Starbucks Skips the Espresso Machine - Goes for KCups

Starbucks announced that they are going to be going the way of the KCup and starting in November, you can buy a select set of Starbucks Blends in the KCup format. So while they haven't ruled out the idea of introducing their own Nespresso type machine, the move into the KCup single serve format is certainly an acknowledgement that the KCup will offer a much more attractive return on investment.

Last year, there were 2.9 Billion KCups made, and even a fair share of that market is a pretty good return at about $0.60 each retail price. The work isn't going to be hard, and the returns should be all but guaranteed..... if Starbucks can capture even 20% of the market, that's 150,000,000 KCups, or about 5 million pounds of coffee, and if they made even $0.20 each KCup , that's $30 million gross revenue. Not bad for very little investment if Keurig/Green Mountain handles the KCup packing.

Starbucks expects to grow the business into a billion dollar franchise according to their press release. That means that they will need to roughly double the KCup market. That's pretty ambitious.

Starbucks will be selling KCups in the following varieties and configurations: Breakfast Blend, Pike Place® Roast, House Blend, Sumatra, and French Roast. In addition, two selections of Tazo® tea will be available in K-Cup® Portion Packs: Tazo® tea Awake and Tazo® tea Zen. Starbucks® coffee K-Cup® Portion Packs will be available in 10-count, 16-count, and 54-count packs. Tazo® tea K-Cup® Portion Packs will be available in 10-count and 16-count.

If Starbucks were to go the single serve espresso capsule route, the investment would be steep, and the market much smaller. I haven't seen the Starbucks Sirena tearing up the market, so if that's any indication, they face a tough road of trying to push out a new espresso machine that may or may not catch on. So while the logical thing would be to try to deliver the in-store drink experience in a proprietary espresso-based machine, the fastest route to market share and income is straight through KCup valley.

September 1, 2011

Starbucks Skips the Espresso Machine - Goes for KCups