Starbucks turns up heat on coffee brewer market
Friday, September 21, 2012
NEW YORK (AP) — Starbucks Corp. is turning up the heat on the single-serve coffee market, and someone might get burned.
The Seattle-based company says it will start selling its new single-serve brewer online this week for $199. The machine will be rolled out in its ubiquitous cafes next month.
The arrival of the Verismo, which was announced earlier this year, comes amid intensifying competition in the piping hot market for single-serve brewers and the coffee pods they use.
The sector is currently dominated by Green Mountain Coffee Roasters Inc., which pioneered the market after its acquisition of the Keurig brand machine in 2006. But this month, the company’s patent on its K-cup technology expired, which spawned copycat versions of coffee pods for Keurig machines.
Starbucks’ decision to sell its own brewer comes less than a year after it struck a deal with Green Mountain to make coffee pods for Keurig machines. Now Starbucks is looking for a bigger piece of the pie.
In an interview with The Associated Press, Starbucks’ CEO Howard Schultz said that the relationship with Green Mountain will continue and that Starbucks will still sell its pods for Keurig machines in cafes. He said that the Keurig machine is “a fantastic choice” for customers who want only brewed coffee.
The Verismo, however, uses a high-pressure system that can make lattes and other espresso-based drinks, as well as brewed coffee. Essentially, Starbucks has said its machine targets a different type of customer.
“They’ll coexist and be complementary,” Schultz said.
Investors aren’t so certain. When Starbucks first announced its plans to roll out the Verismo in March, shares of Green Mountain plunged. Green Mountain’s stock has lost 51 percent of its value since then. Starbucks’ stock is little changed in the same period.
Green Mountain, which is based in Waterbury, Vt., has also been targeted by a Securities and Exchange Commission inquiry into its accounting methods. Last month, Green Mountain noted that its growth is slowing but that it still expects sales to increase by 15 to 20 percent next year.
The company said in a statement that it has built a strong customer base for its Keurig system, which offers 30 brands and more than 200 coffees, teas and other drinks.
“Since the early days of single-serve coffee, we have successfully competed against well-resourced companies,” the statement said.
Green Mountain also says it’s on track to introduce its own high-pressure espresso system on a limited basis in time for the holiday season.
Schultz said Starbucks identified the single-serve coffee market as a “big opportunity” about two years ago. Since introducing its pods for the Keurig system last year, he said Starbucks has captured 15 percent of the market. And last year, he noted that the market for brewers and pods nearly tripled to $8 billion.
“It’s rare that you identify a category as large as this that’s growing,” Schultz said.
In addition to the $199 Verismo, Starbucks will sell a $399 a model with a larger water tank and LED display that tells consumers when the machine needs to be cleaned. Green Mountain’s Keurig brewers cost from $99 to $189.
By next week, the Verismo will be available in specialty stores such as Williams-Sonoma and Bed, Bath & Beyond. Specialty stores also sell other brewers, including the Tassimo by Kraft Foods Inc., which costs between $100 and $170. Starbucks had previously provided coffee discs for Tassimo, but has since ended that agreement.
Starbucks says it plans to tout its brewer with a multimillion-dollar marketing campaign. Schultz noted that customers will be able to buy both the machines and pods at its cafes.
“We’re going to make it very, very easy for our customers,” he said.
As for the name, “Verismo” is a word derived from a form of Italian opera. As The Wall Street Journal noted earlier this year, the operas usually end with someone’s death.
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