Thomas Grillo writes in the Boston Herald that Dunkin’ Donuts and Starbucks — with their coffee shops saturating neighborhoods and their bags of beans bulging from supermarket shelves — are now duking it out one cup at a time.

Canton-based Dunkin’ beat its java rival to the punch yesterday by scoring a distribution deal with Keurig, the hot-selling single-serve brewers made by Vermont’s Green Mountain Coffee Roasters, and expanding into a $2.5 billion home-brewing market. Financial terms were not disclosed.

“We see this as an absolutely critical initiative, one that we are very excited about,” said Nigel Travis, CEO of parent company Dunkin’ Brands. “The single-serve brewing channel is a field that’s growing.”

The $180 Keurig machines already sit on kitchen counters in some 6 million homes, and the percolating market could see 4 million more purchases by the end of this year, according to analysts at Janney Capital Markets.

For now, Dunkin’ will sell the Keurig K-Cup packs only at its own stores — which should limit the damage to Starbucks’ market share. Just last week, many industry observers thought the Seattle giant was on the verge of a Keurig deal with Green Mountain, but the news turned out to be a Starbucks push into a half-million hotel rooms with a single-serve brewing brand made by Courtesy Products.

Green Mountain CEO Larry Blanford declined to say whether his deal with Dunkin’ precludes the possibility of a similar agreement with Starbucks for Keurig, which controls 80 percent of the single-serve market.

“Starbucks are a major industry player and we respect their brand,” he said. “Our research on the brewing system demonstrates that consumers do like choices.”

Starbucks has been making single-serve products for Keurig’s competitor, the Tassimo machine made by Kraft Foods. But that deal is close to expiring.

Dunkin’ Donuts’ decision to confine Keurig sales to its own coffee shops delighted a group of independent franchisees who felt burned by the parent company’s shift to selling bagged coffee — the same bags of beans on sale in shops — in grocery stores.

“Franchisees worked very closely with Dunkin’s management team on the decision to sell K-Cups in our stores and they considered our interests,” said James Coen, the trade group’s president. “The decision to sell Dunkin’ coffee in supermarkets five years ago caused lots of tension between franchisees and Dunkin’ Brands.”

The Dunkin’ K-Cup plastic packets will be available in regular, decaffeinated, French vanilla, hazelnut and “dark.” Also, certain Dunkin’ shops will sell the quick-brewing Keurig machines “on occasion.”

 Boston Herald