November 30, 2010

Starbucks and Kraft Battle over End to Distribution Agreement - What's Next?

According to multiple sources today, Starbucks and Kraft are continuing their battle over the distribution agreement that was largely responsible for getting Starbucks coffee in the hands of millions of US households. Back in the Day, you ordered from Starbucks, a little chain from the West Coast that figured out coffee didn't come in a can. Now you can get it at any grocery store thanks to the strong arm of the Kraft distribution machine (they also do Maxwell House Coffee..... in a can).

Starbucks recently announced that they want out of the agreement due to Kraft not honoring the terms of their agreement that runs through 2014. Starbucks is reportedly making this move to gain control over their distribution and potentially costs.

Kraft argues that Starbucks is quitting the deal which requires a BIG payment.

Starbucks into a K-Cup?

If Starbucks totally divorces itself from Kraft, it would mean the end of the Starbucks Tassimo Discs. With a huge share of the single serve market, and everyone in k-Cups from Folgers to Emeril, it might be time for Starbucks to jump on the k-Cup band wagon. Barrons is reporting that Green Mountain might be a benefactor in this little spat. This might be just in time for the K-Cup patent expiration in 2012, which will open up the doors to anyone making the popular single serve package.

Pressure Brewing at Home for Starbucks?

So while Starbucks still offers ESE Pods for espresso machines, a move to K-Cup would keep it out of a major pressure brewed system, like the Nescafe Dolce Gusto or Nespresso type system - both from Nestle. Maybe they are preparing to launch their own Nespresso beater in the US? The ability to create home-brewed coffee house drinks at a quality level that pressure brewing can offer seems like a missed opportunity for Starbucks, and one that they won't leave on the table forever.

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Posted by Scott Martin at November 30, 2010 9:12 AM
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