Starbucks Corp. (SBUX) entered into a deal with Keurig brewer parent Green Mountain Coffee Roasters Inc. (GMCR). As per the deal, Starbucks will distribute its coffee and Tazo tea in Keurig’s K-Cup portion packs. The K-Cup portion packs will be available at supermarkets, wholesale clubs, drug stores and departmental stores throughout the U.S. and Canada.
The pact further boosts Starbucks goal of expanding its single-cup coffee product line. It will become the exclusive, licensed super-premium coffee brand for the Vermont-based Green Mountain Coffee Roasters’ Keurig single-cup coffee system. For the already existing owners of Keurig Single-Cup brewer, the new relationship will provide an additional choice for Starbucks branded super-premium coffees.
According to the company sources, the deal will enable Starbucks to capture the untapped market of single-cup brewer and will enable more than 80% of the American household to enjoy perfectly brewed single-cup Starbucks coffee at home.
The number of stores through which these packs will be distributed is not yet determined. Starbucks has 11,158 company-operated and licensed outlets in the U.S.
The stock price of both the companies soared as soon as the news of the deal came out. The share price of Starbucks went up 9.93% to $37.97 and that of GMCR by 41.41% to $61.71. Later, the market corrected itself and the share price of Starbucks went down marginally by 0.82% and closed at $37.66.
Single-cup coffee sales were the key driver of coffee consumption growth in the US last year. Starbucks expanded its presence in this category last year through the introduction of Starbucks ‘Via’ Ready Brew.
The introduction of Starbuckscoffee and Tazo tea K-Cup portion packs reflects Starbuck’s strategy of continuing to grow its presence in the single-cup coffee segment. Starbucks recently launched ‘Via’ instant cup coffee in China and Japan with huge success.
Currently, we maintain a Neutral rating on the stock on long-term basis. Further, Starbucks holds a Zacks #3 Rank, which translates into a short-term Hold rating.
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