Starbucks (SBUX) is finally rolling out their home brewing product to compete with the Keurig system from Green Mountain Coffee Roasters (GMCR), which currently controls about 90 percent of the market. The Verismo system, named after the Italian literary movement, will be distributed online and in its many Starbucks locations. The system will retail for $199, which is going to price in the high end of the market. The most popular Keurig machines currently sell in the low $100 range, but some models can sell for as low as $55 or as high as $925 for an office brewing system.
Realistically, the Verismo system itself should not have an adverse effect on Starbuck's stock price. Green Mountain Coffee Roasters has about 85 percent market share in the industry and has only a $4.8 billion market cap. It is true that the company used to be priced in the $10 billion to $12 billion range, but that stemmed from a euphoric investor trend that seemed to neglect the expiration of the company's K-Cup patent and the potential of new competitors to enter the market.
With Starbucks being a $38 billion company, even an extremely successful implementation would only have a marginally positive effect on stock price in the short term. The home brewing industry was an $8 billion industry in 2011, and is expected to grow substantially over the next few years. It will be difficult for Starbucks to penetrate the market since it is doubtful that many consumers would throw out their existing systems to buy the new Starbucks system when they can already buy Starbucks K-Cups for their Keurig systems.
Although I don't believe the Verismo system will make Starbucks shares skyrocket any time soon, I do believe the product is very important to the company's image as a whole. Starbucks already has complete control of the coffee shop industry as it owns both Starbucks and Seattle's Best chains and positions its brand with intentions to dominate the entire coffee industry. The company also has a strong presence in the Ground Coffee market. Its previous single cup brewing options were the K-Cups and their Via packets. The Verismo system gives Starbucks a more complete line of coffee products in the current market.
Right now, I believe Starbucks is a good buy. It was one of my favorite stocks at the beginning of the year, but has seen some very bearish activity over the past few months. I believe the company will approach its all time high of $62 by the end of 2013. at its current price of $50.11, this gives investors a good price to buy in at in a market that is very strong right now. The Verismo system will not greatly affect the stock price immediately, but it gives investors confidence that Starbucks is a company that knows how to leverage its position and is committed to dominating the coffee industry over the long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.