Kraft in deals with Starbucks, Bosch over Tassimo

CHICAGO (Reuters) - Kraft Foods Inc (KFT.N) said on Tuesday it struck deals for Starbucks (SBUX.O) coffee to be sold for its Tassimo hot beverage machine and to replace the current manufacturer of the Tassimo machine with Bosch Household Appliances.

The moves are the latest steps in Kraft's attempts to expand a Tassimo business that initially struggled to live up to expectations but which is on track to double sales this year.

Starting in December, Starbucks House Blend, Breakfast Blend, Caffe Verona and Africa Kitamu coffees will be added to the beverages sold in the United States and Canada for Tassimo, a machine that brews single-serving beverages.

Kraft already distributes Starbucks coffees in groceries.

Separately, in mid-2008 Bosch will launch a new Tassimo brewer carrying the Bosch name, Kraft said. Bosch will replace Braun, the current distributor of the Tassimo brewer. Kraft and Braun decided to end their partnership effective June 30, 2008.

Kraft is a competitor in the coffee arena with Procter & Gamble Co (PG.N), the maker of Folgers coffee, which acquired

Braun parent Gillette Co in 2005, after Braun had contracted to manufacture Tassimo.

"Since Kraft and P&G are coffee competitors, both our companies have agreed that continued partnership on Tassimo could interfere with the future growth potential of our respective coffee businesses," Bracken Darrell, Braun's president said in a statement.

Kraft launched Tassimo in France in 2004 and later extended the business to the United States, Canada and other countries.

But the business failed to live up to initial expectations and in January Kraft decided to take a $245 million asset-impairment charge related to the business, largely due to lower manufacturing capacity utilization.

At the time, Kraft said Tassimo accounted for about $100 million in annual revenue.

Kraft changed its strategy for the business, targeting Tassimo toward coffee enthusiasts, and said on Tuesday that Tassimo is on target to have $200 million in revenue by the end of the year.

(Reporting by Lewis Krauskopf and Brad Dorfman)