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Coffee City

Melissa Allison follows the world's biggest coffee-shop chain and other Seattle caffeine purveyors.

November 4, 2010 at 2:20 PM

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Starbucks fires Kraft as distributor of coffee to grocery stores

Posted by Melissa Allison

Starbucks CEO Howard Schultz said in a conference call with analysts this afternoon that it will replace Kraft Foods, which for more than a decade has distributed Starbucks coffee to grocery stores in the U.S.

"A month ago, we informed Kraft that we plan to discontinue our distribution arrangement," Schultz said.

He declined to provide details about why Kraft is out or who will replace it.

The news comes as Starbucks annouces strong fourth-quarter earnings-- a gain of 86 percent over last year, to $278.9 million on revenue that was up 17 percent to $2.8 billion. I'll be updating the earnings story here.

When Starbucks hired Kraft in 1998, it was using about 50 independent brokers to distribute products in 12 western states. "We are going to dramatically accelerate" the national rollout of Starbucks coffee beans in supermarkets, Schultz said at that time.

Now, Starbucks products are in grocery stores in 11 countries including the U.S. Through Kraft, it sells packaged coffee in the U.S. and Canada, tea in the U.S., and single-serve coffee containers in Austria, Canada, Germany, Ireland, Spain, the U.K. and the U.S.

Starbucks uses other channels to get products like ice cream, bottled Frappuccino and, beginning this year, Starbucks' Via instant coffee, onto grocery shelves.

Via sales totaled $180 million for the fiscal year ended Oct. 3, about 80 percent from the U.S.,
Starbucks CFO Troy Alstead told analysts on the call. The instant coffee is now sold in grocery stores in the U.S., Canada, Japan, the Philippines and the U.K.

The company also invested a lot of money to launch and market Via, so that the net effect on Starbucks' earnings was neutral, Alstead said.

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