Kraft Foods Inc. (KFT) is claiming arbitration from Starbucks Corporation (SBUX), as Starbucks attempts to end the 12-year agreement, under which Kraft Foods has been distributing packaged Starbucks coffee to retail grocery stores.
Kraft stated that the deal was in effect indefinitely and it requires sufficient time to execute an orderly transition. Kraft insists that Starbucks must compensate it for the fair market value of the business with a premium of up to 35% of that value.
Marc Firestone, Executive Vice President, Corporate and Legal Affairs and General Counsel, said that Starbucks is trying to walk away from a long-term strategic partnership — from which it has greatly benefited — without abiding by contractual conditions.
On the other hand, Starbucks stated that it decided to end the contract with Kraft, as Kraft did not actively protect and promote the Starbucks Coffee and Seattle’s Best Coffee brands. It further stated that as per the agreement, Kraft was required to closely work with Starbucks to maintain its involvement in making important marketing decisions and customer contracts.
The contract between Kraft and Starbucks started back when the retail grocery coffee business of Starbucks was generating less than $50 million in annual revenues. Kraft, through its expertise and resources, has grown it to approximately a $500 million business.
There are predictions among various analysts that Starbucks will enter into new partnerships, especially in the single-cup coffee market.
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