Starbucks Must Pay Kraft US$2.8bn to Resolve Dispute
A lengthy dispute between Starbucks and Kraft Foods Group over the
coffee giant’s premature termination of a deal has ended with an arbitrator
deciding that Kraft is eligible for compensation of US$2.8bn.
The spat between the two
companies dates back to March 2011, when Starbucks unilaterally ended a 13
year-old agreement under which Kraft sold bags of Starbucks coffee in grocery
stores and gave the business to privately-held sales and marketing group Acosta.
The contract, although due to expire in March 2014, would have automatically
renewed for a further 10 years unless terminated.
The award, which includes US$2.23bn
in damages plus US$527m in pre-judgment interest and attorneys’ fees, will be
directed to Mondelez International which took Kraft’s grocery operation when it
spun off from the company. Mondelez claimed that it helped expand the Starbucks
grocery business from a valued of around US$50m business in 1998 to US$500m in
2010.
“We are pleased the
arbitration has ended,” said Starbucks’ chief financial officer (CFO), Troy
Alstead, in a statement. “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.
“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.”
He added that the company has sufficient
cash on hand and borrowing capacity to complete the payment. Starbucks will
book the payment as a charge to its fiscal 2013 operating expenses and will
issue US$750m in new debt within the next three months.