Starbucks said its grocery sales fell to 26.7% in early 2010, from 32.7% in 2004. "It is Starbucks, rather than Kraft, that faces the threat of harm," Starbucks' filing noted. "Leaving Kraft in control of distribution of Starbucks' products pending a resolution of the parties' dispute -- allowing Kraft to do lasting damage to Starbucks' brand -- threatens harm to Starbucks that is both immediate and difficult to calculate." Kraft's spokesman Mike Mitchell countered to Reuters that Starbucks' grocery sales declines in 2008 and 2009 coincided with the overall economic downturn and during a time when coffee competitor Dunkin' Donuts "aggressively" marketed its own coffee products. In Thursday'sthat filing, Starbucks alleged that Kraft is blocking its attempt to shift its distribution business to Acosta, including sending a cease-and-desist letter that threatened Acosta with interference claims if it moved ahead and began marketing or distributing Starbucks products before or after March 1, according to a Reuters report.
The schism between Starbucks and Kraft could benefit coffee up-and-comer Peet's ( PEET), according to Stifel Nicolaus analyst Steve West. "(When) Starbucks and Kraft part ways, we believe Peet's could be a nice fit to deliver Starbucks into the distribution business," he noted in late November while conceding that "we have no knowledge of any M&A negotiations or discussions between Peet's and Starbucks or any other party." The analyst speculated that Peet's stock, trading then around $38 and currently around $39, could garner as much as a 40% premium to recent pricing, pushing it up as high as $54, with EV-to-EBITDA, or enterprise value to earnings before interest, taxes, depreciation and amortization, to about 13.5 times his fiscal 2011 estimates. "It appears Starbucks prefers a distribution agreement to maximize profit and minimize risk (similar to current KFT agreement only with more of the profits), however, this may not be viable now that the SBUX/KFT disagreement has become so public and negative," West wrote at the time. West added that Peet's direct-store delivery system covers around 80% of all grocery locations "with established relationships at virtually all of club, mass and drug" store outlets, "needing minimal investment to achieve full coverage in the midwest and south." The increasingly popular single-serve coffee market could also be an entry point, the analyst speculated. "Additional premium brands (Peet's and Godiva) could significantly leverage a potential Starbucks single-cup brewer, possibly giving it enough market weight nationally across all retail channels to challenge Green Mountain's ( GMCR) K-Cup supremacy." -- Written by Miriam Marcus Reimer in New York. >To contact the writer of this article, click here: Miriam Reimer. >To follow the writer on Twitter, go to http://twitter.com/miriamsmarket. >To submit a news tip, send an email to: email@example.com.
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