One thing is clear: Starbucks (NAS: SBUX) doesn't like to be second-best at anything. For a while now, the single-serve coffee market has been dominated by Green Mountain (NAS: GMCR) with its popular Keurig brewers. That may change when the world's largest coffee purveyor offers its own single-cup coffee and espresso machines. Many are calling it a face-off with cohort Green Mountain.
Last year, the two entered into a strategic partnership, in which Starbucks would supply K-Cup coffee pods meant for the Keurig brewer. The news that Starbucks would launch its own brewer sent Green Mountain's shares down 24% on Thursday. However, its shares recovered later in the day when Starbucks announced that it would continue to provide its single-serve coffee pods to Green Mountain.
Barista-worthy coffees at home
Keurig is a low-pressure brewer, whereas Starbucks' brewer -- dubbed Verismo -- is a high-pressure brewer that's designed to make both barista-grade espresso beverages, as well as brewed coffee, in a matter of seconds. The Verismo is Starbucks' answer to Nestle's coffee machine and, according to CEO Howard Schultz, will directly compete with the Swiss brewer. According to Euromonitor data, Nestle's Nespresso coffee system currently controls 35% of the global market.
Are you really surprised?
Starbucks' move to enter this niche market isn't really surprising when you consider the fact that the single-serve coffee market is worth $8 billion. Starbucks first ventured into this space when it started producing its Via Ready Brew instant coffee back in 2009, and again when it began to sell K-Cup packs for the Keurig brewer in November last year. What it has lacked until now is its own coffee brewing machine. And here it is.
According to Schultz the advent of this machine brings with it a three pronged approach:
- Via Ready Brew is for consumers who'd rather not buy a coffee machine.
- K-Cups are meant for consumers who prefer a basic brew of coffee.
- The Verismo is meant for sophisticated coffee drinkers who prefer their espressos .
This takes care of the three major grades of coffee drinkers. Starbucks' intentions are clear: It hopes that one day its packaged coffee business will be at par with its cafe business. The brewer -- according to Matthew DiFrisco, an analyst at Lazard Capital Markets -- will strengthen Starbucks' espresso and latte business and give it "better penetration into the at-home market," where Schultz hopes he can create a "billion-dollar business."
Since 2008, Starbucks has revitalized itself under Schultz, and this move will only help Starbucks strengthen its brand, as well as help it bring in the green. To see the coffeemaker take the single-serve market by storm, simply add the stock to your watchlist. Try it -- it's free!
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At the time this article was published Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks and Green Mountain Coffee Roasters; and creating a lurking gator position in Green Mountain Coffee Roasters. Motley Fool newsletter services have recommended writing covered calls on Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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