P&G Buys Millstone Coffee -- Consumer-Product Giant May Give Starbucks Some Stiff Competition

In a move that could bring stiff new competition to Starbucks, Procter & Gamble Co. announced today that it has bought Millstone Coffee of Everett, a regional distributor and roaster of gourmet coffees.

Terms of the deal were not announced, and neither company made any mention of plans to open coffee retail stores to directly challenge Starbucks. Millstone's sales are mostly in supermarkets, where it competes with several P&G brands, including Folgers.

P&G said the deal included Millstone's distribution and warehouse system but not Millstone's Everett headquarters or its retail store, called Veneto's.

The $33.4 billion Cincinnati-based consumer-product company said it plans to continue Millstone's distribution of Seattle's Best brand of gourmet coffees.

Phil Johnson, chief executive officer of Millstone, said the transaction "is good for both coffee consumers and retailers."

But it might not be good for Starbucks, whose stock fell after the announcement. It was down $1.50, to $40.75, in late trading.

"One of the strongest advantages that Starbucks has had over all its competitors was that it was so much bigger," said Gary Aster, an analyst at Dain Bosworth. That gave Starbucks a lead in distribution, purchasing and access to capital as well as a rapidly growing national brand name.

"None of its competitors could ever come close to Starbucks. But this will certainly change," Aster said. "This is not necessarily a blow for Starbucks, but you cannot construe it in any way as good" for Starbucks, he said.

Such a deal had been the subject of unconfirmed rumors since last summer. Millstone previously agreed to pack some P&G coffee blends in Millstone's roasting and packaging facilities in Henderson, Ky. P&G now has an agreement to lease those facilities.

P&G did not elaborate on its plans for Millstone. But its announcement said: "We will now be able to offer consumers a broader selection of high-quality coffees to meet their individual preferences.