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Starbucks Will Roast Green Mountain: Analyst

Friday, 9 Mar 2012 | 1:38 PM ET
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Starbucks Coffee

As far as the street is concerned, Starbucks has officially trumped partner Green Mountain Coffee Roasterswith the “Verismo,” its own version of a single-serving coffee machine.

“You have to give Starbucks the benefit of the doubt,” said analyst Jeff Bernstein of Barclays Capital.

“They should make money off of this venture,” he added. “I wouldn’t expect it any other way."

Did Starbucks Roast Green Mountain?
Starbucks announces its plans to roll out its very own single-serving coffee machines. Insight on how this will impact Green Mountain's business, with Jeffrey Bernstein, Barclays Capital analyst.

By launching the Verismo, which is due to rollout this fall, Starbucks has pitted itself directly against Green Mountain’s “Keurig” machine.

Shares of the two companies reacted sharply to the announcement.

Thursday’s announcement resulted in new high for Starbucks , now surpassing $51 per share. At the same time, Green Mountain shares took a big hit, down double digits.

“Starbucks views this as the biggest prize in the billion-dollar single cup category,” said Bernstein.

The question is, who will buy it? According to Bernstein, buyers will include everyone who currently buys Starbucks’ instant K-cups.

“They’re going to price Verismo cups very similar to their K-cups, which are about a $1 a cup,” he says, which is slightly more expensive than Green Mountain’s alternative.

Pods are the analyst’s focus, because while the machine is sold once, pods are a recurring revenue stream.

Starbucks timing is also seen as impeccable: It is launching the Verismo just as Green Mountain is in the process of rolling out an update of its existing Keurig machine.

All things considered, Berstein is convinced Starbucks is the front-runner, though “how much share they take, only time will tell.”

Additional News: Starbucks Stock Hits New HighAdditional Views: Green Mountain’s Momentum Is Over: Greenberg
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Disclosures:

Jeff Bernstein does not personally own SBUX shares, nor does his firm, Bernstein Capital.

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