The Coffee Wars: Starbucks Tries to Fire Kraft

About a month ago, Starbucks (SBUX) announced plans to stop distributing its coffee to grocery stores via Kraft Foods' (KFT) distribution network. But on Nov. 4, Kraft claimed that the 12-year-old arrangement was ongoing and could not be broken. This could be the start of a war over how Starbucks packaged coffee products reach retail outlets.

Only hours after Starbucks released better-than-expected earnings, Kraft made a statement about the relationship: "Kraft Foods' agreement with Starbucks regarding the sale of packaged coffee in grocery stores and other channels is perpetual. Importantly, if Starbucks decides to exit its relationship with Kraft Foods, the agreement requires Starbucks to pay Kraft Foods the fair market value of the business plus, in certain instances, a premium. Kraft Foods intends to keep the discussions with Starbucks private and will not be providing further details or comments at this time."

The statement may not be detailed, but it's enough to indicate that Kraft won't back out quietly, and neither will Starbucks. The coffeemaker said: "Since 1998, Starbucks packaged coffee has been distributed to grocery stores and other outlets by Kraft Foods. A month ago Starbucks informed Kraft of its intention to end that distribution arrangement. The details and timing around any transition will be subject to further private dialogue. Starbucks intends to work closely with Kraft to ensure an orderly transition, putting an emphasis on ensuring their mutual customers are well served. Starbucks intends to keep the discussions with Kraft private and will not be providing further details or comments at this time."

So, apparently, each side intends to keep the details private, but that claim is somewhat undercut by the fact that they both posted their comments in the press release sections of their corporate websites, for all to see. The feuding companies are clearly hoping to get some sympathy from customers and the press.

But the wrangling doesn't matter for consumers, at least for now. Starbucks doesn't appear to have any plans yet to pressure Kraft to settle by blocking the distribution of its packaged goods . Such a move would probably be bad for Starbucks' image and would hurt its retail sales -- perhaps significantly.

The struggle between the coffee company and food company is for now a tempest in a teapot, although eventually if legal action ensues, the claims and counterclaims could rise well into the tens of millions of dollars.


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ldmerriam

Licensing deals gone wrong can destroy the value they sought to create. This conflict points to some very common licensing mistakes: http://bit.ly/huvodg

November 29 2010 at 10:31 PM Report abuse rate up rate down Reply