Coffee Wars: Starbucks versus Green Mountain

Starbucks Corporation (NASDAQ:SBUX) and Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) are both in the coffee business. Starbucks is primarily in the coffee servicing business, but also sells packaged coffee, and all sorts of coffee-related merchandise. Green Mountain produces and sells single-cup coffee machines and a broad variety of packaged coffee, cocoa, and tea that have been very popular among consumers.

Now Starbucks Corp. says that it has decided to launch its own single-cup coffee machine this fall catering to people who want to brew regular coffee, espresso and other coffee drinks at home. This move is certainly bad news for Green Mountain, given Starbucks reputation and multiple points of sale. That’s why Starbucks shares were sharply higher and Green Mountain’s shares sharply lower in after hours market trading.

Starbucks moves into Green Mountain’s turf demonstrate one of the threats every successful company faces overtime: The entry of new competitors with similar or alternative products to its market. This is especially the case for companies that have few barriers to defend their competitive advantage, as has been the case with Green Mountain.

The meteoric rise and fall of Green Mountain stock that was trading north of $100 a few months ago further serves as a lesson regarding the dangers of momentum trading, a strategy whereby investors chase after popular stocks, believing that the upward trend will last forever.

From: forbes.com