Keurig and Kraft have joined forces to go after a bigger share of the $11 billion U.S. retail coffee market.
Without disclosing terms of the deal, the two announced Friday that Keurig Green Mountain Inc. GMCR will now start filling its single-brew and commercial coffee packets with coffee supplied by Kraft Foods Group, Inc. KRFT .
The Kraft’s Maxwell House, Yuban, and Gevalia brands alone are a major addition to Keurig’s lineup.
But the deal also includes McDonald’s MCD McCafe coffee and any ancillary benefits an alliance with the word’s biggest fast-food chain might bring. That’s because earlier this week, Kraft agreed to ship McDonald’s McCafe – both ground and whole beans – to supermarkets and food outlets that are already part of Kraft’s extensive nationwide distribution network. Deliveries are scheduled to start next year.
With McCafe entering Kraft’s supply line, Friday’s deal with Keurig means McCafe will also be headed into the booming home-brew, single-serve market alongside Keurig’s own Green Mountain Coffee and all the other brands it offers under a variety of licensing agreements. Those include Starbucks, JM Smucker’s Folgers coffee, Tully’s and Wolfgang Puck, to name a few.
It’s a strong addition. The McCafe brand, launched in 2009, is widely cited by restaurant analysts as the essential winning ingredient in the battle McDonald’s is waging to win the breakfast crowd: an affordable cup of premium java. McDonald’s itself last year credited McCafe for a 70% spike in its coffee sales.
Tucking Kraft and McDonald’s into Keurig’s fast-expanding network of partners and suppliers gave a big jolt to the share price. By midday Keurig stock was up nearly 15% at $134.95, an all-time high.
The market reaction for Kraft, essentially the middle man in this agreement, was more muted. Kraft shares were last up 7 cents at at $57.33.
As for the others, JM Smucker SJM , which the National Coffee Association estimates holds a leading 28% share of the U.S. retail coffee market, was down 0.2% at $101.41, Starbucks SBUX was off 0.2% at $77.32, and Dunkin’ Brands Group DNKN was down 0.6% at $43.98.