Starbucks, Pepsi take bottled coffee overseas

LOS ANGELES (Reuters) - Starbucks Corp (SBUX.O: Quote, Profile, Research, Stock Buzz) and PepsiCo Inc (PEP.N: Quote, Profile, Research, Stock Buzz) said on Thursday they were expanding their bottled coffee business into countries outside North America, with an initial foray into China.

The companies would not disclose financial terms of the deal or say what other countries they are targeting, except that they could include those that do not yet have Starbucks stores.

"Even in countries where we don't have stores, people know the brand," Gerry Lopez, president of Starbucks' Global Consumer Products Group, said in an interview. Lopez added that the products would likely be in about four new markets, including China, within the next two years.

Starbucks and Pepsi's joint venture sells bottled Frappuccino coffee drinks, Starbucks DoubleShot espresso drinks and Starbucks Iced Coffee in North America.

Starbucks also sells ready-to-drink coffee beverages in South Korea, Japan and Taiwan through deals with other companies, which will not be affected by the deal with Pepsi.

William Blair analyst Sharon Zackfia said the partnership in North America accounted for about 5 percent of Starbucks' earnings in fiscal 2006, and that the expansion could at least double its profitability over time.

"The introduction of ready-to-drink product in its existing international markets has actually helped Starbucks' retail recognition and the development of the markets," Zackfia said in a research note.

Starbucks bottled beverages should be in China within the next two quarters, Lopez said. Starbucks has made an aggressive push to expand in China, which it has said will one day be its biggest market outside the United States.

PepsiCo shares rose 39 cents, or 0.5 percent, to close at $72.62 on the New York Stock Exchange, while Starbucks fell 72 cents, or 2.6 percent, to $26.97 on Nasdaq, following an analyst downgrade.

(Reporting by Martinne Geller in New York and Nichola Groom in Los Angeles)