The Brew-off: Starbucks vs. Green Mountain

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Adage reports that Starbucks will enter the single-serve coffeemaker market this holiday season. Green Mountain has largely created the category and continues to dominate it, followed by lesser known players Tassimo, Senseo, Nesspresso. Will this work for Starbucks?

Likely Starbucks will sell units and Green Mountain dropping 15% in trading after the announcement signals The Street agrees, but I think they are missing a core ingredient to this business model — Selection.

Mr. Schultz [CEO of Starbucks] pointed out that the at-home coffee machine will not cannibalize Starbucks’ own retail business. Also, he said, while Starbucks plans to offer only Starbucks-branded coffee for now, “we reserve the right to open the system to others, and we have not made that decision as of today.”

Without choice besides Starbucks, where does Mr. Schultz see volume coming from? Looks to me to be a “finger in the eye” of Kraft who distributes the Starbucks brand coffee in grocery channels. Shifting consumers from a bagged coffee to predictably higher margin per serving single-serve option will take a sizable investment from Starbucks.  This is a challenged business proposition with sizable investment to limit choice and market size this early in the game.

Keurig, the Green Mountain owned device, offers K-Cupswith almost every imaginable flavor or branded product from Starbucks to Dunkin Donuts to now iced tea and coffee products. What Keurig recognizes is that this is a network effect provided by the physical device and you have to serve the whole house along multiple need states (e.g. morning start caffeine, afternoon relaxation)  to generate growth.

I am curious to see where Schultz and Starbucks takes this and whether they see the opportunity here to create a real shift in how they have operated — from exceptionally designed, controlled choices for consumers to allowing the consumer to drive choice in their home.

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