assets totaling USD 264.5 million.  By the third quarter of 2008, the firm had invested USD 224.4 million in capital.   As of September 28, return on equity was 14.60 percent, and return on assets was 6.30 percent.  Total debt-equity was 75 percent.

Based in Cambridge, Massachusetts, Root Capital is a non-profit social investment fund that targets grass-roots entrepreneurs and businesses that reside in the “missing middle,” a term for the financial limbo that often traps organizations that are too small to approach traditional banks and yet too large to effectively leverage micro-loans.  The fund has received a number of recent awards, including the Social Capitalist Award in both 2007 and 2008 from the Fast Company and the 2008 Young Global Leader award from The World Economic Forum.  Root Capital has provided over 500 loans to sustainable grassroots businesses around the world, but no other information is available because it does not report to The MIX Market, the microfinance information clearinghouse.

The Clinton Global Initiative (CGI) is a project of the William Jefferson Clinton Foundation that aims to bring together global leaders to identify pressing global problems and to craft workable solutions.   The Microcapital event description of the recent 2008 summit is available here.

Additional Resources:

Clinton Global Initiative (CGI)

Fast Company: Social Capitalists: Root Capital

Green Mountain Coffee Roasters, Inc. (GMCR)

Knoxvillebiz.com: “Green Mountain buys East Knox site for Coffee Plant

Knoxvillebiz.com: “Green Mountain coffee joints financial literacy project

MarketWatch: “Clinton Global Initiative Announces Innovative Coffee Partnership

MarketWatch: Green Mountain Coffee Annual Financials

The Miami Herald: “Root Capital helps grass-roots eco-ventures

Microcapital Event: “President Clinton to Host 2008 Clinton Global Initiative Annual Meeting

Root Capital

Root Capital: “World Economic Forum Announces Root Capital Founder and President William Foote as a 2008 Young Global Leader

RTTNews: “Green Mountain Coffee in Partnership With Root Capital – Quick Facts

The Seattle Times: “Tully’s selling wholesale business to Green Mountain Coffee Roasters

 

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