Starbucks: Kraft interfering with grocery transition

By Reuters
Posted Jan. 7 at 6:21 a.m.

Starbucks Corp. told a federal judge it gave Kraft Foods Inc. ample warning of its plans to end their grocery partnership and that the food maker is now standing in the way of an orderly break-up.

In legal filings on Thursday, the world’s biggest coffee chain asked U.S. District Court Judge Cathy Seibel to deny Kraft’s request to stop Starbucks from ending their 12-year-old deal and moving the business to a new partner.

In the latest flare in the increasingly bitter battle, Starbucks argued that a court-issued injunction would cause it harm by leaving Kraft in charge of selling its packaged coffee in supermarkets and other stores in the United States, Canada, Britain and other parts of Europe.

Starbucks repeatedly has alleged that Kraft breached the contract by mismanaging its products and neglecting its brand in the grocery aisle.

The Seattle-based company said it told Kraft about its concerns as early as one year ago but that North America’s largest packaged food maker did not move to address them.

Late last year, Starbucks announced its plan to end the partnership on March 1. It also went public with its intention to replace Kraft with privately held Acosta Inc.

Starbucks charged in Thursday’s filings that Kraft is getting in the way of its efforts to shift the business to Acosta. Among other things, it said Kraft sent a cease and desist letter threatening Starbucks’ new partner with a tortuous interference claim if it attempted to distribute or market any Starbucks products before or after March 1.

When asked to respond to that allegation, Kraft spokesman Mike Mitchell said there has been “no valid termination of the agreement. The contract is still in force. Therefore, there’s no transition.”

Mitchell said he was unable to confirm Starbucks’ allegation about the Kraft letter to Acosta.

“Kraft’s efforts to interfere with an orderly transition of the (consumer packaged goods) business have caused significant harm to Starbucks,” the coffee company said in its filing.

Kraft, which disputes any breach, holds that Starbucks must pay to end the deal. The business brings in annual revenue of $500 million, and analysts have valued a termination payment at as much as $1.5 billion.

“This is a clear case of irreparable harm that we believe justifies the granting of a preliminary injunction,” Mitchell said.


Starbucks, which argued that it has the right to terminate the agreement for any reason, said the partnership accounts for around 1 percent of Kraft’s annual revenue and that ending the deal would not cause the kind of irreparable harm required for the court to step in and stop Starbucks from ending the relationship.

“Starbucks has given Kraft many months notice to allow it to plan for life after Starbucks … Kraft does not — and cannot — allege that this termination will have any significant impact on the company as a whole,” Starbucks said.

The two companies already are in arbitration and Starbucks said those proceedings would allow Kraft to be compensated for any monetary losses resulting from the deal ending.

In an affidavit filed on Thursday, Jeff Hansberry, Starbucks’ president of global packaged goods, said the company’s share of premium coffee sales in the grocery channel fell from about 32.7 percent in 2004 to around 26.7 percent at the start of 2010.

“It is Starbucks, rather than Kraft, that faces the threat of harm,” the company said in its filings.

“Leaving Kraft in control of distribution of Starbucks’ products pending a resolution of the parties’ dispute — allowing Kraft to do lasting damage to Starbucks’ brand — threatens harm to Starbucks that is both immediate and difficult to calculate.”

Mitchell, the Kraft spokesman, told Reuters that Starbucks’ market share increased in every year of the agreement except 2008 and 2009, when the economy was limping and new competitors like Dunkin’ Donuts “aggressively” entered the market.

Kraft filed its request for a preliminary injunction on Dec. 6 in U.S. District Court for the Southern District of New York. The case is Kraft Foods Global Inc v. Starbucks Corp, No. 10-09085.


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  1. HeyNow Jan. 7 at 8:13 a.m.

    Starbucks wouldn’t be having the market share erosion if their coffee was more competitively priced at the grocery store. I like their coffee grounds, but I am not willing to pay $2-$4 more per bag as compared to other brands that taste almost as good. Not saying they don’t have the right to break the deal, but the problem seems to be pricing more than anything else.

  2. NiteCat Jan. 7 at 11:58 a.m.

    Merchandising does not seem to be the problem with Starbucks. It has primary presence on the shelf and stores stock more varieties than Hills Bros, Maxwell House & Folgers combined. Then there’s the in-store competition from Starbucks Cafes – not sure who’s responsible for merchandising those areas. Pricing is the problem for all the “premium” brands and daily household brands are moving quickly in that direction.

    It seems every coffee producer thinks “premium” branding along with price is the way to go and the commodities brokers keep bidding up the price to help them along. I’m sorry, with the availability of beans around the world, a small shortage due to weather or whatever doesn’t put the dent in supply they would have you think. In a country where we pay farmers NOT to grow because of over abundance, I don’t think the spectre of “China consuming everything available” is a valid argument.