A Surprising Winner in the Keurig-Subway Deal

Last year, Subway introduced Keurig Green Mountain (NASDAQ: GMCR  )  to about half of its U.S. and Canadian locations. Last week, the companies announced that the other 15,000 or so stores would also soon serve Keurig java using its single-serve brewing system. Keurig's stock has jumped almost 7% since the announcement, but the move was premature. The partnership is good news for Keurig, but it's not going to add that much to the company's bottom line.

The value of Subway
As an initial test of how meaningful this announcement is, remember that Keurig already had half of Subway's North American locations locked down, but never bothered to mention it. Second, the K-Cup coffee already being served in Subway is Seattle's Best, which is owned by Starbucks (NASDAQ: SBUX  ) . Customer's buying Subway K-Cups are really, therefore, buying Starbucks K-Cups. Keurig is providing the product, but Starbucks is providing the brand. The added value for Keurig is going to be smaller than if Subway were serving a Keurig Green Mountain brand coffee.

Source: Starbucks.

That's not to say it's not important. The bigger deal for Keurig is that it will get millions of eyeballs' worth of advertising out of the deal. Subway has been pushing its breakfast menu hard for the last few years, which means coffee should start to play a bigger role in sales. Keurig Green Mountain is in a great place to turn that breakfast success into sales of its in-home products.

That will be where Keurig receives the biggest benefit from this deal, though it's a benefit investors will have to have to wait to see.

Starbucks on the breakfast train
I've been a Starbucks fan for a long time, and this deal seems great for the coffee juggernaut. As the company expands its food offerings and increases their quality, it's going to put more pressure on other restaurants and cafes to perform. Starbucks' long-standing relationship with Keurig Green Mountain has brought extra revenue to both brands. But if Subway sticks with the Keurig packaging of Seattle's Best, then Starbucks wins whether you buy your coffee at Starbucks or Subway.

Burger King is another Seattle's Best devotee, giving Starbucks a nice range of partner brands for customers to choose from. The slow-building dominance of Starbucks on breakfast menus means much more to me than the additional advertising that Keurig Green Mountain is getting out of this deal. In short, this is great news for Keurig and its investors, but I think it's even more indicative of the dominance that Starbucks has over the coffee market.

Top dividend stocks for the next decade
On top of being a fantastic brand, Starbucks is a consistent dividend payer. The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2996008, ~/Articles/ArticleHandler.aspx, 9/1/2015 8:35:19 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Andrew Marder

Andrew Marder worked in retail for years, holding jobs ranging from bookseller to bank strategy analyst. He has worked for the Motley Fool since 2012, and loves coffee.

Today's Market

updated 11 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 3:59 PM
GMCR $56.60 Up +2.49 +4.60%
Keurig Green Mount… CAPS Rating: **
SBUX $54.71 Down -0.92 -1.65%
Starbucks CAPS Rating: ****