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Starbucks says Kraft 'mischaracterized' agreement terms

By Caroline Scott-Thomas , 05-Nov-2010

Starbucks criticized Kraft Foods on Thursday for disclosing the terms of a distribution agreement for packaged Starbucks coffee that the coffee giant said it intends to end.

Kraft Foods has been distributing Starbucks’ packaged coffee to retail outlets since 1998, but Starbucks informed Kraft a month ago that it intends to end the distribution agreement, it said.

Starbucks publically announced its intention to end the agreement in a statement released on Thursday, in which it said: “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.”

It then reiterated its intention to keep the discussion private, adding that it would not comment or provide further details on the issue at this time.

On Thursday evening, Kraft issued a statement clarifying the terms of the agreement.

It said: “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.”

Starbucks responded, saying that Kraft’s statement mischaracterized the agreement.

“We consider it unfortunate that Kraft has chosen to make public statements that we believe mischaracterize the nature of the agreement between our companies, including the term of the agreement,” Starbucks said in its counterstatement. “It has been, and continues to be, our intention to keep these conversations private. There is a specific mechanism within the agreement for the resolution of disputes.”

Starbucks’ announcement that it intends to end the agreement with Kraft coincided with the release of both companies’ quarterly results. Starbucks reported an 86 percent profit gain to $278.9m for the quarter ended Oct. 3, and sales increased 17.2 percent to $2.84bn. Meanwhile Kraft Foods saw its profits drop 8.5 percent to $754m, although sales were up 26 percent to $11.9bn, partly due to its acquisition of Cadbury, the company said.