Green Mountain falls as Starbucks takes on Keurig

Stock Market Predictions

(Global Markets) - Shares in Green Mountain Coffee Roasters Inc (GMCR.O) tumbled 14 percent on Friday, on fears that it may lose its near monopoly in the U.S. single-cup coffee market after partner Starbucks Corp (SBUX.O) outlined plans to launch a rival coffee and espresso machine.

Analysts, however, said Starbucks' new coffee and espresso machine would not be a meaningful threat to Green Mountain, as it would cater to different types of customers.

Starbucks already sells coffee packs under its own label for Green Mountain's Keurig machines, and said on Thursday that it plans to continue that partnership.

"There is (also an) opportunity for complementary high-pressure espresso-based systems," Green Mountain Chief Executive Lawrence Blanford said in a statement on Friday.

Starbucks said its new Verismo single-cup system will make both brewed coffee and espresso beverages such as lattes.

"Verisimo is being positioned primarily as an espresso machine similar to the highly popular, Nespresso machine from Nestle," SunTrust Robinson analyst William Chappell wrote in a note to clients on Thursday.

"While actual prices for Verisimo were not disclosed we would expect it to start around the $250-$300 range, similar to Nespresso and twice that of Keurig ($89-$178 range)," he added.

With the launch of Verismo later this year, Starbucks will become the latest player to beef up its presence in the fast-growing single-serve coffee market dominated by Green Mountain in the United States and Nestle SA (NESN.VX) around the world.

Jefferies analyst Andy Barish said he was encouraged by Starbucks' long-term commitment to the Keurig tie up and that the combination of Via instant coffee, K-Cup refills and Verismo would help the company take share in the nearly $8 billion global single serve market.

Green Mountain controls more than three-quarters of the U.S. market for single-cup coffee. That dominance has been helped by the large network of coffee brands that provide coffee cups compatible with Keurig machines, including Starbucks, Dunkin' Donuts (DNKN.O) and Folgers, made by J.M. Smucker (SJM.N).

"Starbucks is a much more popular coffee brand. So Green Mountain will have to reach out to other premium brands like Peet's (PEET.O) and say, hey: let's do a licensing deal," Greg Harmon, president of Dragonfly Capital Management, told Global Markets on Thursday.

Green mountain, which had expected increasing competition in the single-coffee market, launched a premium line of Keurig brewers, called the Vue, in February.

"The news of Verismo is not entirely unexpected, given Starbucks was noticeably left off the list of participating brands in Green Mountain's new Vue platform," analyst Barish said.

Green Mountain shares were down at $53.90, while those of Starbucks were up 3 percent in premarket trading. Green Mountain's stock closed at $62.40, while Starbucks shares closed at $50.37 on Thursday on the Nasdaq. (Reporting by Mihir Dalal, Arpita Mukherjee in Bangalore; Editing by Viraj Nair)