Melissa Allison follows the world's biggest coffee-shop chain and other Seattle caffeine purveyors.
Kraft takes Starbucks to arbitration, public bickering continues
Posted by Melissa Allison
Sounding a bit like Carly Simon accusing Starbucks of not sufficiently promoting her 2008 album, "This Kind of Love," the Seattle-based chain has accused Kraft Foods of not doing enough to market its coffee.
Simon lost a lawsuit against Starbucks early this year, but filed an amended complaint in April.
Starbucks is trying to cut ties with Kraft, which has distributed its coffee beans to grocery stores for 12 years, saying the food giant eroded Starbucks' brand in grocery stores. It plans to take over the packaged coffee business beginning March 1.
Kraft, whose brands include Maxwell House and Sanka, is fighting back by starting arbitration proceedings and issuing press releases about its position, which is that the contract between the companies lasts "indefinitely." They also have an agreement that calls for Starbucks to pay Kraft for the fair market value of the business plus a premium of up to 35 percent, Kraft said in a press release Monday.
Analyst David Tarantino at Robert W. Baird & Co. in Milwaukee said Starbucks will have a hard time proving that Kraft did not sufficiently market Starbucks' coffee beans, "given that sales have grown more than tenfold (to approximately $500 million) during the 12-year partnership," Tarantino said in a note to investors Monday.
He estimates that Starbucks could pay $1 billion or more to end the agreement.
Meanwhile, nasty letters and press releases have been flying since Starbucks CEO Howard Schultz said in a Nov. 4 conference call with analysts - which was publicly broadcast - that it had informed Kraft a month earlier that it would end their distribution agreement.
His statement quickly drew press-release fire from Kraft, which said Starbucks would have to pay to end the agreement. Starbucks shot back with a release saying Kraft mischaracterized the agreement and that it wants to keep their conversations private.
The argument continued out of the public eye until Sunday, when Reuters published a story quoting from letters between the companies.
Starbucks and Kraft appear to be terminating other agreements, including Kraft's distribution of Starbucks' Tazo line of teas and Starbucks' supply of single-serve coffee disks for Kraft's Tassimo one-cup coffee brewers, Reuters reported.
Each company issued press releases Monday, Kraft saying it has started arbitration proceedings and taking Starbucks to task for airing their grievances publicly.
"Starbucks unilaterally and unjustifiably declared in public statements the agreement's termination, needlessly risking confusion among customers about the agreement's status," Marc Firestone, Kraft's general counsel, said in the release.
Starbucks' release says Kraft breached its contract and hurt the coffee company's brand in grocery stores.
"Starbucks is disappointed that Kraft is not living up to its obligation to ensure an orderly transition," it said.
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