• by Karlene Lukovitz  @KLmarketdaily, February 22, 2011

Through a new agreement between Green Mountain Coffee Roasters, Inc. (GMCR) and Dunkin' Donuts, Dunkin' restaurants will sell Dunkin' coffee in single-serve "K-Cup" portion packs designed for use in Keurig Single-Cup Brewers.  

Keurig, Inc. is a subsidiary of GMCR, which also owns a Specialty Coffee business that produces and markets coffee, tea, hot cocoa and other beverages in a variety of packaging formats, including the K-Cup. The Keurig system is the dominant player in the single-cup business segment, accounting for 80% of the estimated $2.5 billion market, with 6 million systems currently in homes and another 4 million projected over the next two years, reports the Boston Globe.

Under the Dunkin'/GMCR promotion, manufacturing and distribution agreement (financial terms were not disclosed), participating Dunkin' restaurants in the U.S. and Canada will begin selling 14-count boxes of Dunkin' coffee varieties starting this summer, and will "occasionally" also offer the Keurig single-cup brewing units for sale, according to the companies. The Dunkin' varieties offered will include Original Blend, Dunkin' Decaf, French Vanilla, Hazelnut and Dunkin' Dark.

It is unclear whether this deal might preclude a GMCR business relationship of some kind with Starbucks, which recently announced a deal with Courtesy Products for Starbucks coffee to be used in approximately 500,000 U.S. hotel rooms featuring Courtesy's CV1 brewer. Starbucks, which has been supplying coffee units for the Tassimo single brewer marketed by soon-to-be-ex partner Kraft, has indicated that it is still assessing the formats and machines (presumably on the at-home usage and other fronts) within the still-young but very rapidly growing single-serve market. Some reports say Starbucks is weighing the options of partnering with a brewing system maker versus creating its own.

GMCR president/CEO Lawrence J. Blanford noted that the company's strategy is to align with the "strongest coffee brands" to "support a range of consumer choice and taste profiles" for its single-cup brewing system, and stressed that Dunkin's quality coffee, "extremely loyal customer base" and "impactful advertising" will drive accelerated consumer adoption of the Keurig Single-Cup Brewer system and incremental sales.

Asked about Starbucks during a Dunkin'/GMCR press teleconference, Blanford repeated a general statement that GMCR will continue to evaluate all brands and opportunities going forward within the context of these strategic goals.

For Dunkin', the deal to sell prepackaged K-Cup portions of its branded coffees exclusively in its restaurants represents an opportunity to drive incremental sales/profits for its franchisees and the overall company by providing consumers with "more occasions to enjoy" Dunkin' coffee at home, on "America's fastest-growing single-cup brewing system," said Dunkin' Brands CEO/Dunkin' Donuts president Nigel Travis.

Asked if Dunkin's deal with GMCR involves J.M. Smucker Co., which is the licensee for grocery retail sales of Dunkin' packaged coffees, Travis stressed that Smucker is an "outstanding partner" whose efforts have increased Dunkin's share of market in retail channels, adding that Dunkin' has "enormous" space to grow and views the GMCR deal as of particular benefit to its franchisees.

GMCR also has a partnership with Smucker -- which is manufacturing and distributing Folgers Gourmet Selections and Millstone in K-Cup portion packs in grocery and other mass retail channels in the U.S. and Canada -- and Blanford stressed that GMCR highly values this relationship.

Asked about the GMCR/Dunkin' deal, a Smucker spokesperson supplied a statement to Dow Jones Newswire noting that the Dunkin' K-Cups "will undoubtedly strengthen the Dunkin' Donuts brand," that Smucker will continue to license the Dunkin' brand for other packaged coffee products sold in retail channels, and that Smucker's relationship with Green Mountain allows it to "reach additional consumers through the fastest-growing single-serve coffee brewing system."

According to NPD Group/CREST data, Dunkin' sells the greatest volume of hot traditional and iced coffee in the U.S. (per quick-serve restaurant tracking for the year ending October 2010), while Keurig has the top five best-selling coffeemakers in the U.S. on a dollar basis (October through December 2010 tracking), representing 49% of total coffeemaker sales for the period.