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Can Green Mountain Turn Threat Into Opportunity?

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

SUPERVALU (NYSE: 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 (NYSE: 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 (Nasdaq: SBUX  ) and Dunkin' Brands (Nasdaq: 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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There's a premium report on Green Mountain, exploring the Keurig champ's challenges and opportunities. A free year of updates is included, so get up to speed on the java heavy.

The Motley Fool owns shares of SUPERVALU, Starbucks, and Green Mountain Coffee Roasters. Motley Fool newsletter services have recommended buying shares of Green Mountain Coffee Roasters and Starbucks. Motley Fool newsletter services have 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 a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free 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 the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Read/Post Comments (2) | Recommend This Article (2)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 05, 2012, at 10:22 AM, mapres wrote:

    > 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.

    If they can't even predict their own sales accurately, how can they predict competitors' sales?

  • Report this Comment On September 05, 2012, at 12:21 PM, Zenfuego wrote:

    From what I've seen in the stores, brewers have already risen close to 25% in retail cost. People will still buy them for that, but they need to get more creative with the designs, more colors (other than the mini), more art deco shaping ala high end espresso machines.

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