Kraft is seeking a preliminary injunction against Starbucks Coffee Co., which has announced plans to sever its agreement with the Northfield-based packaged food company to manage its grocery coffee business. Starbucks plans to assume responsibility of the coffee business March 1.
“Starbucks is proceeding with flagrant indifference to the terms of the contract and customary business practices,” Marc Firestone, Kraft’s general counsel said in a statement.
“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.”
Kraft initiated arbitration proceedings against Starbucks last Monday.
In a series of statements, Starbucks has maintained its right to exit the contract and criticized Kraft for airing the details of the messy breakup in the media.
In a statement, Starbucks said, “It’s unfortunate that Kraft has chosen to attempt this delaying tactic, a course that will ultimately prove harmful to customers… Kraft’s self-serving and blatantly disruptive actions risk creating unnecessary confusion for our shared customers, and in turn their consumers. Starbucks will vigorously oppose any action on Kraft’s part that would prevent Starbucks from rightfully assuming full control of our brand and business, and look forward to presenting our case through the pending arbitration process.”
Kraft has said the contract automatically renews at 10-year intervals. According to Starbucks, the contract was set to expire in 2014 unless terminated sooner.
Starbucks, however, has said that it had cause to fire Kraft. In a statement last week, Starbucks said the agreement “required Kraft to work closely with Starbucks, to maintain Starbucks involvement in significant marketing decisions and customer contacts.” However, Starbucks maintains that Kraft did not do so and the coffee company “raised these issues with Kraft, but there was never any improvement in Kraft’s performance.”
Additionally, “Kraft’s failure to meet its responsibilities resulted in the erosion of brand equity and experience at grocery that Starbucks customers have come to expect through their experience in Starbucks stores.”
According to Kraft, the grocery coffee business generates $500 million in annual revenue. It said the terms of the contract entitle the company to fair market value for the entity, and in some instances, a 35 percent premium.
Analysts have said that while the Starbucks brand has been a nice addition to the Kraft portfolio, it doesn’t represent a material piece of the company’s sales. They have, however, mourned the loss of another trendy brand. Kraft sold its pizza business, including DiGiorno and California Pizza Kitchen brands, last year.