Bye, Bye Margins! Green Mountain (GMCR) Faces Uphill Battle to Retain K-Cup Market Share

June 18, 2012 9:09 AM EDT
Green Mountain Coffee Roasters (Nasdaq: GMCR) shares were pressured for the better part of the last week following reports Kroger (NYSE: KR) might be looking to offer its own store-branded K-Cups, leading many to question how wide-spread dilution will become upon expiration of key patents later in 2012.

In addition to Kroger, Safeway (NYSE: SWY) also began offering its own K-Cup compatible pods last week, but at prices below those for Green Mountain's offerings.

Like (Nasdaq: AMZN) selling its Kindle and Kindle Fire nearly at cost or for a slight loss in order to push sales of higher-margin media content, Green Mountain has adopted the same model in hopes it would be able to move more K-Cup pods.

Data compiled by Reuters showed Safeway sells its K-Cup pods for about 58 cents each, on average. Comparably, Green Mountain priced its K-Cups at 75 cent each, on average. Manufactured by Rogers Family Co., which has been sued by Green Mountain over patent infringement, Reuters pointed to bulk outlets like Costco (Nasdaq: COST) which have sold the Rogers pods for as low as 32 cents each, indicating just how far prices could drop.

Green Mountain patents are set to start expiring in September.

Another report which pressured Green Mountain late last week showed the company's K-Cup sales slowing in the key office segment.

For more analyst color on Green Mountain following announcements by Kroger and Safeway, click here.

Shares are indicated lower once again early Monday.

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