Starbucks to launch new products

Starbucks Corporation is launching its own single-cup coffee and espresso drink machine later this year, putting it in direct competition with partner Green Mountain Coffee Roasters, seller of the popular Keurig home brewers. Shares of Green Mountain plunged as much as 24 per cent in after-hours trade, but regained some ground after Starbucks said on a conference call that it would continue to supply Green Mountain with Starbucks-branded single-serve coffee pods called K-cups. Starbucks is the latest player to beef up its presence in the fast-growing single-serve coffee market dominated by Green Mountain in the United States and Nestle around the world. Single-portion coffee brewers, which use refills known as cups, discs or pods, make up only 8 per cent of total worldwide coffee sales, according to data supplied by Euromonitor International in January. Still, experts who are bullish on the category say that per centage should grow as more people take advantage of its convenience. Joshua Brown, Vice President of investments at investment advisory firm Fusion Analytics, said Starbucks’ move was inevitable. “There was no way that Starbucks and Dunkin’ Donuts were going to see this niche coffee market take off and not want a bigger share of it,” Brown said. “A lot of people thought Starbucks was going to play nice and just sell K-Cups through the Keurig. But Starbucks doesn’t do anything where they are going to be the No. 2 or the No. 3 player,” added Brown, whose firm has no position in either stock. Green Mountain’s growth has been aided by patents covering the technology used in the Keurig brewers and coffee packs, but patents on the K-Cup coffee packs are due to expire in September this year. The patent expiry may allow other companies to sell coffee on the Keurig machines without making any payments to Green Mountain. “With Green Mountain’s patents expiring this fall, Starbucks’ entry is part of the competitive onslaught hitting Green Mountain,” said hedge fund manager David Einhorn, who has been one of the most outspoken critics of Green Mountain. Green Mountain, which sells most of its brewers at cost to consumers and earns attractive margins on the sales of the coffee packs, did not immediately respond to requests for comment on the Starbucks announcement. Single-serve brewers, which can range from about $50 to about $800, make fresh cups of coffee, or even barista-worthy espresso drinks, in seconds. Starbucks said that its high-pressure Verismo machine will make both brewed coffee and espresso beverages such as lattes and that it would not cannibalize cafe sales. The system will be sold online at select Starbucks shops and at specialty retailers in the United States and overseas. Pricing on the Verismo was not announced. “This is a positive for Starbucks, it gives them better penetration into the at-home market,” said Lazard Capital Markets analyst Matthew DiFrisco, adding that the move leverages Starbucks’ strength in the espresso and latte categories. When the dust settled in extended trading, Green Mountain shares were down 16.7 per cent and Starbucks’ were up 3.7 per cent. Single-serve coffee is most popular in Western Europe and the United States. Nestle’s Nespresso brewers hold a 35 per cent share globally, with a heavy concentration in Europe. Green Mountain’s Keurig machines control more than three-quarters of the US market for single-cup coffee. That dominance has been fueled by the large network of coffee brands that provide coffee cups compatible with Keurig machines, including Starbucks, Dunkin’ Donuts, Newman’s Own, Caribou Coffee Co and Folgers, made by J.M. Smucker. Last month, in a move to fend off competition, Green Mountain announced a premium line of Keurig brewers called Vue. The Waterbury, Vermont-based company said Vue, priced at about $250, has the ability to brew a stronger and bigger cup of coffee, and it expects to offer up to 50 compatible varieties of “Vue packs” -coffee refills -by the end of June.