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Starbucks-Green Mountain Deepen Tie

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Coffee giant Starbucks Corporation (SBUX - Free Report) recently announced that it has expanded its existing partnership with Green Mountain Coffee Roasters . Starbucks also revealed the introduction of a new energy drink known as Starbucks Refreshers.

Per the terms of the agreement, the company will manufacture and sell Starbucks-branded Vue packs to be to be used on Green Mountain’s newly introduced Keurig Vue single-cup machines. Starbucks already sells the K-Cup packs to GreenMountainto run on other Keurig Brewers. Keurig is an exclusive single cup machine which makes Starbucks coffee and Tazo tea. Green Mountain and Starbucks will sell the Vue packs in specialty, department and mass merchandise stores in the US and also on Green Mountain’s websites by fall 2012.

The alliance comes on the heels of the company’s recent move to launch its own single cup at-home coffee machine called Verismo by fall this year. Investors were expecting Verismo to pose strong competition to the Keurig machines. However, Starbucks ruled out any competition between the two arguing that the Verismo system is a high pressure machine while Keurig a low pressure one. Starbucks also announced that it will continue to supply K-Cup packs to Green Mountain. Shares of Green Mountain, however, witnessed a sharp decline after the announcement of the news.

The above mentioned agreements and new product launches will help Starbucks take further share of the premium single cup segment which is the fastest growing market in the coffee industry and is expected to become an $8 billion market globally.

Starbucks looking to meet the needs of increasingly health conscious Americans also announced the introduction of its new energy drink, Starbucks Refreshers. The beverages are made from green coffee extract and fruit juice and will mark Starbucks’ entry into the $8 billion energy market. The low-calorie, ready-to-drink beverages will be available in raspberry pomegranate, strawberry lemonade and orange melon flavors. The drink has already been rolled out at some grocery locations in the US and is expected to be widely available by April end. Very recently, Starbucks announced the opening of its first Evolution Fresh juice store in Bellevue, Washington to take a pie of the health food market.

Starbucks recently held its annual shareholders meet in Seattle where it announced plans to invest around $180 million to expand manufacturing capacity in Southeastern US. The expanded manufacturing capacity is expected to create more than 140 jobs. The company will add a fifth manufacturing capacity in the US at Augusta, Georgia and expand an existing facility in Sandy Run, South Carolina. Management also announced plans to expand in the emerging markets of China and other Asian countries. The company believes that China will become Starbucks’ second largest market by 2014 and will have more than 1500 stores by 2015. In 2013, Japan will witness the opening of the 1000th Starbucks store and Korea will have 700 stores by 2016.

Our recommendation

We currently have a Neutral recommendation on Starbucks. The stock looks more appealing near term with a Zacks #2 Rank (a short-term ‘Buy’ rating).

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