Green Mountain Coffee Roasters Inc. (GMCR): Will the K-Cup Falter in the Face of Knockoffs?

Green Mountain’s Keurig ecosystem is also being challenged by smaller competitors, like San Francisco Bay Coffee, which sells a Keurig-compatible pod called “OneCup,” which does away with the K-Cup’s plastic housing. The company claims that this reduces the manufacturing cost, and it clearly reduces plastic waste as well. This could be very appealing to environmentally conscious consumers who have historically been a major constituency for Green Mountain.

Having used both Green Mountain K-Cups and the San Francisco Bay OneCups myself, I found the quality to be similar. OneCups are not airtight, so they need to be stored in a sealed plastic container, but the coffee tastes just as fresh. Having switched, I doubt I will ever go back to official K-Cups. The long-term risk for Green Mountain is that its best customers gradually find these other brands, try them, and then make a permanent switch.

Foolish conclusion
For now, I believe that the growth of the Keurig installed base will be sufficient to drive earnings growth for Green Mountain Coffee Roasters. Longer-term, I think the penetration of unauthorized brands could move well beyond 15%. Eventually, there could be a tipping point where Green Mountain loses its pricing power because of heavy competition from unauthorized K-Cups. Additionally, the entire Keurig ecosystem could be challenged soon by Starbucks Corporation (NASDAQ:SBUX)‘ new Verismo system. Starbucks Corporation (NASDAQ:SBUX) seems determined to gain a leading share in the single-cup coffee market, and has the resources to make a strong effort. With all of these risk factors, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) investors will need to keep a careful eye on the company’s performance going forward.

The article Will the K-Cup Falter in the Face of Knockoffs? originally appeared on Fool.com is written by Adam Levine-Weinberg .

Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks.

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