Sweet deal for Starbucks lovers

Starbucks will compete with Cadbury's for the premium palate

Starbucks has put its weight behind the growing palate for premium chocolate with plans to enter the market.

The coffee giant said it had teamed up with struggling US chocolate maker Hershey's to produce a range of Starbucks-branded upmarket treats.

The first item should be available to buy in the US this autumn and is likely to be a hot chocolate, the firm said.

The news helped lift Starbucks shares, which were also given a boost by talk that it could strike a deal with Pepsi.

Shares in Seattle-based Starbucks - which has more than 13,000 coffee shops in 40 countries - rose 4.57% in morning trade in New York to $27.53.

The company is famous for its diverse array of exotic coffee blends and for introducing the world to coffee-based concoctions, such as the Raspberry Mocha Frappuccino.

We've found that today's consumers are looking, especially in the premium area, for different indulgences Tom Hernquist

It said it will focus on developing products that translate its unique flavours into high-quality chocolate.

Demand for indulgence

"We've found that today's consumers are looking, especially in the premium area, for different kinds of indulgences and noted that coffee-flavoured chocolate products have been popular," said Hershey's senior vice president Tom Hernquist.

The companies said the new Starbucks-branded range would also include fruits, nuts, herbs and spices.

They will be sold across a range of retail formats in the US.

It is hoped the partnership will provide some support for Hershey's, the firm behind American favourite Reese's Peanut Butter Cups.

On Thursday, Hershey's revealed net income for the three months to June had sunk 96% $3.6m (£1.75m) compared with the same period last year. The firm also cut its 2007 earnings forecast as rising dairy costs, flagging sales and restructuring costs hurt the business.

Separately, soft drinks firm Pepsi is said to be wanting to expand its partnership with Starbucks.

The firm currently bottles the coffee company's Frappuccinos sold off the shelf at retailers and other outlets.

Both Pepsi and Starbucks denied that any change in their relationship was being considered.