Keurig Green Mountain starts playing hardball

Keurig Green Mountain (GMCR), the company known until recently as Green Mountain Coffee Roasters, now has an aggressive business strategy to go along with its new name.

The company is making a big bet on its future, and is even doing what was once unthinkable: standing up to Starbucks (SBUX).

Keurig Green Mountain has ditched Starbucks as the exclusive provider of super-premium coffee for its line of coffee brewers. It was only last May that the two announced the extension of a five-year deal to make Starbucks' coffee and tea available in the single-serve K-cup pods for Keurig machines.

At the time, the deal was great for both sides. Starbucks got to maintain its relationship with the pioneer in the fast-growing single-cup market, and Keurig was able to keep a potential threat at bay. Starbucks now sells its own single-cup brewer, called the Verismo, but the rivalry has been a friendly one.

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Keurig single-cup coffee makers
Keurig
But Keurig wanted to expand its lineup, starting with a relationship with Starbucks rival Peet's Coffee & Tea. In order to do that, however, it had to end its exclusive deal with Starbucks. So the companies struck a new deal.

Now, Starbucks is getting "improved business terms," The Associated Press reports, which in all likelihood means more money, and it will offer more types of coffee for use in the Keurig machines. And Keurig just signed a multi-year deal to add Peet's Coffee & Tea to its K-cup selection.

All of this maneuvering is taking place while a potentially bigger business takes shape behind the scenes. Coca-Cola Co. (KO) bought a 10 percent stake in Keurig Green Mountain for $1.25 billion earlier this year and will offer its brands for an upcoming Keurig machine that makes cold drinks. The details of that machine, called Keurig Cold, are being kept under wraps, but it is expected that it will let customers make their own carbonated beverages at home, including versions of Coke and Diet Coke.

Investors seemed happy with the new deals, sending shares of Keurig up more than 7 percent on Friday. Starbucks shares were largely flat, though the company has already given investors plenty to chew on lately with the debut of new breakfast sandwiches and plans to test an order-ahead smartphone service this year.

And Keurig shares now seem to have safely recovered from a scare in 2012, when Starbucks was introducing its Verismo single-serve maker and nervous investors pushed the stock below $20. Keurig shares closed Friday at $113.25.
  • Kim Peterson

    Kim Peterson is a financial journalist covering business and the economy. She has written for several online and print publications, including MSN Money and The Seattle Times.