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Starbucks and Kraft Divorcing

Read How the Coffee Wars are Brewing New Products and Distribution


Starbucks and Kraft Divorcing

Tassimo Brew Bot Robot used in TV Commercials


Starbucks and Kraft . When you go shopping at the grocery store and see the Starbucks brand of coffee you probably didn't know that Kraft Foods had an exclusive marketing and distribution agreement with Starbuck to handle all aspects of the brand. Starbucks and Kraft have this type of partnership because it makes sense since Starbucks has experience in foodservice with their own stores as well as licensed locations. Licensed locations are those that you would see at airports, convention centers and kiosks at retail stores.

The Starbucks and Kraft marriage started in 1998 when Starbucks had on $50 Million in annual grocery sales and in a recent Kraft Press Release, Kraft Foods Seeks Preliminary Injunction Against Starbucks on the potential dissolution of the relationship, they state " Kraft Foods has grown the annual revenues of its Starbucks CPG partnership tenfold, from a base of approximately $50 million in 1998 to approximately $500 million today. Year-to-date in 2010, U.S. net revenues for coffee have grown by approximately 8 percent, driven by volume growth and market share gains."

Starbucks which claims Kraft failed to effectively market its' brands, which to me sounds like an excuse… growing the brand at retail 10 fold in 11 years certainly is significant, particularly in light of the poor economy over the past several years.

Premium brands are growing faster than non-premium. Why? Because consumers are suffering from frugality fatigue, want affordable indulgence in their diet and are recession weary. Ad Age quoted an interesting set of facts from SymphonyIRI:

  • Unit sales of Starbucks ground coffee grew 11.3% in the year ending Oct, making it the fourth-best-selling grocery brand with a nearly 10% dollar market share.
  • Maxwell House, the No. 2 ground coffee brand with 16.7% share, grew by only 2.8%.
  • Folgers remains the top seller, with a 28% share, but unit sales of the mainstream brand fell by 2.1%.
  • J.M. Smucker Co., enjoyed big success with its more premium Dunkin' Donuts brand. The coffee, distributed in a partnership with the fast-food chain, grew by 14.8%.

Additionally SymphonyIRI's recent report Center Store: At Center Stage for Future CPG Success also shows how the economy is making retail grocery a place to be for the giants like Starbucks and Dunkin Donuts " In another sign of conservative times, many consumers are choosing to enjoy their coffee and tea at-home or from-home rather than visiting the local coffee shop. Products, in SymphonyIRI's 2008 New Product Pacesetter pointed out over two years ago the trend in affordable indulgence: "Dunkin Donuts coffee, bring some of the indulgence of restaurant dining into the home, allowing consumers to enjoy a treat without breaking the budget." If IRI picked this trend up 2 years ago, do you think McCafe is far behind in thinking retail is their next growth area due to the trends in affordable indulgence and frugality fatigue?

Both Starbucks and Kraft want to get into the single-cup market, examples you are familiar with areTassimo. Keurig. Single Cup Brewers work a bit differently but essentially deal with the consumers need for affordable indulgence in their lifestyle and given the cost of buying premium coffee either at a Starbucks or you local coffee house, look for more brands to jump on the band wagon to be used in Single Cup Brewers.

According to PSFK, a trends research and innovation company that reports on the latest changes and creative ideas in popular, consumer and business culture (hmmm.. sounds like ICE) Starbucks is focusing on the Seattle's Best brand in a variety of new areas. Oh, you probably did not know that Starbucks owns Seattle's Best… well that's why we are here to write about food and beverage trends. Seattles Best is betting on the single cup brewer. According to PSFK, "… the technical team at Seattle's Best created a rapid brewing system machine that produces a fresh cup of coffee in seconds . The machine hopes to provide people with the same tasting caffeine jolt every time they try it in every type of establishment - from coffee shop to partner like Burger King to your gas station ." Single cup brewer's in the gas station? Hmmmm.

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