End of story?
It’s not even enough to say that yesterday was a bad Tuesday for Starbucks; arbitrator’s conclusion was that Starbucks must pay $2.76 billion to settle a dispute with Kraft over coffee distribution. Bad story ending even worse for coffee giant, started three years ago, after Starbucks Corp. fired Kraft as its distributor of packaged coffee to grocery chains. Yesterday was a day of Kraft’s victory over Starbucks. Deerfield, Ill.-based Mondelez International Inc., which spun off Kraft Foods Group in October 2012, will now be official winner and collector of the prize. Mondelez’s might be familiar to you by their brands like Cadbury, Oreo and Tang.
After the arbitrator determined that Starbucks must pay $2.23 billion in damages and $527 million in attorney fees, reactions were more than expected. Starbucks’s chief financial officer, Troy Alstead said “we strongly disagree with the arbitrator’s decision”. At the same time Gerd Pleuhs executive vice president legal affairs and general counsel of Mondelez came out with a statement “We’re glad to put this issue behind us,” and continued with; “We can now fully focus on growing our global snacks business.”
Instantly after arbitrator’s decision Starbucks stock fell $1.20, or 1.5 percent, to $79.41 while consequently shares of Illinois-based Mondelez rose 97 cents, or 3 percent, to $33.40. Is this end of story or Starbucks will make new steps in order to prove being right, is still unknown, since coffee giant being asked if they would appeal, a spokesman said: “We’ve just received the decision and we’re still reviewing it.”
History of process; at the beginning there was contract
In 1998 Kraft started with exclusively marketing of Starbucks roasted and grounded coffee in stores and in 2004 the contract with Seattle coffee giant was renegotiated and was to last till 2014. In 2010 Starbucks accused Kraft of not fulfilling mandatory obligations which were part of the contract. By November of 2010, Starbucks announced Kraft severing of its agreement with Kraft.
“We believe Kraft did not deliver on the responsibilities to our brand under the agreement, the performance of the business suffered as a result and that we had a right to terminate the agreement without payment to Kraft,” said Starbucks in a statement, which was part of the arbitration proceedings initiated by Kraft. Official separation between Kraft and Starbucks took place in March 2011.
After yesterday’s sequence of events world’s most popular coffee place, with more than 5.500 stores might be reconsidering decision they found “right” in 2010. While Kraft was right, according to arbitrator while saying that in 2010 it had grown Starbucks’ packaged coffee business to $500 million in sales from $50 million.