GMCR, DPS Sign Deal for Snapple

Coffee company, Green Mountain Coffee Roasters, Inc. ( GMCR - Analyst Report ) recently announced a deal with beverage company Dr Pepper Snapple Group ( DPS - Analyst Report ) , by virtue of which the latter’s ready-to-drink iced tea, Snapple, can be made on the former’s Keurig single cup brewing systems.

The Snapple iced teas will be available in Green Mountain’s K-Cup and Vue packs, which can be prepared on its Keurig brewers. The Snapple K-Cup packs will be available across U.S. and Canada starting the spring of next year. Soon thereafter, the Vue packs are scheduled to hit the markets.

Early this month, Green Mountain launched its new Keurig Vue coffee brewer model – Keurig Vue V600, at a discounted price. Green Mountain, which was until now enjoying a dominating position in the U.S. market with its innovative Keurig Single Cup brewing technology, is facing increased competition from rivals like Starbucks Corporation’s ( SBUX - Analyst Report ) latest premium single cup domestic coffee machine, Verismo. The machine is available at the company’s website, Verismo.com, and is expected to be available in company stores and at certain specialty retailers from this month. Verismo has increased the competition for Keurig, as a Verismo coffee machine is priced at a much lower level from the high-priced Keurig brand. Lower-priced models like Vue V600 and the Snapple deal are aimed to protect from losing share to Verismo in future.

Our Recommendation

Green Mountain holds a Zacks #4 Rank, which implies a short-term Sell rating. On a long-term basis too, we have an Underperform recommendation on the stock due to competitive pressures from Verismo.