Starbucks rolls out single cup system

9:42 AM, Sep 20, 2012   |    comments
A customer sips a cappuccino at a Starbucks coffee shop in Seattle.
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(USA TODAY) 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."

Bruce Horovitz, USA TODAY

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