Kraft, Starbucks dispute heats up
December 6, 2010
by Keith Nunes
NORTHFIELD, ILL. — Kraft Foods Inc. has filed for a preliminary injunction in the U.S. District Court for the Southern District of New York in an attempt to prevent Starbucks Coffee Co. from terminating the retail distribution agreement between the two companies. Kraft is specifically seeking the injunction to stop Starbucks from proceeding as if the agreement has been terminated.
Kraft said Starbucks has begun to implement a transition plan that includes arranging for a new partner and meeting with Kraft’s customers in anticipation of a March 1 target date to terminate the agreement. The company added that Starbucks’ conduct violates Kraft’s rights under the agreement and prejudges the outcome of arbitration.
“Starbucks is proceeding with flagrant indifference to the terms of the contract and customary business practices,” said Marc Firestone, 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.”
According to Kraft, its contract with Starbucks renews automatically for successive 10-year periods and has no expiration date. The only way the contract may not renew is if there is a valid termination. Under the contract, Kraft claims it needs sufficient time to execute an orderly transition and Starbucks must compensate Kraft for the fair market value of the business plus a premium of up to 35% of the value. Kraft claims the business is worth approximately $500 million today.
Starbucks has disputed Kraft’s description of the agreement and claims the contract is not perpetual and is set to expire in 2014. Starbucks also has said its reasons for terminating the agreement are because Kraft did not meet its responsibilities to work closely with Starbucks on marketing decisions and customer contacts.