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07-06-2012 21:13:00

UPDATE: Starbucks Stores to Start Selling K-Cup Single-Serve Pods Tuesday

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--Participating stores in the U.S. will sell K-cups of two Starbucks blends

--Additional blends and Tazo tea K-cups will be added to stores in July

--Starbucks has been selling branded K-cups in other retail outlets for about six months

(Updates with details on the company's plan to begin selling the K-Cup pods beginning in the first paragraph.)

By Annie Gasparro

Starbucks Corp. (SBUX) will begin selling single-serve K-cup coffee pods for Green Mountain Coffee Roasters Inc.'s (GMCR) Keurig brewers in some of its cafes beginning Tuesday, followed by more blends in July, Starbucks said Thursday.

A Starbucks representative told Dow Jones that next week it will start selling K-cups of one medium and one dark roast blend in 12-count packs for $11.95 at "participating Starbucks retail stores nationwide." The representative didn't say how many stores will be included in the roll-out. The company plans to add a so-called Blonde roast, a second dark roast and two Tazo teas to the assortment in July.

Starbucks began selling its branded K-cups in retailers such as Wal-Mart Stores Inc. (WMT) about six months ago, and has said it has seen "robust" sales. On May 3, Starbucks Chief Executive Howard Schultz said in a letter to employees that "in just five months since launching, we have shipped more than 230 million K-Cups, which translate to 7 million pounds of Starbucks coffee, and achieved a 15% dollar share of the premium single-cup category."

Starbucks initially was selling K-cups only through third-party retailers so as to get an idea of what the demand would be and to avoid capacity issues for Green Mountain.

In Mr. Schultz's May 3 memo, he said Starbucks would begin selling the K-cups in their own cafes "in the coming months," sooner than the company's projection in March that they would come to stores this autumn.

Janney Capital Markets analysts said the sooner-than-expected roll-out is a positive for both companies.

Starbucks has said K-cups could add three to five cents per share to its fiscal 2012 earnings. "That said, keep in mind that marketing spend by Starbucks regarding K-cups could be heavy, and as such, this could place a lid on the ultimate earnings-per-share upside," the Janney Capital Markets analysts said in a note to investors Thursday.

For Green Mountain, the increased retail presence could give its sales a boost during a typically slower season for coffee. Starbucks has said it would begin selling Keurig brewers in its cafes this year, too. The further backing by Starbucks could help Green Mountain's struggling stock, which has fallen by nearly half this year, recently trading at $24.70 Thursday.

Green Mountain faces ongoing criticism from institutional investors for its inability to project sales, which hurt its latest quarterly earnings, as well as the transparency of its financial statements. The company reiterated Wednesday that it has "been as transparent as possible" and is "working to thoroughly investigate the variances between our actual and expected sales."

For Starbucks--whose shares are trading around $54, a 50% jump from a year ago--the move to K-cups is part of its overall strategy of becoming a broader consumer-products company rather than relying so heavily on its cafe sales. Starbucks is also coming out with its own single-serve espresso brewer called Verismo by the end of the year and two new varieties of K-cups to be sold in third-party retail channels in coming months.

Starbucks first entered the growing single-serve category in 2009, when it introduced its VIA Ready Brew, which as of March 2012 had become a $250 million business.

Green Mountain continues its innovation in the space, recently launching a new brewer called the Keurig Vue, which works with V-packs. On Wednesday, the company touted its development of medicinal teas. Chief Executive Larry Blanford said they are working with some major pharmaceutical companies on entering the "health and wellness" space. "There's a tremendous opportunity to carry functional additives to the consumer" through portion packs, Mr. Blanford said.

Green Mountain wasn't immediately available to comment.

Write to Annie Gasparro at annie.gasparro@dowjones.com

(END) Dow Jones Newswires

June 07, 2012 15:13 ET (19:13 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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