Green Mountain gets a roasting from Starbucks

By msnbc.com staff

Shares of Green Mountain coffee are getting a Starbucks roasting Friday, dropping 15 percent in reaction to news that the Seattle-based coffee retailer will soon sell a new single-cup coffee machine.

The move poses a threat to Green Mountain's Keurig machines. Last year Starbucks signed a deal with Green Mountain to sell its K-Cup capsules for Green Mountain?s Keurig brewer.

Now news that Starbucks will sell a single-cup coffee machine, the Verismo, in the fall that lets users brew lattes and other coffee drinks at home places in doubt whether Starbucks customers will still purchase Green Mountain?s K-Cup capsules, said Jeff Bernstein, Barclays Capital analyst Jeffrey Bernstein noted Friday.

?If it?s a successful machine, and it can make brewed coffee as well as an espresso, you would think it?s not going to be helpful to Green Mountain,? he told CNBC.

Another issue for Green Mountain: Its patents on its K-Cups, the coffee pods that have helped to make it the leader in the single-serve coffee market, will expire, and potential competitors have already started to emerge. The company did not immediately respond to calls for comment.

Starbucks? move is part of a growing market for single-serve coffee, which Bernstein estimates to be worth $1 billion.

In a conference call with analysts Thursday Starbucks? Chief Executive Howard Schultz tried to soften the competitive threat the new machine, dubbed the Verismo, will pose to Green Mountain, saying the two products can exist side by side, and that the Verismo and Keurig are for different coffee needs -- the Verismo for espresso drinkers and the Keurig for brewed coffees.

Keith Siegner, an analyst at Credit Suisse, agrees. He feels the move by Starbucks is more of a good move for the coffee retailer rather than a negative for Green Mountain. He points out that Starbucks? aim is to distribute the company?s brand as widely as possible.

?The point is to have the Starbucks brand on every product out there,? he said.

?It?s yet another example of how they are translating their brand into capital-free sales and profit levers for this company,? Siegner continued in a CNBC interview. ?That?s why people remain bullish here. This is just another way they can help sustain a 20 percent growth rate over the next 3 to 5 years.?

Is the move by Starbucks a death knell for Green Mountain? Discuss on our Facebook page.

Source: http://bottomline.msnbc.msn.com/_news/2012/03/09/10624028-starbucks-serves-up-a-cupful-of-pain-for-green-mountain

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