Four Key Points Regarding Starbucks' Entry Into The Single-Serve Market

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From Oppenheimer, some points on Starbucks’ entry into the single-serve market:■ Partnering with single-serve coffee machine manufacturer. SBUX announced a partnership with Courtesy Products to provide Starbucks ground coffees for use in Courtesy’s CV1 single-serve brewing system in domestic luxury and premium hotels beginning in fall 2011. The partnership would establish an SBUX presence in up to 500,000 hotel rooms across the US.

■    SBUX and SBC brands coffees will be key offerings. SBUX will sell coffee to Courtesy, which will in turn package the coffee in a “disposable brew basket” compatible with its CV1 brewing machine. Starbucks’ brand coffee will be the exclusive offering in luxury hotel rooms, while Seattle’s Best will be offered in premium rooms.

■ Step toward entry into at-home market. Currently, the partnership targets only domestic hotel rooms. But Courtesy also offers an in-home solution for $39.99. We see potential for a re-tooling of the current in-home model to be more contemporary to compete against Keurig and for distribution through the SBUX company stores.

■    Reiterate Outperform. We view the partnership with Courtesy as a near-term positive which could potentially materialise into a vehicle to further penetrate the fast-growing at-home single-serve market and foster faster growth of SBUX’s higher margin Consumer Products division.

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