Green Mountain Bets $50 Against Verismo

It's sure getting a lot cheaper to own a Keurig these days.

Green Mountain Coffee Roasters (NAS: GMCR) is now offering mail-in rebates to buyers of its single-serve brewers. Between now and Oct. 28, buyers of Keurig brewers can get at least $20 back on their purchases. The rebates stretch all the way up to $50 for Green Mountain's higher-end Keurig VUE java makers.

It's not a coincidence that this month-long promotion just happens to be taking place as Starbucks (NAS: SBUX) rolls out its own Verismo espresso-centric machine.

It was a foregone conclusion that it was going to get cheaper to go Keurig this month. The patents protecting the actual K-Cup refills expired earlier this month, and store shelves will be overrun with cheap third-party Keurig refills.

Shares of Green Mountain hit a two-year low this summer after Kroger (NYS: KR) -- the country's largest grocery store operator -- revealed that it would be putting out private-label K-Cups after Green Mountain's patents expired. Other supermarket chains followed suit.

In a surprising promotion, Starbucks is offering a "buy one, get one free" in-store deal on its 12-count K-Cup boxes through this weekend.

There is a big difference between Keurig's platform and the crowded market of fancier espresso-based machines at the high end of the market. Verismo and Green Mountain's own upcoming machine in partnership with Italy's Lavazza join Nespresso, Senseo, Tassimo, and other systems that use high water pressure to create European-style coffee drinks. They also do traditional brewed coffee, but Keurig stands alone as the single-serve specialist using low water pressure for conventional premium brews.

However, Green Mountain can't simply stand by its platform's market dominance. The stock has taken a hit since Starbucks announced plans to roll out its own machine, and now even Keurig sales are starting to disappoint. Green Mountain has a battle of perception that it needs to tackle, and it may as well start now by marking down its brewers -- and offering additional rebates on its accessories -- to position Keurig as the category killer on price.

We'll see how Green Mountain's finances come out through all this. Historically, the company has sold its brewers at just about cost. It's not a profit center. Obviously, the nature of going with mail-in rebates instead of actual price cuts is to cash in on the many buyers who won't bother to submit the paperwork, but Green Mountain better be hoping that a lot of buyers will be buying its K-Cups if it still isn't positioned to turn a profit on its brewers.

Creating markdown noise to take attention away during Starbucks' Verismo rollout is a smart move, but not if it crushes Green Mountain's financial results.

Brew ha ha
If you want to further explore the Keurig champ's challenges and opportunities, check out the premium report on Green Mountain that our analysts have compiled. A free year of updates is included, so click here now to get -- and stay --up to speed on the java heavy.

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The Motley Fool owns shares of Starbucks.Motley Fool newsletter serviceshave recommended buying shares of Starbucks and Green Mountain Coffee Roasters.Motley Fool newsletter serviceshave recommended creating a bear put spread position in Green Mountain Coffee Roasters 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 brews 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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