Coffee lovers will soon be sipping coffee and Tazo Tea from Keurig K Cups offered by the leading coffee shop retail Starbucks Corporation (SBUX). The retail giant will offer coffee in K cups across food, drug, mass, special and department stores in the U.S. Management has also revealed that the K cups will be available in retail outlets like Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT).
Starbucks had got into a deal with Keurig’s brewer parent Green Mountain Coffee Roasters Inc. (GMCR) in March, 2011 and based on that it will distribute its coffee and Tazo tea in Keurig’s K-Cup portion packs. The pact further boosts Starbucks’ goal of expanding its single-cup coffee product line.
Green Mountain sells K-Cups under different brands including Caribou Coffee, Gloria Jean’s and Van Houtte. Net sales for the company’s Keurig business soared 55% to $308.7 million in the quarter ended June 25 as consumers bought more single-cup brewers and K-Cups.
The introduction of Starbucks coffee and Tazo tea K-Cup portion packs reflects Starbuck’s strategy to grow its single-cup coffee segment. Starbucks saw a huge success in China and Japan with its recent launch of ‘Via’ instant cup coffee.
Starbucks expects K-Cups to add as much as 5 cents to earnings per share in fiscal 2012. The Starbucks K-cups will come in 10-count, 16-count and 54-count packs in several flavors. Tazo Tea will be available in 10-count and 16-count packs.
The product will be advertised on the direct-to-consumer websites from August 2012. While they will hit the retail stores in the U.S. and Canada by the end of 2012.
Starbucks has added 12 new retail locations in U.S. and Canada with the completion of its latest project. The expansion is a part of Starbucks’ strategy to reach good coffee across the globe. Similar business expertise has helped Starbucks gain popularity over the years.
However, we remain slightly apprehensive as Starbucks operates in a highly competitive market. Competitors are always on the look out for ways to grab Starbucks’ market share by offering lower prices, new or innovative services.
Currently, we prefer to rate the stock as Neutral. Starbucks holds the Zacks #3 Rank, which translates into a short-term Hold rating.
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