Starbucks (NASDAQ:SBUX) and Green Mountain Coffee (NASDAQ:GMCR) have announced a five-year extension on their existing partnership, a deal that will triple the number of Starbucks-branded items sold for the Keurig single-serve coffee machines.
CNBC reports that Starbucks CEO Howard Schultz said sales of his company-branded K-Cup coffee packs rose 75 percent in March compared to the year prior, bringing the total sales from the partnership, which began in March of 2011, to 850 million K-Cup packs.
“We’re going to do everything we can to promote the Keurig system and obviously Starbucks K-Cups and this is going to be a significantly lucrative deal for both companies,” said Schultz.
Starbucks’ willingness to promote the Keurig system was far from guaranteed just a few short months ago. The K-Cup patent expired last month, and many activist investors, such as Greenlight Capital’s David Einhorn, believed the Keurig brand would be undercut by jumpstart competition.
Additionally, Starbucks came out with its own single-serve coffee machine, the Verismo, in 2012. Many believed that the relationship between Starbucks and GMC would be strained due to competition between the Verismo and the Keurig systems.
However, it appears this is not the case just yet. After announcing the deal, Green Mountain CEO Brian Kelley stated the obvious: “This partnership with Starbucks is really a terrific thing for our business.”
Details of the agreement were not disclosed, but Green Mountain is now primed to expand its single-serve coffee machines outside of just North America.
“This agreement further strengthens our North American partnership with Starbucks and expands our relationship to explore global single-serve opportunities,” said Kelley.
Without a doubt, GMC dodged a bullet by signing the agreement with Starbucks, but until details are disclosed, it will be impossible to gauge how much GMC caved in order to get Starbucks to agree. Outside influences such as knock-off competitors (including the Verismo) were definitely used as leverage to help make the deal a little sweeter for Starbucks.
Although GMC salvaged its opportunity for expansion beyond North America by cutting the deal, it remains to be seen how the new terms will affect their bottom line.
Investing Insights: Which Way Does Panera Go From Here?