Starbucks, Green Mountain Talk Partnership On Keurig One-Cup Machines

* Starbucks wants dominant position in single-cup market

* Green Mountain's Keurig brewer now dominates segment

* Green Mountain shares jump on news of negotiations

By Lisa Baertlein and Mihir Dalal

LOS ANGELES, Feb 14 (Reuters) - Starbucks Corp (SBUX.O) and Green Mountain Coffee Roasters (GMCR.O) are in partnership negotiations, a source close to the talks told Reuters on Monday, sending Green Mountain shares surging.

Starbucks, the world's biggest coffee chain, wants to be a big player in the new and fast-growing single-serve coffee segment that Green Mountain currently dominates with its Keurig one-cup brewers.

Starbucks on Sunday said it planned to announce a new product for the single-cup coffee market in the near future, reviving speculation of a tie-up between the two companies.

The person close to the partnership talks would not say if the pending announcement would involve Green Mountain.

A Starbucks spokesman declined comment on the negotiations. Before news of the talks broke, Green Mountain spokeswoman Suzanne DuLong said the company had no comment on speculations around potential partnerships.

Green Mountain shares surged as much as 13.5 percent to a new lifetime high of $47.81 before backtracking. Shares, which were briefly halted after Reuters reported the talks, closed up 6.7 percent to $46.35.

Shares of Starbucks rose 0.7 percent to $33.58.

IRRESISTIBLE OPPORTUNITY

Canaccord Genuity analyst Scott Van Winkle said: "Keurig is the dominant brand in single-serve coffee with rapidly rising consumer adoption of its brewers seeding a market opportunity that Starbucks can't resist."

On Sunday, Starbucks said it wants to keep all its options open, including partnerships with other firms, extensions to its Via instant coffee line or even selling single-cup brewing machines. [ID:nN13250152]

The news came as Starbucks prepares 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. Starbucks is also ending its grocery distribution agreement with Kraft on March 1.

Green Mountain enjoys a near monopoly in the single-cup coffee sector -- with more than 80 percent market share -- and has hammered competition from bigger companies such as Kraft and Sara Lee (SLE.N), which sells the Senseo brewer.

JPMorgan analyst John Ivankoe said in a December note to clients that a single-cup product could easily be a $1 billion revenue opportunity for Starbucks in the U.S. alone.

(Editing by Bernard Orr)

Copyright 2010 Thomson Reuters. Click for Restrictions.

Comments

[laurelei23]

11:40 PM on 02/16/2011

Stabucks chasing every increasing "market share." They'll be sorry.

Is there anything in the coffee world more expensive? More wasteful? As strong as they want it to be.

P.T. Barnum was right.

[mdemploi]

11:31 AM on 02/16/2011

The only way to enjoy a cup of Keurig is to delight in suffering.

There still is a certain fascination with the machine, though. How a too-clever-by-half but very bored group of designers thought to invent a servo-mechanical rack that would remove, with as much inquisitory cruelty as possible, the soul of flavor prior to drinking.

[ekg]

10:14 AM on 02/16/2011

I still can't believe people drink this "coffee."

[ruchild]

09:37 AM on 02/16/2011

Um, but will this affect my ability to still score Caribou Coffee? I heart them more than Starbucks for my machine.... And living in the middle of nowhere, this is a major concern, because I can get the cups at my grocer, but if Starbucks joins the party, will they demand exclusivity? That I do not want, I like my choices.

[Littleguylobby]

07:47 AM on 02/16/2011

Single serve coffee makers are a joke. The discs cost about 300% more than if you just put your own coffee in a regular maker. It actually costs me less to make a whole pot, have one cup, and throw the rest down the drain. Another stupid merger made in hell.

[cubreporter]

05:12 AM on 02/16/2011

This is a marriage made in heaven: Two overpriced coffee companies can now gouge you in the solitude of your own kitchen. What could be better?

[Styxtap]

06:28 PM on 02/15/2011

Its like The Jetsons... When they punch a button and scrambled eggs + coffee come out.
They just need to get the food part down and so many lazy people will be on board with The Jetsons food machine.

[camnhuff]

05:17 PM on 02/15/2011

Now that I started using Tully's extra bold French Roast with my Keurig (smallest cup), I love it. Prior to that nothing was strong enough.

[COPESTIR3]

10:00 PM on 02/18/2011

I have enjoyed it for year. I am the only one in the house hold that drinks coffee. For single cups it is great.

[rikster]

05:01 PM on 02/15/2011

I'll take a French press any day...

[Sue Bryant]

04:11 PM on 02/15/2011

I got a refillable K-Cup filter basket for my Keurig, a lot less waste, and much cheaper. Plus I can actually grind fresh coffee of my choice to use.

[mdemploi]

12:19 PM on 02/16/2011

Do you work for the marketing department at Keurig? Or Starbucks? All that's missing is a few exclamation points!!! ;)

[Katco]

04:08 PM on 02/15/2011

Love the coffee selection... hate the fact that the coffee is never strong enough for me.

[TheAntiOkie]

05:12 PM on 02/15/2011

I have been using a press for years but have been considering one of these.

Do you use the pre-packaged inserts or the refillable K-Cup filter?

[Katco]

06:45 PM on 02/15/2011

It was at the office and the boss purchased the inserts. If you're used to a press, you might have the same problem I have with it. Even with the insert, there's only so much room for coffee and there is virtually no steeping time.

[Northern Observer]

03:30 PM on 02/15/2011

I was skeptical at first as I love my freshly ground brew. But I'm enjoying my Keurig, (nicknamed: Katie Keurig - I know it's cheesy). My folks like their tassimo...to each their own. I just hope the other brands don't disappear as one dominates. If I had the choice between fresh ground and a single cup brand I'd definitely still choose the fresh ground, but you can't beat the convenience factor. Now if they can do something about the waste, that would be fantastic.

[Sue Bryant]

04:12 PM on 02/15/2011

Try a K-Cup reusable filter basket.

http://www.amazon.com/Keurig-K-Cup-Reusable-Coffee-Filter/dp/B000DLB2FI

[Izzymeister]

02:09 PM on 02/15/2011

If you Use Keurig and want strong coffee like Starbucks just get the Sumatran Reserve. Its always great.

[ABunker]

12:58 PM on 02/15/2011

Don't like the fact the Starbucks is ditching T-disks. Tassimo brew a much better cup than the Kuerig.

[mdlawyer2]

01:28 PM on 02/15/2011

Apple builds a much better computer than PCs, Sony built a much better video player than VHS, etc., etc., etc. This is America, baby, it's not about who builds a better mousetrap, it's about who best markets mousetraps.

[arundel1]

12:08 PM on 02/15/2011

Keurig machines are undeniably convenient, and I've had some tasty coffee from them, but my god... could anything be more wasteful? In our office, the pile of discarded k-cups fills a garbage bin every day. That's a bag of mostly empty space being sent to landfill.