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Analyst: Starbucks eyeing Peet's

With Kraft dispute, Peet's could become distribution partner

With both Starbucks and Kraft Foods Inc. publicly citing irreconcilable differences in their 12-year distribution agreement, an analyst report speculated that the coffeehouse giant may soon be courting a new partner, such as Peet’s Coffee & Tea.

In a report issued Tuesday, Steve West, an analyst with Stifel Nicolaus, saw Emeryville, Calif.-based Peet’s Coffee as a possible new partner for Starbucks’ bagged coffee distribution — though he notes no knowledge of merger-and-acquisition discussions between the two coffee companies or other parties.

“When Starbucks and Kraft part ways, we believe Peet’s could be a nice fit to deliver Starbucks into the distribution business,” West wrote.

Late Tuesday, Starbucks told Nation's Restaurant News via e-mail that it would not comment on speculation or rumor. Its spokesman, Alan Hilowitz, did say Starbucks was well on its way toward  "building an exceptional infrastructure to support our global consumer products business for the future."

UPDATE: Starbucks offers plans on packaged coffee business

Peet’s and Starbucks have ties that go back to the beginning of both companies. Peet’s was founded by Alfred Peet in 1966 in Berkeley, Calif., and was widely reported to be the inspiration for Starbucks. The original founders of Starbucks bought coffee beans from Peet for their first year of business in 1971.

One of Starbucks founders, Jerry Baldwin, with former Peet’s partners, bought four Peet’s stores in the San Francisco Bay area and later sold Starbucks to Howard Schultz, now Starbucks chairman, chief executive and president, so they could focus on Peet’s.

West suggests that Starbucks could acquire Peet’s at a 30-percent to 40-percent premium to its recent stock price of about $38, which could push the stock price to around $54.

West noted that Peet’s has relationships with major retailers, and joining the two brands would allow for what he calls a “triad of premium brands” on store shelves, with Peet’s offering super-premium, Starbucks as premium and Starbucks’ secondary brand Seattle’s Best Coffee positioned as “fighting” premium.

Peet’s also holds licensing rights to the Godiva chocolate brand and distributes Godiva-flavored coffees.

The pairing of Starbucks with Peet’s and Godiva-flavored coffees also would give Starbucks leverage if it enters the single-cup brewer market, which many see as a huge area of growth in the coffee industry.

Together, Starbucks and Peet’s could have enough “market weight nationally across all retail channels to challenge the supremacy of Green Mountain Coffee Roasters with its K-Cup product, which currently dominates the single-cup world,” West wrote.

Other reports speculate whether Starbucks will enter the single-brew market by partnering with Green Mountain to supply K-Cup coffee — though most reports indicate a belief that Starbucks eventually will develop its own single-cup brewing system.

Currently, Starbucks supplies single-serve coffee disks for Kraft’s Tassimo one-cup-brewer system, a relationship that will likely end as a result of the breakup in that partnership.

On Monday, Kraft said it had initiated an arbitration proceeding with Starbucks, the latest in the ongoing dispute that has resulted from Starbucks’ announcement earlier this month that its relationship with Kraft was coming to a close.

By Lisa Jennings at [email protected].

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