Sep. 20, 2012 at 12:40 PM ET
Starbucks Corp. is brewing up some fresh competition for its partner Green Mountain Coffee Roasters as it angles for a bigger piece of the $8 billion single-serve pod market with the release of its new Verismo coffee, espresso and latte makers.
A $199 model is on sale on Starbucks’ website, and the company also plans to offer a $399 model with more bells and whistles.
Verismo will establish Starbucks in the high-growth, single-cup category, Barclays Capital analyst Jeffrey Bernstein wrote in a research note in March, when Starbucks announced the venture.
He also pointed out that only around 8 percent of households have a single-serving pod coffeemaker, and that the segment is expected to grow by a multiple of three or four.
Bernstein did sound a note of concern that the Verismo could eat into Starbucks store sales or sales of its k-cup containers, which are produced by Green Mountain for use in Keurig machines.
In an interview with CNBC on Thursday, CEO Howard Schultz maintained that the new machines wouldn’t put a dent in the chain’s in-store traffic.
“We're interested and intrigued in multiple channels of distribution,” he said, pointing out that the company has long sold ground and whole beans at retail. “We think this is accretive to the brand and accretive to revenue.”
Analysts tended to concur. “There is a slight risk of cannibalization,” said R.J. Hottovy, senior restaurant analyst at Morningstar. But he added that packaged segments tend to have higher profit margins than the more labor-intensive beverages sold in the brand’s shops.
Machines that let people brew coffeehouse-style espressos and lattes could give Starbucks a bit of a hedge if the economy takes a turn for the worse. The company’s earnings came in below guidance for the quarter ending in July. Goldman Sachs analyst Michael Kelter wrote in a research note last week that k-cup sales were up 10 percent month-over-month, and that the segment as a whole was growing at the same rate.
“We expect SBUX’s market share of the U.S. single-serve market to take another step up this fall with the impending launch of its new proprietary Verismo system,” he wrote.
Hottovy also praised the timing of the rollout, coming so close to the start of stores’ all-important fourth quarter. “In talking with several retailers, we think this is going to be one of the hot items for the holiday season,” he said.
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