By Annie Gasparro
Green Mountain Coffee Roasters Inc. (GMCR) is arming its line of
single-cup brewers with another safegaurd against heightened
competition: an espresso machine that steams fresh milk to make
fancy lattes and cappuccinos one cup at a time.
The maker of Keurig brewers and associated K-Cup coffee pods
took off in the mid-2000s, but as the growth of single-serve coffee
industry has started to level off, Green Mountain and its peers are
looking to corner a new market of higher-end consumers.
"Some consumers will always go to a coffee shop for their lattes
or macchiatos, but others will want to have the same experience at
home and be able to offer guests something nicer," said Michelle
Stacey, president of Keurig. "It's about changing habits."
Starbucks Corp. (SBUX) came out with its first single-cup
brewer--an espresso machine called Verismo--two months ago, and
Nestle is expanding its line of Nespresso machines in the U.S. with
a new version called "U."
Green Mountain hopes that continued innovation of its Keurig
line will help it remain relevant and provide the growth investors
are seeking.
The company's stock sky-rocketed after it acquired the rest of
the Keurig business in 2006, but it has lately faced concerns about
its accounting practices, sales forecasts and intensified
competition. The attention of critics--namely hedge fund Greenlight
Capital's David Einhorn--has contributed to a rapid decline in its
share price over the past year.
Competing with the Starbucks brand and European brewers such as
Nespresso could be difficult for Green Mountain, whose loyal base
of Keurig owners aren't likely to splurge on the new, fancier
brewer, called Rivo. However, Green Mountain said it is looking to
attract new customers with the Rivo.
Still, Starbucks's Verismo, and Kraft Foods Inc.'s (KFT) Tassimo
brewer use powdered or concentrated milk in pods to make lattes and
other specialty drinks. The Keurig's Rivo uses fresh milk from the
refrigerator. Though some find the pre-packaged milk is more
convenient, Green Mountain says its new machine is one of only five
at-home brewers, in its price range of $229.99, that brews
"authentic espresso-based beverages" using any type of fresh
milk--from whole to soy.
"It seemed like it would be pretty easy, but now, almost a full
two years later, what looked easy turned out not to be," said Kevin
Sullivan, vice president of engineering for Keurig. "But we still
got here."
Green Mountain also launched another new brewing system earlier
this year, called the Vue. Both the Rivo and the Vue use their own,
proprietary coffee pods, and don't accept Keurig's traditional
K-cups. That is crucial for Green Mountain's growth story, as
patents on K-Cup technology recently expired, opening it up to
competition from private label brands. More than 90% of Green
Mountain's revenue comes from Keurig brewers, appliances and coffee
pods.
Green Mountain collaborated with Italian coffee company Luigi
Lavazza SpA to create Rivo. Rather than offering coffee pods in
dozens of different brands, such as Dunkin' Donuts and Folgers,
like traditional Keurigs do, Rivo will only brew Lavazza espresso
blends.
Green Mountain's Rivo will initially be sold on its website and
at Bloomingdales, further indicating its target of higher-income
consumers.
"There is such a growing popularity of sophisticated drinks of
this nature in the U.S., but until this, nothing has been designed
with the American consumer in mind," said Lavazza North America
Chief Executive Ennio Ranaboldo.
Write to Annie Gasparro at annie.gasparro@dowjones.com
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