Safeway launching 5 store brand coffees for Keurig

Tue Jun 12, 2012 2:43pm EDT

(Reuters) - Safeway Inc (SWY.N) is launching under its own store brand five types of filtered coffee pods compatible with Keurig brewers, becoming the latest competitor to Green Mountain Coffee Roasters Inc (GMCR.O), which makes the Keurig system and most of the single-serve drink portions that go with it.

Safeway's new offerings will differ from its existing private label pods for Keurig in that they will be filtered coffee. The products launched in January, two cappuccino flavored drinks and one hot cocoa drink, were instant, Safeway spokesman Brian Dowling told Reuters in an email.

The news from Safeway comes just days after rival chain Kroger Co (KR.N) told Reuters it was launching store-branded coffee pods for the Keurig machine. That sent Green Mountain shares down as much as 10 percent to a 2-1/2-year low on Monday.

Green Mountain shares were down 1 percent on Tuesday in afternoon trading. Before the news from Safeway they had been up slightly.

Through Monday's close Green Mountain shares have tumbled nearly 82 percent since September, due to questions about its business strategy and growth trajectory, management and accounting practices. It has been a favorite of short-sellers, who have bet on the shares falling.

Green Mountain, once a high-flyer on Wall Street, sells the Keurig brewers but makes most of its profits from the "K-Cups" that go with it. In addition to its own Green Mountain coffee brand, it sells Starbucks (SBUX.O), Folgers (SJM.N), and Dunkin Donuts (DNKN.O) K-Cups, among others, through licensing agreements.

The company owns dozens of patents that govern design of the brewers, K-Cups and the interface of the machine and the cups. Two patents governing cup design are set to expire in September, which could allow manufacturers to make Keurig-compatible cups independently of Green Mountain.

Some investors and analysts fear that private-label brands will be able to undercut Green Mountain on price and erode its dominant market share in the U.S. market for single-serve coffee.

Green Mountain spokeswoman Suzanne DuLong referred Reuters to a previous statement regarding private-label competition in which she said Green Mountain has the benefits of being the first to make K-Cups, manufacturing scale and institutional knowledge about the complexities of manufacturing K-Cup packs.

Safeway shares were up 3 cents at $18.05 on the New York Stock Exchange while Green Mountain shares were down 1 percent at $21.10 on the Nasdaq.

(Reporting by Martinne Geller in New York; editing by Matthew Lewis and Bob Burgdorfer)

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