Starbucks, Pepsi Join To Create Drinks

NEW YORK - Starbucks Coffee Co. and Pepsi-Cola Co. have formed a joint venture to produce ready-to-drink coffee beverages after a year of negotiations.

The Seattle-based coffee company said last month it was talking to Pepsi, a unit of PepsiCo Inc., about making and distributing new drinks together.

The Pepsi/Starbucks Coffee Partnership plans to make coffee-based drinks that will be packaged and sold in the same outlets as Pepsi's soft drinks. The new products will be test-marketed next year in the U.S. and Canada.

"This opportunity will enable us to fulfill our primary mission of establishing Starbucks Coffee as the premier purveyor of the highest quality coffee in the world," said Howard Schultz, Starbucks chairman and chief executive officer.

The partnership allows Starbucks, the leading roaster and retailer of specialty coffee in North America, to capitalize on Pepsi's well-established distribution network.

Americans have not yet demonstrated a sizable appetite for coffee served cold, but the partners said they hope to create demand by making tastier coffee-based products widely available.

Consumers spent about $60 million on ready-to-drink - bottled or canned - coffee last year, according to industry research firm Beverage Marketing Corp. That represents a tiny fraction of the $48 billion domestic soft drink market.

Craig Weatherup, president and chief executive of Pepsi-Cola North America, said he thinks the partnership can help expand the market to the $1 billion range by changing "the way people think about coffee."

The new venture doesn't provide for Starbucks coffee to be distributed to PepsiCo restaurants - such as Taco Bell or Pizza Hut - and doesn't involve Starbucks' retail outlets or direct-mail business.