Coffee companies are adding a new weapon in the single-cup brewer war: espresso.
Verismo, Starbucks's new single-cup espresso and coffee machine. (Starbucks)As sales of machines that brew one cup of coffee at a time begin to moderate, Starbucks Corp. (SBUX) and other coffee companies are introducing brewers that can make single shots of espresso as well as lattes and other espresso-based drinks.
Starbucks this week began selling its first-ever single-cup machine, dubbed Verismo, on its website. The machines will be available in stores such as Williams-Sonoma and Sur La Table the first week of October and in Starbucks stores mid-month, with baristas demonstrating how to use them. The standard Verismo, made by Germany's Krueger GmbH & Co. KG, is priced at $199, with a larger version at $399.
Green Mountain Coffee Roasters Inc. (GMCR), which has about 90% of the U.S. single-cup market with its Keurig brewers, also plans to come out with a one-cup espresso machine in conjunction with Italian coffee company Luigi Lavazza SpA late this year or early next year. And Nestl? SA (NESN.VX) is expanding its Nespresso single-cup machines in the U.S., with a new version called "U" debuting this fall that is designed to fit better into the space on kitchen counters.
In a nation of drip-coffee lovers, pushing espresso may be a long shot. Last year, just 4% of all coffee brewers purchased in the U.S. were espresso makers, according to NPD Group.
"This is a big bet we're making," Starbucks Chief Executive Howard Schultz said in an interview. He said the company is going to launch a multimillion-dollar ad campaign to promote Verismo, a word that refers to a style of Italian opera.
Mr. Schultz said Verismo works with pods containing espresso and milk that, when used together, can produce a latte. Nestl?'s Nespresso machines make espresso, but people have to either froth their own milk or pour their own milk into the machine, depending on the type of Nespresso maker. Other single-serve machines, like Kraft Foods Inc.'s (KFT) Tassimo, make espresso-based drinks using discs containing coffee and concentrated milk, but haven't made a big impact on the market.
The single-serve phenomenon took off in the mid-2000s, after Green Mountain bought Keurig and began heavily marketing the machines. The initial rapid growth has begun to taper off, but the Vermont-based company says there is still room to grow.
Keurig brewers are now in about 11.5 million U.S. households and the company expects they could eventually be in 35 million, Green Mountain Chief Executive Larry Blanford said in a recent interview.
Mitchell Pinheiro, an analyst with Janney Montgomery Scott LLC, said sales of single-serve espresso makers are likely to be incremental to the coffee companies since drip coffee still dominates in this country. But, he says, espresso "is the next evolution of the coffee culture in the United States."
"If you look at the proliferation of offerings in the coffee market in the U.S. over the past 15 years-both in home and out of home-most of the innovation and new offerings have come in espresso and espresso-based beverages and recipes," Frederic Levy, president of Nespresso USA, said.
Mr. Schultz said 75% of Starbucks customers don't own a single-cup machine and that he expects to make converts of them with Verismo.
The introduction of a single-serve machine is an expansion of Starbucks's strategy to offer coffee in as many formats and locations as possible. The company's first foray into single-cup coffee was in 2009 with the introduction of Via instant coffee. Last year, the company entered into a deal with Green Mountain to sell Starbucks brand K-Cups for use in Keurig brewers.
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