The Exchange

The K-Cup War Is Brewing: Stock Watch

Rebecca Stropoli
The Exchange

In the war of the K-cups, who will emerge with the strongest brew?

Coffee giant Starbucks (SBUX) on Thursday announced it has  begun selling its single-serve coffee maker, dubbed Verismo, on its web site, with placement in its physical stores and other major retailers to come in October. The machine will price at $199 for the basic version and $399 for the larger, more upscale model, which will boast temperature controls and self-cleaning. This is in comparison to Green Mountain's (GMCR) Keurig machine, which is priced at around $250 for its new Vue brewer, and Nestle's (NESN.VX) Nespresso, which sees most of its sales in Europe (but is looking to expand in the U.S.) and prices from as low as $130 to as much as $700.

[Related: Starbucks Goes Into the Bakery Business]

Along with the ability to create coffee concoctions, the Starbucks machine will also allow caffeine fans to brew single shots of espresso and lattes. Green Mountain is currently working on its own espresso option with Italian coffee roaster Luigi Lavazza SpA.

Kraft (KFT), which has its own single-serve option that does make espresso drinks with concentrated milk, hasn't proven much of a competitor in the U.S. single-cup space.

In an interview on CNBC Thursday morning, Starbucks CEO Howard Schultz said, "This machine will be the first on the market...to make brewed coffee, espresso and...a latte with fresh milk."

He continued, ""Seventy-five percent of existing Starbucks customers do not yet own a single-cup machine, primarily because the two machines [Nestle and Green Mountain] don't deliver on the expectations that our customers want."

Starbucks (SBUX)  first announced it would enter the single-serve machine space on March 8, launching a challenge to Green Mountain's massive 70% share of the U.S. K-cup market. Even as Starbucks stressed its current deal with Green Mountain to sell K-Cups would continue (along with Starbucks, Keurig brews single cups from brands including Dunkin', Tully's, Celestial Seasonings and  Newman's Own), GMCR plunged on the announcement, just as Starbucks hit $50 for the first time (on a split-adjusted basis).

[Related: Green Mountain, Starbucks Unveil Icy Offerings]

Since then, Green Mountain's stock has been anything but perky, adding to losses it began seeing in earnest in October of last year, when hedge fund manager and vocal GMCR short David Einhorn gave a presentation that sharply criticized the company's business model, transparency and accounting.  Green Mountain has shed an additional 50% of its market cap since March, amid factors including exec shakeups and looming patent expirations, with shares trading at around $27 on Thursday. Starbucks' six-month view is essentially a flat one (although the road has not been entirely smooth, as its shares saw their worst day in 12 years back in July, when its earnings disappointed), with the stock now trading at around $50. For the day, Green Mountain is down around 9% in later trade, while Starbucks is up 1%.

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K-Cups War Continues...

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