September 20, 2012 / 4:08 PM / 6 years ago

Starbucks to elbow in on Green Mountain with one-cup brewer

(Reuters) - Starbucks Corp (SBUX.O) announced competitive prices for its new Verismo coffee and espresso makers that could pose a threat to brewers from Green Mountain Coffee Roasters Inc GMCR.O and Nestle SA NESN.VX, the dominant players in the $8 billion single-serve coffee market.

The Verismo single serve home espresso maker is demonstrated making a cafe latte, during Starbucks Annual Meeting of Shareholders in Seattle, Washington March 21, 2012. REUTERS/Robert Sorbo

The basic Verismo will sell for $199 while a larger version, with temperature controls and self-cleaning, will be priced at $399. Retail sales will begin in October, the company said late on Wednesday.

The prices were in line with analysts’ expectations.

Green Mountain’s Keurig one-cup coffee brewers control more than three-quarters of the U.S. market. Nestle’s NESN.VX Nespresso espresso makers hold a 35 percent share globally, with a heavy concentration in Europe. Green Mountain’s new Keurig Vue coffee brewer sells for around $250, while Nespresso machines can cost anywhere from $130 to $700.

Under a partnership with Green Mountain, Starbucks provides coffee-filled K-cups for use in Green Mountain’s Keurig machines. Starbucks has 15 percent share of the K-cup market.

Shares in Green Mountain tumbled when the world’s biggest coffee chain first announced plans for the Verismo in March. The shares swooned again on Thursday on the Verismo pricing news, dropping 6.5 percent to $28.82. Stock in Starbucks was up 1.5 percent at $50.85.

Analysts said the Verismo is also positioned to defend against Nestle, which is making a Nespreso push in the United States. Shares in Nestle were down 0.1 percent in European trading.

Starbucks Chief Executive Howard Schultz said the company remains committed to its Green Mountain partnership and that Verismo will “coexist” with that business.

One-cup coffee makers and the coffee-filled cups, discs or pods they use to make barista-worthy individual drinks account for just 8 percent of total worldwide coffee sales, but that share is quickly rising.

Starbucks’ Verismo machines both brew coffee and make espresso - while the Keurig and Nespresso machines only make one type of coffee drink - and land at a time when many companies are vying for a piece of the fast-growing single-serve market.

Verismo “is for your more loyal Starbucks user,” Lazard Capital Markets analyst Matthew DiFrisco, said.

Schultz said that by carving out distinct niches in one area, Green Mountain and Nestle left plenty of room for Starbucks to introduce its own machine.

“Seventy-five percent of existing Starbucks customers do not yet own a single-cup machine, primarily because the two machines (from Nestle and Green Mountain) don’t deliver on the expectations that our customers want,” Schultz said in an interview.

“We’re confident that this is going to be a profitable proposition for the company in the near term,” he said.

Verismo coffee and espresso pods will cost about $1 — in line with the competition. Starbucks also will sell pods with real 2 percent milk to make lattes, for about 60 cents each.

Krueger GmbH & Co, a privately held company based in Germany, makes both the Verismo machines and pods.

Starbucks quietly began online sales of the Verismo this week.

The machine will hit shelves at home goods retailers and department stores such as Williams-Sonoma Inc (WSM.N) and Macy’s Inc (M.N) in early October. Starbucks’ own shops will start selling Verismo, and showing customers how to use it, in mid-October.

Starbucks also will sell a separate machine that heats and froths milk or dairy alternatives such as soy milk for about $60.

Meanwhile, Green Mountain is working with Italian coffee roaster Luigi Lavazza SpA on a single-cup espresso machine. Luigi Lavazza SpA [ID:nL1E8KANOJ]

Reporting By Lisa Baertlein in Los Angeles; Editing by Marguerita Choy

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