Green Mountain Coffee Roasters
The move is a winner for Green Mountain. The company has been selling a ton of its Keurig single-cup brewers -- nearly 1.2 million units over the past two quarters alone -- but the company essentially sells them at cost. The real gravy comes in the form of high-margin K-Cups, which provide single-cup portions of premium coffee from more than a dozen brands. Green Mountains has the perfect throwback "razor and blades" model here -- it's willing to sell the brewers without a premium and makes up the difference with the hundreds of millions of K-Cups it's now selling quarterly. More brewers mean more K-Cups, and business is booming at Green Mountain.
The playing field of third-party K-Cup participants has been limited to small java specialists such as Diedrich Coffee
Now that Cuisinart will be flooding the market with even more of Green Mountain's equivalent of the razor, isn't it only a matter of time before Starbucks
That would be a humbling move, but Starbucks has already made inroads into instant coffee with this year's rollout of Via. If bean sippers aren't coming to its baristas, Starbucks figures that its baristas may as well come to the bean sippers.
Chains such as Starbucks and Peet's
Unfortunately for Starbucks, the K-Cup is a game it can't ignore anymore. Even Wal-Mart Stores
Starbucks is doing its part, by expanding into different beverage categories and offering value-sensitive pricing, but the K-Cup coattails are going to keep moving, with or without the barista's blessing.
It may as well hop on for the ride.
For further Foolishness:
Green Mountain Coffee Roasters is a Motley Fool Rule Breakers recommendation. Starbucks and Wal-Mart Stores are Inside Value selections. Starbucks is also a Stock Advisor selection, and the Fool owns shares of it. Try any of our Foolish newsletter services free for 30 days.
Longtime Fool contributor Rick Munarriz doesn't fancy himself much of a coffee drinker, even though he lives within walking distance of three Starbucks locations and has owned a Keurig machine for two years. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.