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Kraft to Sell Gevalia in U.S. to Make Up for Starbucks Loss

Kraft Foods Inc. (KFT), the world’s second-largest food maker, will introduce its Gevalia coffee brand to U.S. supermarkets in August after losing the rights to distribute Starbucks Corp. (SBUX)’s packaged coffee.

Kraft will offer 10 varieties of Gevalia, including ground, whole bean and decaf at 20,000 retailers, Domenic Borrelli, Kraft’s vice president of U.S. Coffee, said in a telephone interview today. Kraft, based in Northfield, Illinois, had sold Starbucks products to U.S. grocery stores until March 1, when the pact ended.

Chief Executive Officer Irene Rosenfeld is positioning Gevalia to replace the $500 million in annual revenue that Starbucks products generated. Rosenfeld said in March that Kraft would “do what we need to do to compete” in coffee, which is a $5 billion business globally for Kraft.

“It is the right move,” John Baumgartner, an analyst at Telsey Advisory Group in New York, said in an interview. “They won’t get to $500 million overnight, but clearly it’s an opportunity to make up for the loss of Starbucks if they put their marketing muscle behind it.”

Gevalia, which has annual sales of $400 million, is currently only sold online and by mail order in the U.S. Borrelli wouldn’t disclose sales in the U.S., where its customer base has totaled more than 10 million. Borrelli said some Gevalia mail-order customers had stopped buying the brand when they couldn’t find it in stores.

No. 1 in Sweden

Gevalia is the No. 1 coffee brand in Sweden, and is also sold in Denmark and Finland. The brand originated in 1853 in the city of Gavle, Sweden, where it is still roasted, Borrelli said.

Kraft will also sell Gevalia for its Tassimo single-serve machine. Gevalia’s retail price hasn’t yet been determined, Borrelli said. Kraft’s other coffee brands include Maxwell House, Jacobs and Carte Noire.

Kraft had sued in December to prevent Starbucks from ending its distribution arrangement prior to arbitration. In January, U.S. District Judge Cathy Seibel rejected Kraft’s contention that it would be irreparably harmed if Starbucks were to end the agreement. The two companies are in arbitration over the breakup.

Seattle-based Starbucks, the world’s biggest coffee shop operator, aims to get into more consumers’ homes by offering its coffee through grocery stores. Last month, Green Mountain Coffee Roasters Inc. (GMCR) agreed to distribute Starbucks’ coffee for its single-serve Keurig brewing systems. Both Kraft and Starbucks face coffee prices that have risen 19 percent this year.

Kraft rose 55 cents, or 1.7 percent, to $32.95 at 4:00 p.m. in New York Stock Exchange composite trading. The shares have gained 4.6 percent this year. Starbucks gained 16 cents to $35.97 in Nasdaq Stock Market trading.

To contact the reporter on this story: Matthew Boyle in New York at Mboyle20@bloomberg.net.

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net.

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