KRAFT, STARBUCKS MAKE BLEND.

Byline: Lee Moriwaki The Seattle Times

In a java jolt that will be felt in the retail business for years to come, Kraft Foods has agreed to market and distribute Starbucks Coffee beans to more than 25,000 grocery stores in the United States.

Starbucks Chairman Howard Schultz called the agreement with Kraft, which was announced Monday, one of the major milestones in his company's history.

Schultz said the deal is only the first phase in a long-term partnership with Kraft, based in Northfield, Ill., that will help to build Starbucks into a global brand.

Kraft eventually might place on supermarket shelves the upscale foods Seattle-based Starbucks is developing for its retail stores and new Cafe Starbucks restaurants. And Starbucks' food products and coffee beans will have entree to grocery stores around the world through Kraft's distribution system, Schultz said.

With $16.7 billion in annual sales, Kraft is the largest packaged-foods company in North America and second-largest in the world, behind Nestle.

The immediate impact of the agreement with Kraft will be the distribution of Starbucks coffee beans in all 50 states over the next few months, Schultz said. Starbucks began testing the sale of its beans in Portland, Ore., and Chicago supermarkets two years ago and expanded its distribution to 12 Western states and 3,500 stores earlier this year.

Terms of the agreement were not disclosed. Schultz said there was no exchange of stock and both companies remain separate. Kraft is a subsidiary of Philip Morris.

Schultz declined comment on the potential boost to Starbucks sales from the wider distribution of its beans. Analysts are estimating Starbucks' sales for the 1998 fiscal year that ended Sunday at $1.3 billion, up 34 percent from $967 million the previous year.