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Originally published Thursday, February 17, 2011 at 1:09 PM

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Starbucks says these are the early days of single-serve coffee business

CEO Howard Schultz says in a memo that Starbucks will compete against Green Mountain Coffee Roasters in its own way, in due time.

Seattle Times business reporter

Starbucks CEO Howard Schultz squelched rumors Thursday that the coffee chain is on the verge of buying Green Mountain Coffee Roasters, a company known for a machine that allows people to brew a single cup using small ground-coffee inserts known as K-Cups.

Schultz instead indicated that he's ready to take on the single-serve wonder from Vermont, which two years ago bought the wholesale business of Tully's Coffee. Despite great success with K-Cups, Green Mountain is considerably smaller than Starbucks, with a market capitalization of $5.7 billion compared with Starbucks' $30 billion.

"Green Mountain has done a very fine job introducing single-serve brewer technology to the U.S. market. And as a result it has emerged as an early leader. But as I have said, these are very early days, and history has demonstrated time and again that patents alone do not determine market winners — deep customer engagement, best-in-class experiences and quality do," Schultz said in a memo to executives.

Speculation ramped up early this week that Starbucks planned to buy Green Mountain. Starbucks has said it wants to make acquisitions with its plentiful cash, and with a long-term relationship with Kraft ending March 1, some people thought it might be poised to buy Green Mountain to replace a similar technology from Kraft called T-discs.

Green Mountain's stock surged to an all-time high on the rumors Monday.

The shares quickly deflated on Tuesday when Starbucks made its single-serve- coffee announcement: It will provide single-serve packages of ground coffee for single-cup brewers in half a million hotel rooms across the United States.

Shares of both companies dropped Thursday. Green Mountain stock fell 7.7 percent, to $40.71, and Starbucks dropped 0.2 percent to $33.50.

Melissa Allison: 206-464-3312 and mallison@seattletimes.com

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