Starbucks Gives Green Mountain a Run for its Money
Starbucks (NASDAQ:SBUX) plans to create its own coffee and espresso machine to rival Green Mountain’s (NASDAQ:GMCR) industry-leading Keurig machine. The announcement of Starbucks’ plans caused a drop of nearly 14 percent in Green Mountain’s shares on apprehensions that its stranglehold in the U.S. single-cup coffee market could soon be lost.
Green Mountain launched a premium line of its famed Keurig brewers in February, but pointedly left Starbucks off the list of participating coffee brands; Starbucks may just be reacting to the snub. However, there appears to be no danger to the current arrangement of Starbucks selling its own-label coffee packs for Green Mountain’s existing Keurig machines.
Starbucks’ new single-cup system, dubbed ‘Verisimo,’ is versatile enough to make brewed coffee as well as espresso lattes. “Verisimo is being positioned primarily as an espresso machine similar to the highly popular, Nespresso machine from Nestle,” SunTrust Robinson analyst William Chappell wrote in a note to clients on Thursday. “While actual prices for Verisimo were not disclosed, we would expect it to start around the $250-$300 range, similar to Nespresso and twice that of Keurig ($89-$178 range),” he added.
Verismo will probably add muscle to Starbucks’ effort to strengthen its presence in the single-serve coffee market, which is growing very fast but is now dominated by Green Mountain and Nestle. Green Mountain has a mammoth 75 percent corner on the market. The entry of Starbucks may mean that Green Mountain would have to protect its turf with more exclusive licensing deals with premium coffee brands such as Peet’s Coffee & Tea (NASDAQ:PEET).
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