We're now just weeks away from the mother of all K-Cup battles.
The two patents protecting the portion packs that Green Mountain Coffee Roasters (Nasdaq: GMCR) pioneered for its popular Keurig one-cup brewing platform expire, and analysts are busy smoking out the winners and losers.
Shares of TreeHouse Foods (NYSE: THS) moved higher yesterday after a Citigroup analyst upgraded the maker of private-label products.
Green Mountain investors may remember TreeHouse Foods. This is the company behind Grove Square, the renegade that sold single-serve coffee packaged in portion packs that fit snugly in Keurig machines through Wal-Mart (NYSE: WMT) two years ago.
Legal fisticuffs ensued.
Come Sept. 16, it won't matter. The K-Cup patents will run out, and it won't just be Grove Square looking for shelf space.
Citi's excited about the prospects, estimating that the opportunity will increase TreeHouse's earnings by $0.10 a share this year. Down the line, K-Cups can generate as much as $1.40 a share in annual earnings for the company.
Everyone is going to sidestep Green Mountain in three weeks. Green Mountain itself has acquired many of the more popular coffee brands in the K-Cup market, and Starbucks (Nasdaq: SBUX) joined Dunkin' Brands (Nasdaq: DNKN) in signing multi-year deals last year.
There clearly is an advantage to playing nice with Green Mountain and its growing clout. However, the success that TreeHouse and other soon-to-be legal knockoffs will have won't necessarily come at Green Mountain's expense.
After all, house brands won't succeed unless they offer cheaper brews. That, in turn, will create more demand for Green Mountain's Keurig brewers. The company has historically sold the systems at cost, but that can always become a profit center.
Generics also don't mean an end to brand power. Coke and Pepsi bottles still outsell house brands at half the price.
Citi's upbeat when it comes to TreeHouse. Going from neutral to buy -- and bumping its price target from $56 to $61 -- suggests that the distributor will benefit from shelf expansion of Keurig coffee refills. The argument makes sense, but it doesn't mean that Green Mountain, Starbucks, and Dunkin' Donuts will necessarily suffer.
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