Starbucks Ditches Kraft as Grocery Partner

Maker of Maxwell House Says Coffee Giant Wants to 'Control Its Strategic Brands'

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CHICAGO (AdAge.com) -- Starbucks is dumping Kraft Foods as a distributor of its coffees in grocery stores, ending a 12-year relationship.

"A month ago Starbucks informed Kraft of its intention to end that distribution arrangement," the food giant said in a statement. "The details and timing around any transition will be subject to further private dialogue. Starbucks intends to work closely with Kraft to ensure an orderly transition, putting an emphasis on ensuring their mutual customers are well served."

The company declined further comment, but the comment indicates that the brand will still be sold at retail. And Kraft signaled that Starbucks might be taking over its own grocery management and distribution. "Starbucks ... has expressed their desire to control their strategic brands, and we have had some discussions in recent weeks to that effect," Timothy R. McLevish, Kraft's chief financial officer, told analysts on the company's quarterly earnings call. He said the two companies together grew the business at a rate of 20% per year. "Today it's around a $500 million business," he added. "We think both parties have been well served by our partnership."

Sharon Zackfia, a Starbucks analyst at William Blair & Co., said that there are plenty of potential reasons why Starbucks would terminate the relationship with Kraft, but noted the company's distribution deal with Acosta Sales & Marketing, a third-party distribution company, for its instant-coffee line Via as a possible factor. Starbucks in November 2009 announced it partnered with Acosta to distribute Via to convenience, grocery and drug stores. Ms. Zackfia added that while the upfront cost for Starbucks in the Acosta deal may be higher, the profit potential is higher than the licensing deal with Kraft.

Kraft has distributed Starbucks coffee since 1998. The food giant sells its own brands, including Maxwell House, which was supported with $16.2 million in measured media spending in the first sixth months of the year ended in June, compared with $30.8 million for Starbucks brands, including Seattle's Best, according to Kantar Media.

Omnicom Group's BBDO, New York, is the agency.

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