Starbucks
Ordered to Pay Kraft Foods $2.7 Billion
By FBWorld Team
DEERFIELD,
ILL. - Kraft Foods has prevailed in a coffee distribution
dispute with Seattle-based Starbucks Coffee Co. On Nov.
12, an arbitrator ordered Starbucks to pay Kraft Foods
$2.7 billion to settle a dispute related to Starbucks
improperly ending a coffee distribution agreement with
Kraft Foods in 2010.
The
arbitration proceedings began before Kraft Foods Inc.
was split into two companies - Kraft Foods Group and Mondelez
International. Under an agreement between Kraft Foods
Group and Mondelez, the proceeds of the arbitration award
will go to Mondelez.
"We're
pleased that the arbitrator validated our position that
Starbucks breached our successful and long-standing contractual
relationship without proper compensation," said Gerd
Pleuhs, executive vice-president of legal affairs and
general counsel of Mondelez International. "We're
glad to put this issue behind us. We can now fully focus
on growing our global snacks business."
Kraft
Foods Inc. first began marketing Starbucks roast and ground
coffee in 1998 and, according to Kraft Foods, built the
business from $50 million in sales to $500 million in
2010. In November 2010, Starbucks announced its intention
to unilaterally terminate the agreement that provided
Kraft with the exclusive rights for the sales, marketing
and distribution of Starbucks roast and ground coffee
in grocery and other retail outlets. Later that month,
Kraft initiated arbitration proceedings to challenge the
improper termination of the companies' contract.
"We
believe Kraft did not deliver on its 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 Troy Alstead, chief financial officer and group president
for Starbucks. "While we disagree Kraft is entitled
to damages, the amount awarded reflects the value of our
at-home coffee business and the continued global growth
opportunity that lies ahead for Starbucks. We have adequate
liquidity both in the form of cash on hand and available
borrowing capacity to fund the payment, which will be
booked as a charge to our fiscal 2013 operating expenses.
"I
would add that taking our packaged coffee business back
from Kraft was the right decision for Starbucks, our brand
and our shareholders. The results over the past two and
a half years clearly demonstrate that Starbucks' at-home
coffee portfolio is significantly healthier than it was
before we assumed direct control from Kraft in 2011. We
have the leading market share of premium packaged coffee,
and our total at-home coffee portfolio has grown significantly
under the direct model.
"Ending
our agreement with Kraft also gave us the flexibility
to aggressively expand our growth in the premium single-serve
segment with Starbucks Coffee K-Cup Packs and Verismo.
With single-serve as the fastest growing category within
at-home coffee, this represents a strategic opportunity
for Starbucks that will continue to contribute meaningful
growth for many years."
Mondelez
International said it will add the proceeds from the award,
after taxes, to a share repurchase program it is currently
undertaking.
For
the Original Article, click
here.
by Keith Nunes for Food Business News
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