Kraft escalates Starbucks dispute: injunction

Posted by Nicole Eckersley on 7th December 2010

Kraft escalates Starbucks dispute: injunction

Kraft Foods has announced that it is seeking a preliminary injunction in the US District Court for the Southern District of New York against Starbucks Coffee Company in an attempt to stop Starbucks’ planned termination of the distribution agreement between the two companies.

The agreement has given Kraft exclusive rights for the sales, marketing and distribution of Starbucks roast and ground coffee in grocery and other retail outlets for the past twelve years. The company announced the termination of the agreement

According to a statement by Kraft, the contract between Kraft and Starbucks renews automatically for successive 10-year periods and has no expiration date.

“The only way the contract will not renew is if there is a valid termination. Notably, the companies agreed to a straightforward basis under which Starbucks could take over the business in order to pursue a different arrangement. Under the agreement, there needs to be sufficient time for Kraft to execute an orderly transition and Starbucks must compensate Kraft for the fair market value of the business plus, under most circumstances, a premium of up to 35 percent of that value.”

Starbucks disputes the existence of a perpetual agreement between the companies.

“Starbucks coffee company strongly disagrees with Kraft’s recent characterizations that have appeared in the media of the terms of the agreement between the two companies, including assertions that the agreement is perpetual in nature. Starbucks actions to terminate its distribution arrangement with Kraft are consistent with the terms of the agreement between the companies, the initial term of which was set to expire in 2014 unless sooner terminated per the agreement, as well as Starbucks commitment to provide its grocery channel customers with the highest quality of service,” said a release from the company.

Starbucks said it will vigorously oppose any action on Kraft’s part that would prevent Starbucks from assuming full control of its brand and business, and said that it looked forward to presenting the case through the pending arbitration process.

Kraft said it had grown the annual revenues of its Starbucks CPG partnership tenfold, from a base of approximately $50 million in 1998 to approximately $500 million today, with year-to-date net revenues for coffee have grown by approximately 8 percent this year, driven by volume growth and market share gains.

“Starbucks is proceeding with flagrant indifference to the terms of the contract and customary business practices,” said Marc Firestone, Kraft’s Executive Vice President, Corporate and Legal Affairs and General Counsel. “Instead of executing its rights under the contract to buy back the business, Starbucks has chosen a remarkably aggressive strategy that publicly disparages our achievements, interferes with our customer relations and threatens to harm Kraft.”

Meanwhile, Starbucks described Kraft’s move as a ‘delaying tactic’ and ‘harmful to customers’.

“We have both the capabilities and experience to make this a seamless transition for our customers. Kraft’s self-serving and blatantly disruptive actions risk creating unnecessary confusion for our shared customers, and in turn their consumers,” said a release by the company.