Just in case investors needed another reminder that Green Mountain Coffee Roasters (GMCR +0.00%) will live to roast another day after last year's K-Cup patent expiration, a Canadian grocer is teaming up with Green Mountain for an exclusive line of portion packs for Keurig's single-serve coffee platform.
METRO -- with more than 600 locations in Ontario and Quebec raking in more than $11 billion a year -- is letting Keurig parent Green Mountain handle the exclusive production of a new line of Irresistibles brand K-Cups.
Keurig is heating up in Canada, and this morning's press release points out that sales of single-service coffee pods are up 66%, making this the hottest product category in the Canadian food industry.
That isn't a surprise. Then again, it also isn't a surprise to see METRO choose to have Green Mountain crank out the private label when cheaper options were likely available.
We're less than two weeks away from the first anniversary of the expiration of the two patents governing Keurig's K-Cup technology. Naysayers a year ago felt that this would be the undoing of Green Mountain. However, just as the big brands have stuck with Green Mountain as a partner -- and in Starbucks' (SBUX +0.30%) case actually expanded that relationship -- the opportunists who initially sensed an opportunity in the K-Cup market disruption are finding that it pays to stick with Green Mountain.
A major selling point in going with Green Mountain is that the deluge of rivals putting out K-Cups haven't generally been successful. There may be more than two dozen brands now out on K-Cup without Green Mountain's blessing, but they're not much of a factor. Green Mountain claims that unlicensed sales accounted for roughly 10% to 11% in its latest quarter. Nielsen research says that the number is closer to 16%, but we're still taking about Green Mountain having a hand in 84% of the Keurig brews being consumed.
Green Mountain has actually been courting the now-legal renegades. Most will naturally stick to dealing directly with consumers, but it seems as if coffee sippers aren't gravitating to cheaper private labels -- just as they haven't ignored Starbucks or other retail-packaged brands at the store level.
Naturally, investors will still want to keep an eye on the situation. Even Green Mountain conceded in its most recent conference call that it may get slightly worse before things start to get better in terms of regaining market share lost to unlicensed players. The market's cool with that. Green Mountain has managed to grow at a double-digit percentage clip since the K-Cup patents expired, and the stock has nearly tripled over the past year.
That's an inviting brew, and today's METRO deal should remind investors of both the growth opportunities in Canada and that there are still private-label deals for Green Mountain itself to win.
