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updated: 8/30/2011 4:09 PM

Starbucks jumping into single-cup capsule market

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  • Associated Press Starbucks Corp. said Tuesday it will have packages of its Keurig coffee pods available at U.S. grocery stores and specialty retailers beginning in November.

      Associated Press Starbucks Corp. said Tuesday it will have packages of its Keurig coffee pods available at U.S. grocery stores and specialty retailers beginning in November.

 
Bloomberg News

Starbucks Corp., the world's largest coffee-shop operator, will begin selling its namesake coffee and Tazo tea brand in Keurig single-cup packets in November.

"We'll be launching in U.S. food, drug, mass, special and department store channels in early November," Jeffery Hansberry, president of Starbucks' global consumer products business, said in a telephone interview yesterday. Retailers including Wal-Mart Stores Inc. and Target Corp. will sell the K-Cups, he said.

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Chief Executive Officer Howard Schultz has sought to boost sales with single-serve beverages that customers can brew at home. This year, the Seattle-based company began selling Via instant-coffee packets in China and in March signed a deal with Green Mountain Coffee Roasters Inc. to sell K-Cup capsules for Green Mountain's Keurig brewer.

"There will be some cannibalization," said Phillip Juhan, an analyst at BMO Capital Markets in Atlanta. "The Keurig machine certainly has convenience advantages so I think that you'll see some conversion" from Starbucks packaged coffee to K-Cups. Juhan rates the shares "outperform."

Starbucks fell 14 cents to $37.91 at 10:03 a.m. New York time on the Nasdaq Stock Market. The shares gained 18 percent this year before today.

The company is doubling the number of countries where it sells Via, Hansberry said. Next month, Singapore, Thailand, Malaysia, Indonesia, South Korea and Australia will introduce the instant coffee.

Growth Plans

"Our ambition is to build a consumer-packaged goods business that one day could rival the size of our Starbucks retail business," he said.

The K-Cups may add as much as 5 cents to earnings per share in fiscal 2012, Chief Financial Officer Troy Alstead said on a conference call in July. Revenue for Starbucks' global consumer- products and food-service segment, which includes packaged coffee and tea sold in grocery stores, increased 26 percent to $266 million in the third quarter ended July 3, as total company revenue rose 12 percent to $2.93 billion.

About 9.1 million U.S. households have a Keurig brewer, compared with 5.4 million a year ago, according to Mitchell Pinheiro, an analyst at Janney Montgomery Scott in Philadelphia. He advises buying Green Mountain shares.

Net sales for Green Mountain's Keurig business jumped 55 percent to $308.7 million in the quarter ended June 25 as consumers bought more single-cup brewers and K-Cups. Waterbury, Vermont-based Green Mountain sells K-Cups under different brands including Caribou Coffee, Gloria Jean's and Van Houtte.

Earlier this month, Dunkin' Brands Group Inc., the operator of 6,800 Dunkin' Donuts stores in the U.S., started selling K-Cups in its shops. Starbucks has about 10,900 U.S. cafes.

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