Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Starbucks-Kraft battle gets bitter

starbucks_kraft.top.pngClick the chart to track the stocks. By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney.com) -- Kraft Foods Inc. said Monday it is seeking arbitration in its battle with Starbucks Corp. as the coffee chain tries to end a deal under which Kraft distributes packaged Starbucks coffee to grocery stores.

In a statement, Kraft (KFT, Fortune 500) argued that its contract with Starbucks (SBUX, Fortune 500), which dates back to 1998, remains in effect "indefinitely" and requires "sufficient time for Kraft to execute an orderly transition."

Kraft also said that the contract calls for Starbucks to compensate Kraft for the fair market value of the business, plus a premium of up to 35% of that value. The packaged foods company claimed its resources and expertise helped build Starbucks' retail grocery coffee business from generating less than $50 million in annual revenue to about $500 million in sales each year.

"Starbucks unilaterally and unjustifiably declared in public statements the agreement's termination," said Marc Firestone, Kraft general counsel, in a statement. "In effect, Starbucks is trying to walk away from a 12-year strategic partnership, from which it has greatly benefited, without abiding by contractual conditions."

In response, Starbucks said it "strongly disagrees with Kraft's recent characterizations." It said that Kraft did not hold up its end of the bargain under certain aspects of the agreement, including working closely with Starbucks involving the company with significant marketing decisions and customer contacts.

Starbucks claimed it raised the issues with Kraft but never saw any improvement.

"Kraft's failure to meets its responsibilities resulted in the erosion of brand equity and the experiences at grocery that Starbucks customers have come to expect through their experience in Starbucks stores," the Seattle-based company said in a statement. "In light of Kraft's failure to cure its breaches of the agreement, Starbucks has exercised its right to end the relationship."

The dispute between the companies first came to light earlier this month, when Starbucks announced that it had notified Kraft of its decision to terminate the partnership in October.

Kraft fired back, saying the agreement between the companies is "perpetual" and would require Starbucks to pay fair market value for the business plus a premium.

Shares of Starbucks fell 2.7% Monday, which Kraft's stock slipped 1%.  To top of page

Index Last Change % Change
Dow 17,671.65 -79.74 -0.45%
Nasdaq 5,083.80 -27.93 -0.55%
S&P 500 2,098.19 -10.38 -0.49%
Treasuries 2.28 0.01 0.22%
Data as of 11:08am ET
Company Price Change % Change
Facebook Inc 93.00 -3.99 -4.11%
Bank of America Corp... 18.16 0.00 0.01%
Apple Inc 122.20 -0.79 -0.64%
Whole Foods Market I... 36.37 -4.45 -10.90%
Micron Technology In... 19.90 0.04 0.18%
Data as of 10:52am ET
Sponsors

Sections

The company's sales have taken a hit since New York City found it was overcharging customers for some products. Whole Foods is actually cutting prices though. But it can't shake its bad reputation. More

The U.S. economy grew 2.3% in the second quarter -- a lukewarm sign of recovery after a sluggish first quarter. More

President Obama signed an executive order announcing plans to start working on the fastest supercomputer in the world. More

Fast-food chains that operate in more than 30 locations nationwide are the sole target of a new rule in New York to hike their minimum wage to $15. But consumers and small business owners, as well as some employees, may be the ones to pay the price. More

You can't blame it on the economy anymore. More Millennials now have jobs, but are still living at home. More