Is Starbucks Brewing Up a Merger With Peet's Coffee?

Peet's Coffee & Tea (PEET) has more in common with Starbucks (SBUX) than their well-roasted flagship beverages; the two companies share an origin story.

The three founders of Starbucks modeled their coffee-roasting company on Peet's, and bought their beans from Alfred Peet in 1971. The Seattleites grew more quickly than their Californian kin, however, and adopted the European coffeehouse concept that Peet's would later, in turn, copy.

That the longtime rivals would consider a merger is not a surprise. Reports late Tuesday that Starbucks was in talks to acquire Peet's, however, focused on a decidedly 21st-century product: the single-cup coffee market.

When Starbucks finally sundered its partnership agreement with Kraft Foods (KFT) earlier this year over claims that the packaged goods company had bungled the grocery distribution deal, it also severed its exclusive deal to provide coffee for Kraft's Tassimo single-cup coffee machines. Starbucks turned around and signed a deal with Green Mountain Coffee Roasters (GMCR) to provide coffee for "K-cups," which fit in Keurig single-cup coffee machines. Keurig holds a much bigger market share than Tassimo.

With single-cup brewers in only 6% of U.S. homes, providing coffee for the cups, or discs, of the market leader makes sense -- so much sense, that it's possible the disruption of the Kraft grocery deal was engineered to open the door for Green Mountain and Keurig.

Speculation Brewing

Where, then, does that leave Peet's? The smaller company really wants to be a bigger player in the single-cup coffee market, and lost a takeover battle for Diedrich Coffee -- a big supplier of coffee for Keurig machines -- to Green Mountain about a year ago. With Starbucks in the door, Peet's is shoved out; unless, of course, the company was not such a competitor of Starbucks.

The bigger company is known for its willingness to slurp up rivals, but keep their brands alive -- just look at Seattle's Best Coffee, which is so beloved by Starbucks that it got its own logo makeover, and lots of muscle positioning it as a "mellower" flavor than the over-roasted Starbucks brand.

And Peet's could provide Starbucks with a much easier route to controlling its own grocery distribution strategy. The smaller company has long had a particular interest in the grocery channel, and has deals everywhere -- from large grocery chains to regional markets like Stop & Shop.

Speculation has been brewing for many months; but only overnight has the murmur brimmed into breaking news. One analyst is quoted as saying a deal could be seen as early as the end of March. In my experience, these long-simmering rumors only start boiling a few days before an announcement; but naysayers suggest the two companies' many rival stores (in my city, I can think of a few cases where two of the four corners at an intersection are taken up by one Starbucks and one Peet's) would sewer a deal.

Starbucks has weathered such tempests before; I am taking these rumors seriously.


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Sharon Osmond

I have been a true hater of Starbucks from the beginning; and if Starbucks acquires Peets, I will no longer purchase its coffee, its filters, its tea, its "anything." Luckily, Blue Bottle Coffee is an option, as is Cole's Coffee. Or: if need be, I'll purchase my own beans from a distributor, roast them, grind them, brew them. I would rather give up coffee entirely than to purchase Starbucks offerings.

September 19 2011 at 1:21 PM Report abuse rate up rate down Reply
Safari Morning

Safari Morning,
Its bad enough that Bucks has run most of its small "mom & pop" competitors out of business with its "preditory" [not competitive] competitive methods, like opening right next door to the little guys only investment and then if that wasn't enough --- across the street as well! [something which the average business would not be able to do both mentally and economically] but now they working on the "middle size" competitors.... isn't a monopoly against federal anti-trust laws??? but wait there are no longer anti-trust laws? since we no longer have a government... after all it to is a "monopoly" right???
L Paul Phillips
Safari Morning Coffee
Wholesale Coffee Roasters

March 17 2011 at 7:00 PM Report abuse rate up rate down Reply
panjo

There is nothing worse tasting than Starbucks coffee!!! I cant believe any one drinking that crap!!! They do not know how to roast it and it always turns out like crap!!!
Not all coffee is raosted at the same tempeture or conditions. The roaster has to know. Because Starbucks sells so much of it they do every roast the same and they over roasted making the coffee taste bitter!! Incredible that they can sell it and for so much!!
7-11, Dunkin Dounghts, and especially McDonalds have good tasting coffee. For even better taste go to a NYC dinner that serves Vassilaros coffee. Excellent!!!

March 16 2011 at 2:53 PM Report abuse -1 rate up rate down Reply
dbelkgrove

peets coffee taste like diesel fuel! the only way that i can drink peets coffee is cut it with 80% hot water and cream.then it's damn good!i use to live up in mill valley, ca and visited our local peets everyday. peets pastries are awesome with a cup of joe!

March 16 2011 at 11:29 AM Report abuse rate up rate down Reply
lchudnoff

I've been drinking Peet's coffee for over 30 years, and it is the best coffee, with Major Dickenson being the finest blend. I hope if the merger happens, they do nothing to the coffee Peet's offers or I will have to go to the next in line, Dunkin Donuts or Seattle's.

March 16 2011 at 10:40 AM Report abuse +2 rate up rate down Reply
bzzzbayte

DUNKIN DOUGHNUTS COFFEE IS EXCELLENT

March 16 2011 at 9:53 AM Report abuse -1 rate up rate down Reply
bzzzbayte

STARBUCKS COFEE IS MUCH TO EXPENSIVE

March 16 2011 at 9:53 AM Report abuse +1 rate up rate down Reply
shrthgsale

please say it's not so. Peet's coffee is so much better then Starbuck's. If they merge I only hope they do not eliminate the coffee's that Peet's offer now.

March 16 2011 at 9:14 AM Report abuse +2 rate up rate down Reply