Starbucks plans single-serve announcement soon

Sun Feb 13, 2011 8:55pm GMT

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* Looking to expand beyond Via in single-serve market

* Starbucks exploring all options in single-cup segment

* Deals could include partnerships or machine sales

* Starbucks deal on Kraft single-cup brewer ending March 1

By Lisa Baertlein

LOS ANGELES, Feb 13 (Reuters) - Starbucks Corp (SBUX.O), the world's biggest coffee chain, on Sunday said it plans to announce a new product for the single-serve market "in the near future."

Analysts long have expected Starbucks, which also sells Via instant coffee packets, to make a more aggressive move into the small, but fast-growing single-cup brewing segment.

Word of its new plan comes as Starbucks is getting ready for the March 1 termination of an agreement by which it provides coffee discs for Kraft Foods Inc's KFT.N Tassimo one-cup home brewer.

Kraft's Tassimo brewer won some loyal fans with its bells and whistles, but it was bested by Green Mountain Coffee Roasters' (GMCR.O) generally lower-cost Keurig brewing system that now has a near-monopoly in the single-cup category with roughly 80 percent market share.

While several analysts expect Starbucks to begin providing coffee for the Keurig system, some also have concerns about expiring Green Mountain patents, patent challenges and whether current Keurig users will migrate to the company's new machine.

"Starbucks is currently exploring all options to expand its presence in the premium single-cup coffee category, beyond our initial entry with Starbucks Via Ready Brew," Starbucks spokeswoman Lara Wyss told Reuters.

"Single-serve is still in the earliest stages and no clear delivery system has been established as the gold standard so it is important for us to look at all options," Wyss said.

KRAFT DEAL WINDING DOWN

Starbucks and Kraft -- which has distributed Starbucks' packaged coffee and other products to supermarkets and other stores for more than decade -- will part ways on March 1.

Starbucks announced its plans to end the partnership in November. The companies since have been battled over various clauses in their agreement, including whether the Tassimo deal was exclusive. For details, see [ID:nN28164356]

"In our opinion, neither Kraft nor Starbucks put substantial effort to drive sales of the Tassimo machine, but (Starbucks) next single cup effort will be different," JPMorgan analyst John Ivankoe said in a December note to clients.

"We believe such product will be incremental to Starbucks' store sales and could easily be a $1 (billion) revenue opportunity for Starbucks in the US alone," Ivankoe said.

Most Starbucks customers do not now have a single-serve machine and Wyss said the company intends to transform the market the way Apple Inc's (AAPL.O) iPhone rocked the cell phone business.

Starbucks' options include partnerships with other companies, extensions to its Via line or even sales of a single-cup brewing machine through its retail stores, Wyss added.

"We don't have any specific announcements at this time ... but should have information in the near future," she said.

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