Can Green Mountain Turn Threat Into Opportunity?


We're now less than two weeks away from the expiration of the two patents protecting Green Mountain Coffee Roasters' (NAS: GMCR) K-Cup portion packs, and the party crashers are ready.

SUPERVALU (NYS: SVU) became the latest grocery store operator to reveal plans to offer store-brand coffee pod refills that will fit in Keurig brewers.

SUPERVALU's Java Delight Single Serve UnCup will hit the shelves of its 1,100 grocery stores as well as its wholesale distribution partners later this month.

The UnCup pods will initially come in six flavors. Naturally they will be aggressively priced, just as SUPERVALU offers discounted store brands to compete with established brand-name items throughout its store.

The grocer is trying to play the environmental card in the launch, pointing out that its pods contain 30% less material by weight than Green Mountain's K-Cups. We'll see how that plays out with consumers who are already smitten with one of the more than 200 varieties of K-Cups being put out by Green Mountain and its partners.

A popular argument as we approach Sept. 16 is that Green Mountain is going to be in for a world of hurt as TreeHouse Foods (NYS: THS) and other private-label product makers begin pushing their java as store brands.

There are still a few things that Green Mountain bears may want to consider.

  • Cheaper K-Cups, broader variety, and grocer validation will all ultimately lead to more sales of Keurig brewers.

  • Green Mountain sells its brewers essentially at cost, but it doesn't always have to be that way.

  • Despite the patent expirations, Green Mountain still inked multiyear deals with marquee java brands including Starbucks (NAS: SBUX) and Dunkin' Brands (NAS: DNKN) .

  • A Green Mountain spokesperson confirmed to Reuters yesterday that the company's rosy forecasts calling for healthy growth already account for the entry of unlicensed manufacturers.

Things may not be smooth. Green Mountain's forecasting practices have been proven mortal in the past. However, it's also entirely possible that Green Mountain will benefit from all of the exposure and Keurig ambassadors that are about to leap into action later this month.

With the stock now trading for less than 10 times earnings for the new fiscal year that kicks in next month, maybe it's time for bulls and bears to make the switch to decaf.

Brew ha ha
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The Motley Fool owns shares of SUPERVALU, Starbucks, and Green Mountain Coffee Roasters.Motley Fool newsletter serviceshave recommended buying shares of Green Mountain Coffee Roasters and Starbucks.Motley Fool newsletter serviceshave recommended creating a lurking gator position in Green Mountain Coffee Roasters, buying calls on SUPERVALU, writing naked calls on Dunkin' Brands Group, and writing covered calls on Starbucks. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Green Mountain. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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Originally published