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Big companies keen on small U.S. one-cup coffee market
February 23, 2011 / 12:32 AM / 7 years ago

Big companies keen on small U.S. one-cup coffee market

BOCA RATON, Fla (Reuters) - Big food and beverage makers, including Kraft Foods Inc KFT.N and Sara Lee Corp SLE.N, are maneuvering to get more of the small but growing one-cup coffee market in the United States.

The small segment of the high-end coffee market has been getting a lot of attention lately, due in part to the pending dissolution of a deal between Kraft and Starbucks Corp (SBUX.O), whereby Starbucks provides coffee for Kraft’s Tassimo one-cup brewer.

Kraft and Starbucks are disputing the terms of ending their partnership, by which Kraft also distributes bags of Starbucks coffee at supermarkets.

Despite the dent in sales the loss of Starbucks would cause, Kraft Chief Executive Irene Rosenfeld said she was committed to that business.

“Single serve has been an important part of our portfolio. It’s growing quite nicely around the world and we expect that that will continue to be a key part of our coffee portfolio,” Rosenfeld told Reuters at a conference in Boca Raton, Florida.

Kraft also sells the mid-range coffee brands Maxwell House and Yuban. It is unclear what premium brand will replace Starbucks and Kraft has declined to comment on any specifics, given the ongoing fight with Starbucks.

COFFEE GETS BUZZ

The demise of Starbucks’ partnership with Kraft has led many to wonder what the world’s biggest coffee maker will do next as it seeks growth outside its namesake cafes.

Marcel Smits, chief executive of Sara Lee, which has the Senseo brand one-cup brewer, said the flurry of headlines and focus on the single-serve market are good for the industry and prove coffee is an exciting business.

“It adds buzz to the category,” said Smits at the same industry conference.

The buzz comes as Sara Lee is planning to split into two companies -- one focused on its North American meat brands such as Jimmy Dean and Hillshire Farm, and one on coffee and tea brands such as Senseo, Douwe Egberts and Pickwick.

Green Mountain also announced a deal on Tuesday with Dunkin’ Donuts to bring that company’s coffee onto its machines. Analysts said bringing in such a popular brand lessened the potential competitive threat from Starbucks.

MORE THAN JUST THE COFFEE

While companies like Sara Lee and Kraft spend a lot to market their coffee brands, their electronics partners spend a lot to market the machines, said Sara Lee Chief Financial Officer Mark Garvey. Since many purchases are driven by hardware, the coffee makers sometimes offer brands for rival machines.

For example, in Europe, Sara Lee sells L‘Or espresso capsules for Nestle AG’s NESN.VX Nespresso machines and Kraft sells Carte Noir coffee made for Senseo machines.

When asked if Senseo would make coffee for Keurig machines, Smits said it was too early, since the brand has such a little presence in the United States, where Keurig has more than an 80 percent share of the market.

“If we would have a very big brand, I guess we’d start thinking about it putting it into Keurig machines. But we don’t have a very big brand here in the U.S.,” Smits said.

Of Senseo’s total 2010 sales of $536 million, the United States only accounted for $20 million.

Smits, who was named permanent CEO last month after serving on an interim basis since May, said Sara Lee’s beverage business will take aggressive steps to compete with Nestle, the world’s largest food company.

“In Europe, it’s obvious the Nestle people, they have an ambition. There’s other people out there who have less of an ambition,” Smits said. “We have an ambition. We want to play. We will throw everything we have at that category.”

Reporting by Martinne Geller; editing by Andre Grenon

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