--Green Mountain hopes to target higher-end consumers with new
brewer
--Machine hits stores two months after Starbucks's espresso
brewer
--Keurig's new brewer uses fresh milk, Starbucks's uses milk
pods
(Updates with additional commentary from an industry analyst and
relative pricing of the product.)
By Annie Gasparro
Green Mountain Coffee Roasters Inc. (GMCR) is arming its line of
single-cup brewers with another safeguard 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 the 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 a new type of customer with the Rivo.
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, while Keurig's Rivo uses fresh milk from the
refrigerator.
"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 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.
Though some find prepackaged milk more convenient, the ability
for the Rivo to use any type of fresh milk--from whole to
soy--creates a more sophisticated feel. Bill Chappell, a SunTrust
analyst who follows the industry, said "it appears that the biggest
difference between the Rivo and the Starbucks Verismo is the
ability to use fresh milk...and from what we have learned about the
Verismo, the use of milk pods versus fresh milk seems to be its
biggest drawback."
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.
"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.
Green Mountain's Rivo will initially be sold in Bloomingdale's
stores, further indicating its target of higher-income consumers.
The machine costs $229.99, which is more than basic Keurigs but at
the low end of the price range for Starbucks's Verismo
machines.
Write to Annie Gasparro at annie.gasparro@dowjones.com
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