Starbucks Teaming Up Green Mountain Coffee to Take Single Market

Starbucks Corp is teaming up with Green Mountain Coffee Roasters Inc (GMCR.O) to take on the fast-growing single-serve market, sending Green Mountain shares soaring 26 percent.

Green Mountain's Keurig machines dominate the single-serve market. The companies will sell Starbucks coffee for Keurig machines at wholesale clubs, drugstores and grocery stores in North America starting this autumn.

Early in 2012, Starbucks cafes will begin selling Green Mountain's Keurig brewers as well as Starbucks coffee and tea pods.

Starbucks entered the single-cup U.S. coffee market in September 2009 with the launch of its Via instant coffee. Some analysts think sales of Via could hit $1 billion globally by 2015.

Green Mountain shares were up $11.36 at $55.00 in premarket trade. Starbucks shares were up $2.11 at $36.65.

The announcement ended speculation that Starbucks would debut its own single-serving brewer and sent Starbucks shares up more than 6 percent.

Shares of Starbucks rival Peet's Coffee & Tea Inc (PEET.O) tumbled 13 percent. Last week Janney Capital raised its rating on Peet, expecting the company to offer its coffee on the Keurig system.

Starbucks has been looking to expand beyond its namesake cafes and wants to be a big player in the U.S. single-serve coffee segment, estimated by some analysts to be as large as $4 billion.

"We view this is a big win for Starbucks," said Mark Kalinowski, an analyst with Janney Capital Markets, who holds a "neutral" rating on Starbucks shares. "Starbucks has latched on to the biggest player."

Green Mountain has an 80 percent share of the single-cup market.

Starbucks Chief Executive Howard Schultz said the deal shows his company's progress in becoming less reliant on its traditional business.

For Green Mountain, a deal with the world's largest coffee company will build its already dominant position in single-cup business.

"Green Mountain will likely expand its market share pretty quickly," said Bill Chappell, a SunTrust Robinson Humphrey analyst.

Starbucks will be the exclusive licensed super-premium brand for the Keurig brewer for the length of the deal. The companies did not disclose terms.

The deal comes nine days after Starbucks terminated an agreement under which it provided coffee discs for Kraft Foods Inc's (KFT.N) Tassimo one-cup home brewer. At the same time, it ended its grocery distribution agreement with Kraft.

The Keurig system's rivals in the U.S. single-cup coffee sector include Kraft's Tassimo machine, Sara Lee's (SLE.N) Senseo brewer and Nestle SA's (NESN.VX) Nespresso system, which leads in Europe. Many U.S. office workers are familiar with Keurig because the machines -- which allow users to make one cup of the coffee or tea of their choice at a time -- are a common fixture in company break rooms.

The Starbucks-Green Mountain announcement on Thursday follows a Reuters report last month that the two rivals would join forces in the U.S. single-cup coffee segment.