Starbucks' Secret Weapon

Starbucks (Nasdaq: SBUX  ) announced that its Via instant-coffee offering has been a huge hit with consumers, raking in $100 million in sales in its first 10 months of existence. But if Starbucks is winning ... who's losing?

At first, the coffee giant's plan to release an instant java that might dilute its brand (and cannibalize its drink sales) seemed strange. But now, Starbucks is laughing all the way to the bank. The company said it has already grabbed 30% of the market share in the single-serve/pod coffee space, a sector that represents $330 million in sales, according to A.C. Nielsen. Starbucks is now increasing Via distribution in major consumer-facing retailers such as Costco (Nasdaq: COST  ) , Wal-Mart (NYSE: WMT  ) , and CVS (NYSE: CVS  ) .

Green Mountain Coffee Roasters (Nasdaq: GMCR  ) is another contender in this space; its Keurig single-serve coffee makers use "pods" to brew up just one cup of coffee. In contrast, Via comes in a packet that java junkies add to hot water. Both are convenient options for folks at the office or at home, but since Via doesn't require a special coffeemaker, it may have the advantage in portability.

In its press announcement, Starbucks intriguingly noted that nearly 40% of the folks it surveyed said they use Via in addition to other beverages. In short, Via's not actually replacing the Starbucks drinks they already buy, which should help calm fears that the instant packets would cannibalize sales at Starbucks' stores.

All in all, Via's another win for Starbucks on the heels of its latest decent quarter, even as Green Mountain reported a green quarter, too. Can these two coffee companies both win with single-serve coffee options? Do other companies with instant coffee brands stand to lose more, like J.M. Smucker's (NYSE: SJM  ) Folgers or Kraft's (NYSE: KFT  ) Maxwell House? Brew up your best guesses in the comment box below.

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Starbucks and Costco are Motley Fool Stock Advisor picks. Costco and Wal-Mart are Motley Fool Inside Value selections. Green Mountain Coffee Roasters is a Motley Fool Rule Breakers recommendation. The Fool owns shares of Costco. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (18)

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  • Report this Comment On August 05, 2010, at 2:38 PM, catoismymotor wrote:

    It is amazing how much money is at stake in the sale of coffee in all its forms. I joke about making blaming my early morning typos on a lack of coffee, but drink it infrequently. When I do I prefer...not Dos Equis! but International Coffee's French Vanilla. I could outwork a coked-up yuppie after three cups of that lovely brew. I have no idea who puts it out (Kraft, Unilever, Phizer?) but it is outstanding.

    Good article, Alyce. If I was not so put off by how highly competitive the coffee selling business can be I would be encouraged to dig deeper because for your efforts.

  • Report this Comment On August 05, 2010, at 2:39 PM, catoismymotor wrote:

    Phizer = Pfizer :)

  • Report this Comment On August 09, 2010, at 4:59 PM, TMFLomax wrote:

    Thanks for the comments! The coffee arena is definitely interesting and when I first heard about Via I was skeptical. Just goes to show...

    Cato, that's awesome, I haven't had International Coffee's French Vanilla for a long time now but maybe I should revisit it; I do remember it as tasty. And hiddenlevers, that's a good point that certain kinds of addictions like coffee may do well in spite of negative macro factors.

  • Report this Comment On November 07, 2010, at 10:50 AM, miro26 wrote:

    A late comment to add to this thread but here goes... with coffee prices spiking, how will single serving coffee fair in comparison to making a whole pot. Will consumers opt to make that single serving and does it represent a savings over ground coffee?

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