The competition in the single-serve coffee segment is intensifying with many companies interested in grabbing a share of the growing market. Recently Starbucks (NASDAQ:SBUX), the world’s largest coffee chain, announced its plans to enter this segment with the launch of its new coffee maker Verismo.
This development is clearly a huge threat for Green Mountain Coffee Roasters (NASDAQ:GMCR) which saw its stock price plunge by more than 15% after the announcement made by Starbucks last week. GMCR is a dominant player controlling more than three-quarters of the U.S. single-serve coffee market and around 8% globally. However, Nestle is the leading player globally, with a 35% market share followed by Sara Lee’s (NYSE:SLE) Senseo brewers at 18%, and Kraft Foods’ (NYSE:KFT) Tassimo at 8%. ((See: Single-cup coffee sales seen growing, Reuters))
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- The Year 2014 In Review: Keurig Green Mountain
Implications for GMCR
Starbucks enjoys a wider reach and more brand awareness
- Starbucks has a loyal and wide customer reach with over 17,000 stores globally. We believe Starbucks could be a strong entrant into this niche segment as it already enjoys a dominant position in the coffee industry worldwide and has distribution channels in place. This could be a threat to GMCR’s dominant position in the U.S. market for single serve brewers.
Other players showing interest
- Sara Lee’s Executive Chairman, Jan Bennink, has also expressed interest in reinvesting in the single-serve coffee market. Sara Lee plans to discontinue Senseo brewers in North America beginning March 31. The company is presently working to make the machine more appealing.
- Retail giant Wal-Mart (NYSE:WMT) has plans to introduce Esio Beverage System, a more reasonable line of brewers at its stores. Going by reports, the price per serving is expected to be much lower than the average cost of Keurig’s K-Cups, which range from 60 cents to 90 cents each.
We believe GMCR would have to brace itself for increasing competition by employing new marketing strategies and focusing on innovation.
In order to remain competitive, it may have to resort to more pricing tactics to fend off competition from chains like Wal-Mart and Starbucks, which care capable of changing the dynamics of the single-serve coffee industry.
We have a Trefis price estimate of $82.08 for GMCR, implying a premium of more than 50% over the current market price.