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Single-Cup Coffee To Get Private Label Treatment

June 12, 2012
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A spokesman for Cincinnati-based Kroger told Reuters that it planned to launch private label single-serve coffee pods later this year for the Keurig brewers, setting off a firestorm of talk about private label entry into the single-cup coffee market.

Private label coffee sales account for about 10 percent of the market, according to 2011 data from SymphonyIRI Group in Chicago. Single-cup private label sales are nearly non-existent on the market in the U.S., but total single-cup sales account for about 7 percent of the total coffee market, and that total rises to nearly 25 percent of the coffee market in Europe.

So opportunities for entry exist, particularly in September, when many of the patents held by Waterbury, Vt.-based Green Mountain Coffee Roasters Inc., the maker of the Keurig brewers, are set to expire.

The Kroger spokesman told Dow Jones Newswires that the retailer did not plan to manufacture the pods itself, rather deciding to work with a supply partner and offer the product under its Private Selection and banner brand.

Reuters reported that Kroger was one of many companies looking to tap the growth of single-cup coffee, citing Nestle, Kraft, Sara Lee, Starbucks and Green Mountain as others. A week ago, Green Mountain CEO Larry Blanford told an industry conference that his company would consider offering private label K-cups to keep up with new entrants in the market.

“We might consider selectively two or three or four possibly private label brands, store brands, as everybody in the room knows they typically operate with a value to the consumer,” Dow Jones Newswires quoted Blanford as saying.

And Bloomberg News quoted Eden Prairie, Minn.-based Supervalu spokesman Mike Siemienas as saying the company could look to enter the market as well. “We are aware that the patents are expiring, and we are always looking to offer private label brands to our customers,” he told the news service.

“Investors are concerned about any additional competition in the single-serve marketplace,” analyst Marc Riddick of The Williams Capital Group told Reuters. “(Kroger’s plan) just adds to the reality of the situation.”

However, another analyst said the lower cost of private label products could cut into the profitability of a private label strategy in single-cup coffee.

“Even if Green Mountain is doing it, the margins on any private label manufacturing are far inferior to anything that’s branded, or even what would be on the partner brands, because it’s a lower selling price,” Stifel Nicolaus analyst Mark Astrachan told Reuters.

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