Can a New Subway Deal Help Keurig Catch Up to Starbucks?

Companies and Brands

Published: June 10, 2014 2:30 pm

Last Updated: June 11, 2014 6:04 am

Keurig Green Mountain Inc. (NASDAQ: GMCR) seems to just keep firing on all cylinders. The coffee giant already scored its deal with Coca-Cola, now it has landed hot beverage partnership with Subway. Some investors may overlook this win because Subway is not public, but these same investors need to understand that Subway is the largest chain-based casual dining and fast food chain in America if you count the number of locations.

One question to ask is if this can help Keurig Green Mountain make any headway in catching up to rival Starbucks Corp. (NASDAQ: SBUX).

Keurig’s single serve brewers will now be brought to thousands more of Subway’s North American locations. Tuesday’s press release indicated that more than half of the Subway restaurants in the United States and Canada have adopted a Keurig system.

Tuesday’s press release signaled that the Keurig K150 Series Commercial Brewing System is the first small to medium capacity Keurig brewer which was certified by the National Sanitation Foundation for foodservice use. Subway beverage manager David Zambory said,

“Since introducing Keurig brewers as an option to our franchisees last year, we’ve heard overwhelmingly positive feedback about Keurig’s ability to delivery variety, quality and freshness on demand. Subway restaurants are a destination throughout the day, including at breakfast, and we look forward to providing our customers with the freshest cup of coffee possible no matter when they visit us.”

Tuesday’s news should be considered an incremental win rather than a totally new win for investors. Still, Keurig Green Mountain is looking for any and every avenue to grow in its race to catch up to Starbucks. Shares were up 1.7% at $115.97 shortly after the news broke.

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We would also temper this as an expectation by pointing out that Keurig Green Mountain has a market value of nearly $19 billion. Its 2013 revenue was $4.36 billion, and Thomson Reuters expects sales of almost $4.7 billion in 2014 and $5.25 billion in 2015.

Meanwhile, Starbucks had 2013 sales of $14.9 billion and is expected to post sales of almost $16.5 billion in 2014 and $18.25 billion in 2015. The larger rival’s market cap is $56 billion.

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