How Low Can Green Mountain (GMCR) Go? Investors May Find Out Soon...

October 5, 2012 9:27 AM EDT
Green Mountain Coffee Roaster (Nasdaq: GMCR) has machines. Single-serve, Keurig-branded machines. And those machines market dominance is about to come under fire.

Obvious competition comes from Starbucks (Nasdaq: SBUX), regardless if CEO Howard Schultz wants to keep denying it or not. Its Verismo offering and new single-serve packaging design are a clear signal that the partnership is taking a back seat to broader market share.

But, there's also some sneaky competitors with new releases coming out heading into the holiday shopping season. Venerable machine maker Bunn will unveil its MyCafe brewer, which works with Keurig's K-Cups. New Esio Beverage machines will be sold by Wal-mart (NYSE: WMT) in stores nationwide and those machines make both hot and cold beverages.

Seeing the recent boom in single-serve coffees, the likes of Nestle and illy might make a broader push with their offerings as well.

Green Mountain isn't taking it sitting down, though. The Company recently trimmed the price on its higher-end Vue brewer from $249.99 to $229.99. It also launched a new Vue at $209.99, though Keurig sells a line of machines for prices ranging from $80 to $200. (Note: Starbucks Verismo starts at $199.99.) Green Mountain also takes the Amazon (Nasdaq: AMZN) approach to its machines, selling them at cost in order to form better adaptation. That means machine margins are negligible, but volume is key.

It seems to be more than just making a new machine, too; the competitive offerings are more versatile in the types of inputs they receive. The Bunn MyCafe, for instance, takes K-Cups, but also allows for brewing any ground coffee, instant coffee or tea, something Green Mountain machines don't.

With shares of Green Mountain down over 80 percent in the last year and hedge fund titan David Einhorn, of Greenlight Capital, continuing to be bearish on prospects, investors still left in the company may be doing a gut check soon. Something a hot cup of joe won't be able to cure.

Shares are indicated for a lower open Friday.

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