6:11 AM
By Lisa Baertlein
NEW YORK | Wed Dec 1, 2010 8:42am EST
NEW YORK (Reuters) - Starbucks is expected to lay out its plan to accelerate sales of bagged coffee and other consumer products beyond its coffeehouses when it hosts its investor meeting in New York on Wednesday.
The brass at Starbucks Corp (SBUX.O) says the consumer packaged goods business should grow faster than its retail cafes, which total 17,000 globally.
But analysts want specifics on how it will accomplish that goal, particularly as it works through a messy break-up with Kraft Foods Inc (KFT.N), which has handled sales of Starbucks packaged coffee and tea in supermarkets and club stores since 1998.
The Seattle coffee giant is seeking to sell more Starbucks-branded products, including packaged coffee and tea, Via instant coffee, bottled drinks and ice cream through channels ranging from supermarkets and warehouse stores to restaurants and hotels.
For its fiscal year ended October 3, packaged goods accounted for just 7 percent of Starbucks' revenue of $10.7 billion. The company says it has healthy margins and lots of room to run.
Starbucks is also expected to provide more information about the locations of 400 new international and 100 new U.S. cafes planned for its new fiscal year.
Earlier this week, Starbucks accused Kraft of multiple contractual breaches, including mismanaging grocery sales. It wants to end the union on March 1, ahead of what it says was a 2014 expiration date.
In the 12 years Kraft has handled Starbucks grocery coffee and tea sales, revenue grew to $500 million from $50 million.
Kraft asserts that the deal is perpetual and denied breaching the contract. It said that if Starbucks wants out, it must pay Kraft the fair market value of the business plus a premium of as much as 35 percent.
If the companies do not settle their differences on their own, it will go before dispute resolution firm JAMS in Chicago.
BUYING ITS FREEDOM
The biggest unknown is how much Starbucks might have to pay for its freedom from Kraft.
Bernstein analyst Sara Senatore said the value of Kraft's business could be around $1.2 billion, excluding any premium, if arbitrators agree that the contract is perpetual. If they agree with Starbucks that the pact would have expired in 2014, the value could be less than $300 million, she said.
"We would expect an arbitration award to be below the perpetuity value," Senatore said, pointing to the complaints Starbucks has levied against Kraft.
Baird analyst David Tarantino said the divorce from Kraft could be a wash for Starbucks, which does not have expertise in placing products in grocery stores.
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