Kroger also said that it would not manufacture the pods itself, and a possible manufacturer is Green Mountain itself, which has said that it might “consider selectively” making up to four private-label brands itself in an effort to maintain its sales. Coffee giant The J.M. Smucker Co. (NYSE: SJM), for example, already makes private-label products for Dunkin’ Brands Group Inc. (NASDAQ: DNKN) and its own Millstone branded coffees as well as Folgers.
Private-label branding can save consumers who switch to store brands up to 36% on grocery bills, according to recent research from a private-label industry group. And Consumer Reports magazine recently concluded that buying store brands can save $1,500 a year for a family that spends $100 a week on groceries. That’s a savings of about 29%.
Premium brands, of course, fight the store brands with appeals to taste, quality of ingredients, and exclusivity. And Green Mountain coffee recently topped a poll as the brand leader among US coffee drinkers. Starbucks Corp. (NASDAQ: SBUX) did not even make the list, nor did Peet’s Coffee and Tea Inc. (NASDAQ: PEET).
Green Mountain starts out with a good lead, but keeping that lead in K-cups against competitors selling the same product for 30% less will be a real struggle. Margins will be very difficult to sustain, and without some private-labelling of its own, Green Mountain could be in very big trouble.
Shares are down about -7.3% in the late afternoon, at $21.45 after posting a new 52-week low of $21.06 earlier today. The previous range for Green Mountain was $21.77-$115.98.
Paul Ausick
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