Dispute between Starbucks and Kraft

November 21, 2013

A recent arbitration hearing over allegations that Starbucks wrongly terminated a contract with Kraft Foods Group resulted in an order for the coffee giant having to pay $2.76 billion to the food company.

The breach of contract dispute centered around an agreement that had given Kraft exclusive rights to sell, market and distribute Starbucks brand ground and roast coffee in retail outlets and grocery stores in California and around the country.

Kraft maintained that Starbucks had terminated the contract improperly in 2010.

Kraft announced that it was pleased with the validation of its contention that Starbucks had violated the terms of their contract without compensating it for the breach. To put the business relationship in perspective, Kraft made $500 million in 2010 from sales of Starbucks brand products. Perhaps not surprisingly, Starbucks was not pleased with the outcome of the arbitration. An executive for the coffee company said that the contract was terminated properly because Kraft did not deliver on what he called its responsibilities to the Starbucks brand.

Kraft started distributing the Starbucks products in 1998. The contract was terminated by Starbucks on the grounds that Kraft had mismanaged the brand with a resulting adverse effect on sales and revenues. The legal action was undertaken, Kraft officials said, because the coffee company owed it damages and lost profits for discontinuing their longstanding business agreement.

Breach of contract actions such as the one between Kraft and Starbucks can result in substantial judgments being awarded. The contract between the two companies contained a provision that disputes would be handled through arbitration, which is not uncommon.

Source: Philadelphia Business Journal, "Starbucks to pay $2.76B in coffee dispute", Jared Shelly, November 13, 2013