Starbucks holding 'winning hand' in single-serve coffee

by Eric Schroeder
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NEW YORK — A strong relationship with Green Mountain Coffee Roasters and Keurig, coupled with the company’s experience with the Verismo automatic coffee and espresso makers, have Seattle-based Starbucks Corp. “sitting with the winning hand” in terms of the single-serve coffee format, said Howard Schultz, chairman, president and chief executive officer of Starbucks.

“We are sitting with the winning hand because the more Keurig machines that are installed in households across America, the more K-Cups we are going to sell,” Mr. Schultz told analysts at the Sanford C. Bernstein Strategic Decisions Conference held May 29 in New York. “We have already shipped approximately 900 million K-cups since the formation of that agreement. And the velocity of that continues.”

Starbucks and Green Mountain Coffee Roasters first entered into partnership in March 2011, and in May 2013 they signed a new, minimum five-year agreement that will have Starbucks adding brands and varietals to the Starbucks K-Cup and Vue pack portfolio of offerings for Keurig single-cup brewers. The long-term strategic partnership is expected to triple the number of Starbucks products and add brands offered on the Keurig platform.

“The relationship we have with Green Mountain and Keurig allows us to be agnostic and participate in other formats, which gives us great flexibility, domestically and around the world,” Mr. Schultz explained. “I do believe that single-serve is here to stay, that Green Mountain has done an excellent job, and that we benefit from each other. And I want them to sell as many machines as they possibly can, because every time they sell a machine I know that K-Cups are going to follow with Starbucks.”

Troy Alstead, chief financial officer at Starbucks, added the company has built a premium leadership position in packaged coffee in the United States over the years and in a short period of time similarly has built a leadership position in premium single-cup coffee in the United States. But he said Starbucks is “nowhere near the top of that (single-serve) market in terms of how big that market grows over time and our ability to create a greater market share in the expanding market that we have today.”

“There’s a tremendous opportunity as we leverage this further outside of the U.S. over time as well,” Mr. Alstead said.
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