Kraft Foods has been distributing Starbucks’ packaged coffee to retail outlets since 1998, but Starbucks said it informed Kraft in early October that it intends to end the agreement.
However, Kraft said that the contract with Starbucks remains in effect indefinitely – unless there is sufficient time for Kraft to execute an orderly transition, and compensation paid to Kraft for the business, plus a premium in certain circumstances. Starbucks meanwhile has said it expects to assume direct responsibility for its packaged coffee business from March 1, 2011, claiming that the distribution deal is not perpetual.
Kraft Foods’ executive vice president, corporate and legal affairs and general counsel Marc Firestone said: "Starbucks unilaterally and unjustifiably declared in public statements the agreement's termination, needlessly risking confusion among customers about the agreement's status. 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. Kraft reasonably expected Starbucks to honor the contract. We are confident in our position and look forward to presenting the facts before the arbitrator."
Starbucks issued its own statement on Monday, in which it said that the initial contractual term was set to expire in 2014, and its actions to end the distribution agreement are within the terms of the agreement.
“Starbucks Coffee Company strongly disagrees with Kraft’s recent characterizations that have appeared in the media of the terms of the agreement between the two companies, including assertions that the agreement is perpetual in nature,” the company statement said.
Furthermore, Starbucks claimed that Kraft did not meet its responsibilities under the agreement to actively protect and promoteits brands, to work closely with Starbucks, and to maintain Starbucks involvement in significant marketing decisions and customer contacts.
The dispute between the two companies was sparked earlier this month when Starbucks criticized Kraft for disclosing the terms of the deal, and said that Kraft ‘mischaracterized’ the agreement.