Green Mountain shares dive 10 percent after Kroger news

On Friday, Kroger, the biggest U.S. supermarket chain, told Reuters it would begin selling store-branded single-serve coffee cups compatible with Green Mountain's popular Keurig brewers.

Green Mountain sells the Keurig brewers, but makes the bulk of its profit from the K-Cups, which, for the most part, only it manufactures. But certain patents on the K-Cup technology are set to expire in September, raising the chance that lower-cost rivals enter the market and pressure prices overall.

"It shouldn't come as a surprise to anybody, but seeing it in print that you actually have a big retailer going with a private label product to compete with the Green Mountain brand is notable, at a minimum," said Stifel Nicolaus' Mark Astrachan, an analyst who covers personal products and beverages.

Kroger declined to say whether it would manufacture the K-Cups on its own, or through a licensing agreement with Green Mountain.

"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," Astrachan added.

Green Mountain shares were down $1.49, or 6.44 percent, at $21.62 around midday on the Nasdaq, after falling as low as $21.06 during the session.

On Friday, it was reported that Capital Research Global Investors raised its passive stake in Green Mountain to 10.6 percent of the company's shares, which have tumbled 80 percent since last September amid questions about its management and business strategy.

The company and its shares have come under increased scrutiny from hedge funds and other major investors on various concerns, including questions about accounting practices and the company's ability to compete.

(Reporting by Martinne Geller in New York; Writing by Melvin Backman)