A Double Shot of Rumors for Starbucks

Despite the swirling rumors above Starbucks' (Nasdaq: SBUX  ) new strategies for the single-serve coffee market, any real proof that the java giant will partner with archrival Green Mountain Coffee Roasters (Nasdaq: GMCR  ) remains elusive.

Instead, Starbucks announced today that it will provide ground coffee "filter packs" to Courtesy Products, which makes the CV1 single-serving brewers used in hotel rooms. The partnership gives Starbucks entry into about 500,000 "luxury and premium" hotel rooms.

Green Mountain's Keurig brewer, which uses the company's proprietary K-Cups, dominates a large swath of the single-serving coffee market. NPD market research found that at the end of fiscal 2010, Green Mountain could boast having the top four best-selling coffee makers. Green Mountain not only provides its brewers to regular consumers, but also targets the hospitality sector.

In addition to distributing its own coffee, Green Mountain also has exclusive licensing agreements to provide K-Cups featuring coffee and tea from companies such as Newman's Own Organics, Hain Celestial's (Nasdaq: HAIN  ) Celestial Seasonings, Caribou (Nasdaq: CBOU  ) , Gloria Jean's, and others. It also has agreements through which it provides K-Cups for  caffeinated rivals such as J.M. Smucker (NYSE: SJM  ) , the name behind coffee brands like Folgers and Millstone.

The theory that Green Mountain and Starbucks might be poised to partner up isn't outlandish. Starbucks would benefit from another distribution channel for its coffee (and more potential fans for its brand), while a K-Cup partnership would also encourage loyalty and further adoption of Green Mountain's Keurig brewers.

Regardless, Green Mountain represents a major Starbucks competitor. Consumers who use Keurig brewers at home may very well be less likely to stop into Starbucks for a single drink. Meanwhile, Starbucks provides Via instant coffee packets, which have been a huge hit for the coffee giant and can already be considered a solid competitive answer to single-serve, at-home brewers.

However much headlines may clamor for a partnership between Starbucks and Green Mountain, it seems to me that these particular companies might prefer to exist as enemies than strange bedfellows. That said, if Starbucks decides to try to make its own single-serve brewers, its late entry into the marketplace could leave the company and its shareholders burnt and bitter.

Does a partnership between these two major coffee purveyors make perfect sense, or is it just crazy talk? Add your two cents in the comments box below.

Green Mountain is a Motley Fool Rule Breakers recommendation. Starbucks is a Motley Fool Stock Advisor selection. Motley Fool Alpha has opened a short position on Green Mountain. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 15, 2011, at 8:04 PM, cheesphht wrote:

    Does anyone have an explanation to what actually happened in those two seconds that it took GMCR to move 6 dollars?

    I have yet to see an explanation for this and I have never seen anything move so fast and so much.

  • Report this Comment On February 15, 2011, at 8:23 PM, stampking74 wrote:

    If I were in the SBUX camp, my logic would be "Can't beat em , Join em" I think it would be more beneficial for SBUX than GMCR.

  • Report this Comment On February 15, 2011, at 8:51 PM, sas912 wrote:

    "Does anyone have an explanation to what actually happened in those two seconds that it took GMCR to move 6 dollars?" If you are referring to yesterday 2/14 it was the report by Reuters that someone "close to the talks" said that SBUX and GMCR were in talks to partner up. That would be a win-win for both companies. If you refer to today's action, once it was announced that SBUX had inked a deal to provide coffee packets to those lame coffee makers in the hotel rooms, many took that as a sign that there would be no deal with GMCR.

    Both companies would profit from an agreement to produce the SBUX blends/roasts in a K-cup. Whether they are rivals or not, it's good business for each of them. SBUX is losing out on a lot of revenue by not partnering with GMCR for K-cups.

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