The small segment of the high-end coffee market has been getting a lot of attention lately, due in part to the pending dissolution of a deal between Kraft and Starbucks Corp whereby Starbucks provides coffee for Kraft’s Tassimo one-cup brewer.

Kraft and Starbucks are disputing the terms of ending their partnership, by which Kraft also distributes bags of Starbucks coffee at supermarkets.

Despite the dent in sales the loss of Starbucks would cause, Kraft Chief Executive Irene Rosenfeld said she was committed to that business.

“Single serve has been an important part of our portfolio. It’s growing quite nicely around the world and we expect that that will continue to be a key part of our coffee portfolio,” Rosenfeld told Reuters at a conference in Boca Raton, Florida.

Kraft also sells the mid-range coffee brands Maxwell House and Yuban. It is unclear what premium brand will replace Starbucks and Kraft has declined to comment on any specifics, given the ongoing fight with Starbucks.

COFFEE GETS BUZZ

The demise of Starbucks’ partnership with Kraft has led many to wonder what the world’s biggest coffee maker will do next as it seeks growth outside its namesake cafes.

Marcel Smits, chief executive of Sara Lee, which has the Senseo brand one-cup brewer, said the flurry of headlines and focus on the single-serve market are good for the industry and prove coffee is an exciting business.

“It adds buzz to the category,” said Smits at the same industry conference.

The buzz comes as Sara Lee is planning to split into two companies — one focused on its North American meat brands such as Jimmy Dean and Hillshire Farm, and one on coffee and tea brands such as Senseo, Douwe Egberts and Pickwick.

Green Mountain also announced a deal on Tuesday with Dunkin’ Donuts to bring that company’s coffee onto its machines. Analysts said bringing in such a popular brand lessened the potential competitive threat from Starbucks.

MORE THAN JUST THE COFFEE

While companies like Sara Lee and Kraft spend a lot to market their coffee brands, their electronics partners spend a lot to market the machines, said Sara Lee Chief Financial Officer Mark Garvey. Since many purchases are driven by hardware, the coffee makers sometimes offer brands for rival machines.

For example, in Europe, Sara Lee sells L’Or espresso capsules for Nestle AG’s Nespresso machines and Kraft sells Carte Noir coffee made for Senseo machines.

When asked if Senseo would make coffee for Keurig machines, Smits said it was too early, since the brand has such a little presence in the United States, where Keurig has more than an 80 percent share of the market.

“If we would have a very big brand, I guess we’d start thinking about it putting it into Keurig machines. But we don’t have a very big brand here in the U.S.,” Smits said.

Of Senseo’s total 2010 sales of $536 million, the United States only accounted for $20 million.

Smits, who was named permanent CEO last month after serving on an interim basis since May, said Sara Lee’s beverage business will take aggressive steps to compete with Nestle, the world’s largest food company.

“In Europe, it’s obvious the Nestle people, they have an ambition. There’s other people out there who have less of an ambition,” Smits said. “We have an ambition. We want to play. We will throw everything we have at that category.”

With just weeks until Starbucks Coffee Co. plans to wrest its packaged-coffee business from Kraft Foods, the Seattle-based coffee giant is planning a big splash into the single-serve coffee market. 

The company confirmed to the Chicago Tribune it is working on a new product for single-serve coffee machines. 

Experts say that any significant effort by Starbucks is likely to transform the $509 million single-serve coffee market in the U.S. by bringing more consumers into the fold. According to Euromonitor International, single-serve coffee accounted for only 7 percent of the fresh coffee market in 2010. But that’s up from 2 percent in 2008, and it is expected to hit 10 percent in 2012. 

“Single-serve brewing is going to steadily take share from at-home coffee brewing for a long time,” said David Palmer, an analyst with UBS who follows Kraft and Starbucks. He described single serve as an “undeniable market opportunity” for both companies. 

Palmer explained that despite the higher price per serving, single-serve coffee has become popular because it’s faster, easier, and doesn’t force the entire household to drink the same thing in the morning. 

Lynn Dornblaser, director of consumer-products insight at Mintel International, said a meaningful Starbucks entry could be a “catalytic event” in single-serve coffee. 

At the same time Dornblaser said she doesn’t expect hard-core coffee drinking families — those that may down a pot or two a day — to embrace single servings. Brewing single serve cup after cup may be too expensive, and too much of a hassle, she said. 

Still, the products may be especially appealing to 18- to 24-year-olds setting up their first homes, or older consumers with limited living space, Dornblaser said. 

Starbucks apparently sees a broad market for single serve. Spokeswoman Lara Wyss said the coffee chain hopes to accomplish with “single-serve coffee what Apple did for mobile phones.” 

She said the company is in a “unique position because of our retail footprint” and its ability to use baristas as ambassadors for new beverages. The company will either make its own machines or partner with a coffee machine-maker, and will sell the machines in Starbucks cafes. 

Wyss cautioned that “single-serve coffee is still in the nascent stages of development.” The company has yet to decide which, if any, partners it will use, or what the product will be called. 

Single-serve coffee is made, in about 40 seconds, by inserting a small plastic container into a specialized machine. These containers, known as pods, come in a variety of flavors for coffee or espresso-based beverages. There are also pods for hot chocolate and tea. 

The sticking point for some consumers is cost. A machine may cost between $75 and $275. And while most consumers can make a cup of drip coffee for 10 cents or less, single-serve pods can cost 50 cents to $1. 

For Starbucks the push into single serve is a dramatic break from its past. Starbucks has had an exclusive deal with Northfield-based Kraft and its Tassimo system since 2007. 

However, Kraft’s Tassimo system has not performed up to Starbucks’ expectations. Kraft has 2 percent to 3 percent of the single-serve brewer market, according to Janney Capital Markeys, compared with 71 percent for Keurig. This disparity heightened tensions in Starbucks’ relationship with Kraft, according to executives familiar with the matter.In an interview last week, Kraft Chairman and CEO Irene Rosenfeld said, “We feel very good about the performance of Tassimo.” She said the business had a very strong fourth quarter in the U.S. and in Europe, adding that Tassimo “has been an important growth engine in the coffee business.” 

Richard Haffner, head of global beverage research at Euromonitor, said Keurig claimed the top spot in the single-serve coffee market by getting its machines in office buildings where workers could sample different beverages. Some of these people then purchased single-serve machines for their homes. 

Keurig also gained an advantage with its technology. Owned by Waterbury, Vt.-based Green Mountain Coffee Roasters Inc., Keurig owns a number of patents associated with K-cups, the pods used to make drinks on its machine. The patent expires next year, although the company hopes to extend it through 2023. 

Now a number of competitors are looking for ways to circumvent those patents. Walmart stores are selling “Walnut Grove” pods, made by Sturm Foods, a division of Oak Brook-based TreeHouse Foods Inc. Meant for use on Keurig machines, these pods use a blend of regular and instant coffee and sidestep the use of Keurig’s patented filter. The company is expected to expand the product to a handful of retailers this year. 

Sturm Foods declined to comment for this story. 

Several people familiar with the matter say Starbucks is considering a similar product, using Via Ready Brew. By using an instant coffee product, Starbucks could likewise avoid using Keurig’s patented filter. 

Green Mountain sued Sturm in October, claiming patent infringement and other grievances. The company also alleged that TreeHouse’s use of instant coffee in the pods violates Keurig’s trademark. In a regulatory filing, Green Mountain also claimed that the Sturm pods “do not work safely or effectively.” 

Green Mountain declined to comment for this story. 

Starbucks announced its plans to terminate its relationship with Kraft in November. 

Kraft countered by filing suit against Starbucks in December, seeking to halt Starbucks’ plans until the parties completed mediation over how much, if anything, Starbucks should pay Kraft to exit the arrangement. Under Kraft’s management, Starbucks’ grocery coffee has grown into a $500 million annual business. 

Last week Kraft filed a second motion for preliminary injunction — the first one was denied — in an attempt to stop Starbucks from taking over its bagged coffee business.