Why Keurig Green Mountain Inc and Subway Are a Perfect Match

Thousands of Subway restaurants in North America will soon feature Keurig brewers. Here's what investors need to know.

Jun 11, 2014 at 1:12PM

The next time you visit your friendly neighborhood Subway, a perfectly brewed cup of coffee might be on the menu.

With the held of Keurig Green Mountain, Subway hopes to better compete with McDonald's

The Keurig K150 will soon be in thousands of Subway locations. Source: Keurig.com.

Yesterday afternoon, Keurig Green Mountain (NASDAQ:GMCR) announced a partnership to bring thousands of its Keurig K150 commercial brewers to Subway restaurants across North America.

For the record, this partnership isn't entirely new. A little over a year ago, the K150 actually became Keurig's first small- to medium-capacity brewing system to be certified by the National Sanitation Foundation for use in foodservice outlets. Shortly afterward, Subway began offering the K150 as an option to its franchisees. 

Apparently they've loved it ever since; as of right now, Subway says more than half of its locations in the U.S. and Canada have already adopted the system. In a statement, Subway beverage manager David Zambory also described "overwhelmingly positive feedback about Keurig's ability to deliver variety, quality and freshness on demand." Further, Zambory insists, "Subway restaurants are a destination throughout the day, including at breakfast, and we look forward to providing our customers with the freshest cup of coffee possible, no matter when they visit us."

And that, my fellow Fools, is where it becomes apparent that Keurig Green Mountain and Subway are a match made in heaven. After all, one of the biggest reasons consumers are so loyal to Subway in the first place is that it affords the ability to have a customized meal created before their eyes with fresh ingredients. And Keurig, for its part, has built its brand upon the same concept, giving people a cleaner, simpler way of quickly brewing a perfect cup of coffee on demand.

With the held of Keurig Green Mountain, Subway hopes to better compete with McDonald's

Subway's partership with Keurig notably looks to boost its share in the breakfast daypart. Source: Subway.

If Subway breakfast wasn't big enough already...
Of course, this isn't particularly great news for competing fast-food chains like McDonald's (NYSE:MCD). To be sure, McDonald's has marketed the bejeezus out of its McCafe coffee products over the years, all in an effort to both steal market share from higher-end coffee chains while at the same time maintaining its hold on the coveted breakfast daypart. Still -- and this obviously isn't just a coffee problem -- McDonald's kicked off this week by worrying otherwise patient investors with a 1% decrease in comps for the month of May.

At the same time, many consumers already have a Keurig brewer at home, so they could just as easily pinch pennies by brewing their own K-Cup as they run out the door. But the same could also be said for making a sandwich in your kitchen for lunch: However easy it is, sometimes it just doesn't happen. And that's not to mention the business Subway can win from all those late-in-the-day caffeine fiends who loathe the disgusting contents of an old pot of coffee.

In any case, that so many Subway locations already have a Keurig system in place indicates the chain has determined it'll be a net positive to roll them out on a wider scale. And given the sheer volume of brewing systems and K-Cups this will sell, it's not hard to see why this is a great arrangement for Keurig Green Mountain.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Keurig Green Mountain and McDonald's. Try any of our Foolish newsletter services free for 30 days. 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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