Will Starbucks Be the End of Green Mountain?

Green Mountain Coffee Roasters (NASDAQ:GMCR) currently dominates the single-serve coffee market. The company acquired Keurig in 2006 along with the patent on K-cup technology. A Keurig machine retails for between $99 and $189 dollars, operating in a market for people who “only want brewed coffee.” This emphasis is important because now that the patent is up, Starbucks (NASDAQ:SBUX) is entering the single-cup competition with a higher-end machine called Verismo.

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GMCR already produces coffee pods for Starbucks, and according to Starbucks CEO Howard Schultz, the Verismo won’t damage their relationship. Shultz believes the two brewers can “coexist and be complementary,” as the Verismo is targeted at a consumer more inclined toward espresso-based drinks that can only be made using the machine’s high-pressure system.

But investors are skeptical of a symbiotic relationship. When the machine was announced in March, GMCR shares took a dive and never really recovered. In a statement released by the company, it said, “Since the early days of single-serve coffee, we have successfully competed against well-resourced companies.” This may be true, but there’s no denying that Starbucks has every reason to aggressively enter the market.

Shultz said in an interview on CNBC, “This is a great economic proposition for the company for a number of reasons. This is an $8 billion dollar category growing at over 100 percent a year. Three out of four Starbucks customers don’t already own a machine because they’ve been waiting for the Starbucks machine.”

Dunkin’ Donuts (NASDAQ:DNKN) also has a line of single-serve K-cups made my GMCR that have generated positive sales for the company. It’s unclear what role Dunkin’ Donuts could play in changing single-serve landscape. Dunkin’ Donuts is certainly the provider for those who “only want brewed coffee.”

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