Just what Starbucks needs -- yet another way to make a mint off its coffee.
The
coffee giant this week begins rolling out a single cup brewing machine,
certain to put some serious steam into the $8 billion market. The
so-called Verismo System, which retails for $199 in Starbucks stores
will brew coffee, lattes and espresso in a single machine.
If
that's not fancy enough for you, some extra glitzy, $399 versions are
available at specialty retailers including Willams-Sonoma and Sur la
Table. Even then, the real profits will come from selling the single-cup
coffee pods at about $12 for a dozen. And eight Espresso pods along
with eight milk pods for about the same price.
For
Starbucks, it's all about expansion beyond the retail store. The
Starbucks siren wants to follow you right into your home and be a part
of consumer lives morning through night. Starbucks also wants the kind
of repeat business that products like one-cup machines insure.
"In
this history of our company, there are few things we've done as
comprehensive and as big as this" says CEO Howard Schultz, in a phone
interview. "We are literally selling every machine we make." He
projects it will eventually become yet another $1 billion brand for
Starbucks.
While the machines won't be
available at most Starbucks stores until October, they can now be
ordered from the Starbucks website. Schultz projects it could rank as
the chain's largest-ever holiday rollout.
Sales
could be huge, says Sharon Zackfia, analyst at William Blair and Co.
Although she hasn't yet seen the Verismo offerings, "the idea of selling
a machine at Starbucks that makes quality beverages is like preaching
to the choir."
That single-serve segment is,
indeed, an enormous choir. Nearly three in four Starbucks customers do
not yet own a single-serve brewing system, notes Schultz.
Rival
Green Mountain Coffee Roasters, which owns the Keurig brand, isn't
shaking. "Since the early days of coffee, we have successfully competed
against well-resourced companies like Mars and Kraft," says GMCR
spokeswoman Suzanne DuLong.
The category grew
an astounding 168% over the past year, says Jeff Hansberry, Starbucks
president of channel development. "Consumers want the ability to craft
both espresso beverages and brewed coffee all from one machine, at the
press of a button."
At issue: will the new
brewing machine be so successful that a chunk of consumers stop buying
$4 beverages at Starbucks and, instead, drink $1 home-made Starbucks
drinks?
"That argument has been presented to
me on everything we've done over the years," Schultz says. "But more
people are going into Starbucks today than any time in our 41 year
history. So that argument doesn't work."
USA Today