Bloomberg News

Green Mountain Falls as Starbucks Plans to Sell Rival Brewer

March 09, 2012

Green Mountain Coffee Roasters Inc. (GMCR), facing an increasing number of rivals for its Keurig coffee machines, declined the most in almost four months after Starbucks Corp. (SBUX) announced plans to start selling a single-cup coffee system.

Green Mountain fell 16 percent to $52.59 at the close in New York, the biggest decline since Nov. 10. The shares had gained 39 percent this year before today. Starbucks rose 2.9 percent to $51.84.

The Verismo machine will make espresso-based beverages and brewed coffee, Seattle-based Starbucks said yesterday in a statement. Starbucks said it will advertise and sell the machine and single-cup pods through a “strategic relationship” with closely held Krueger GmbH.

Starbucks last year signed a deal with Green Mountain to sell K-Cup capsules for Green Mountain’s Keurig brewer. In September, Waterbury, Vermont-based Green Mountain will lose the main patents on its K-Cups, the coffee pods that helped make it the largest player in the U.S. single-serve coffee market. Capsule and brewer competitors, including Rogers Family Co. and Esio Beverage Co., already have started to emerge.

“With Green Mountain’s patents expiring this fall, Starbucks’ entry is part of the competitive onslaught hitting Green Mountain,” David Einhorn, president of Greenlight Capital Inc., said today in an e-mailed statement.

Einhorn Criticism

Einhorn has criticized Green Mountain since October, saying its market-share gains have peaked amid what he calls a “litany of accounting questions.”

Keurig’s low-pressure brewers and Kraft Foods Inc.’s (KFT) Tassimo machines are the only ones “in which Starbucks can participate in North America,” Suzanne DuLong, a Green Mountain spokeswoman, said yesterday in an e-mailed statement.

The Verismo is focused on high-pressure, espresso drinks and will compete primarily with Nestle SA (NESN)’s machines, Starbucks Chief Executive Officer Howard Schultz said yesterday on a conference call.

“This is definitely a brewer that’s going after a different consumer,” Scott Van Winkle, an analyst at Canaccord Genuity in Boston, said in an interview. He advises buying Green Mountain shares.

The competitive risk to Green Mountain is “relatively modest,” said Van Winkle, who estimates the Verismo will be priced at about $300.

‘Billion-Dollar Business’

“We believe Starbucks to be a very satisfied participant in the Keurig K-Cup system, having frequently communicated its ongoing support of the Keurig K-Cup platform,” Green Mountain Chief Executive Officer Lawrence Blanford said today in a statement. “The two companies continue to collaborate with each other in the low-pressure Keurig Single Cup Brewing system in North America.”

Schultz has sought to boost sales with single-serving beverages that customers can brew at home. In November, grocery and mass retail stores began selling Starbucks and Tazo tea brand K-Cups. Starbucks can build a “billion-dollar business” with its single-serve segment, Schultz said during a conference call on Jan. 26.

Robin Tickle, a spokesman for Vevey, Switzerland-based Nestle, declined to comment on Verismo.

Green Mountain is developing coffee makers to help combat new brewers and pods from rivals. It’s working with Luigi Lavazza SpA to make an espresso machine and last month the company introduced a new brewer that makes lattes and cappuccinos called the Vue, which costs $250 on the company’s website.

“We have spoken with all of our current system partners about our Vue platform and all have expressed a strong interest in being a part of the system,” DuLong said.

So-called Vue packs aren’t currently offered for the Starbucks brand.

To contact the reporter on this story: Leslie Patton in Chicago at

To contact the editor responsible for this story: Robin Ajello at

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