Starbucks and Green Mountain double up for single-serve

A single-cup gourmet brewer by Keurig is part the merchandise in the Grammy Gift Bag previewed on January 19, 2006 in Los Angeles, California.

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Kai Ryssdal: There's big news in the world of coffee today. Green Mountain -- maker of those single-cup Keurig machines and the little K-cups that go with them -- is going to team up with Starbucks. Starbucks will start making single-serve cups of coffee and tea for the Keurig machine and Green Mountain's machines are going to be sold at Starbucks.

Marketplace's Stacey Vanek Smith reports those little cups could have a very big impact on the coffee business.


Stacey Vanek Smith: The deal means you'll be able to get Starbucks French Roast or Tazo Passion tea in those adorable K-cups to brew at home in your single cup brewer, and you'll be able to pick up one of those brewers along with your Venti caramel macchiato at Starbucks.

RJ Hottovy directs consumer research for MorningStar.

RJ Hottovy: The single-serve coffee market is a high-growth and highly lucrative market. And by positioning the dominant name in coffee with the dominant name in single-serve coffee makers., both firms look to win from it.

Green Mountain already controls most of the $4 billion single-serve coffee market. And Starbucks is, well, Starbucks.

Beverage analyst Tom Pirko says competitors like Peet's are likely reaching for a different kind of drink today.

Tom Pirko: I think they're drinking hard liquor. You add these mega trademarks and the whole coffee business begins to change shape.

The alliance comes at a good time, says Pirko. Coffee companies have been walloped by soaring bean prices -- up nearly 50 percent in the last six months. That makes the highly profitable single servings all the more attractive.

Pirko: It's a little bit like the printer business. What you really want to do is sell the cartridges. Once you're able to get people into the fold by buying one of the machines, you make your money by selling as many of the pods as possible.

Green Mountain reportedly sells its $150 brewers at a loss. Not so for the K-cups; they cost almost $1 a piece. And there's a lot of potential for growth. The single-serve market is doubling in size every year.

I'm Stacey Vanek Smith for Marketplace.

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.

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