Starbucks Corp. wants out of Distribution Deal with Kraft Foods Inc.

By on Jan 16, 2011 in Business, Food Comments

Starbucks Corp. is seeking to get out of a distribution deal against Kraft Foods Inc., according to international news sites. Kraft, reportedly considered as the world’s second-largest food company, was said to have been earning $500 million in its distribution deal with Starbucks.

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Kraft is trying to stop Starbucks from terminating their distribution deal on March 1, 2010, by asking the federal court in White Plains, New York to reject the arguments of Starbucks that the food company will not suffer from what it considered as irreparable harm. However, Starbucks said in its reply that Kraft breached the contract that lead losses of about $100 million in potential sales.

The case filed by Kraft is Kraft Foods Global Inc. v. Starbucks Corp., 10- cv-09085, U.S. District Court, Southern District of New York (White Plains).

Here is a part of Starbucks‘ response to Kraft‘s claims of irreparable harm when their deal is cut:

Rather than deny Kraft’s motion based on myths about the nature of irreparable harm, the court should contrast the consequences of denying Kraft’s motion with the consequences of granting it.

That contrast reveals that the court faces a straightforward choice between allowing irremediable harm and preventing it.

The distribution relationship between Starbucks and Kraft is ending because Kraft’s performance as a distributor of Starbucks products has been unacceptably poor — falling below the standard of commercially reasonable efforts that the parties’ agreement requires. Kraft has refused, despite Starbucks’ repeated and urgent efforts, to honor its obligation to include Starbucks as a full partner in the sales and marketing effort for Starbucks products in the consumer packaged goods channel.

Kraft has allowed itself to be beaten by Starbucks’ competitors. As the premium coffee segment has grown and customers have increasingly moved away from mass market brands to super-premium coffee, Starbucks has actually lost market share.

Starbucks admitted that from 1998, sales increased during the first two years of their agreement with Kraft. However, growth rate began to fall, according to Starbucks, as Kraft raise prices and cut promotional spending.

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