Starbucks Launches New Single Serve Coffee Brewer

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Starbucks Corporation (NASDAQ:SBUX), the largest coffee shop chain, is changing its relationship with partner Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR). About a year ago both companies had signed a contract, which allowed Starbucks to make coffee pods for the popular single serve brewers, called Keurig. Starbucks is now diversifying and launching its own brand of single serve coffee brewers, which will be available at retail stores in October. The brewer, Verismo, will be priced at $199, the fancier and larger version with temperature gauge, LED display and cleaning notifications will be sold at $399.

Verismo was announced earlier this year in March, and in response, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s shares plummeted. Keurig brand was acquired by Green Mountain in 2006, and the exclusivity patent on the machine expired this month. Another competitor that might be affected by this new machine is Nestle SA (ETR:NESR) (FRA:NESR), which sells the Nespresso brand, with similar capabilities. The single serve coffee market is valued at $8 billion. Nespresso is sold in the range of $130 to $700, while the Keurig brand costs from $99 to $189.

Starbucks Corporation (NASDAQ:SBUX) is going to continue the production of pods for Keurig machines, and the coffee chain’s CEO, Howard Schultz, says that  Green Mountain’s product is a fantastic choice for making brewed coffee, but Verismo is capable of making lattes and other espresso based drinks as well. Schultz believes that the two can coexist and be complementary to each other. The statement paints a pretty picture, but  GMCR’s stock has received serious headwind from Starbuck’s announcement. It is down more than 5 percent today, and from the looks of it, the stock will close below $29. The name Verismo is derived from Italian opera, and the WSJ cleverly noted that operas usually end with someone’s death.

The partnership with Green Mountain enabled Starbucks Corporation (NASDAQ:SBUX) to capitalize on 15 percent of the single-serve coffee market. Schultz noted that over the last year the business grew to $8 billion, and it is a growing opportunity.

“It’s rare that you identify a category as large as this that’s growing,” Schultz said.

In another development, Starbucks Corporation (NASDAQ:SBUX) is closing its Wells High Street unit in Somerset, England, after six years of business.


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