Starbucks told to pay Mondelez $2.7 bn in coffee row

November 13, 2013
A man works on his computer at a Starbucks coffee shop in Silver Spring, Maryland, on March 28. 2013/AFP
A man works on his computer at a Starbucks coffee shop in Silver Spring, Maryland, on March 28. 2013/AFP

, NEW YORK CITY, Nov 12 – An independent arbitrator ordered Starbucks on Tuesday to pay $2.7 billion for a failed coffee venture with Kraft Foods, after the two split on a coffee supply deal in 2011.

Starbucks was found at fault for ending its deal with Kraft, then controlled by food giant Mondelez International, after Kraft had distributed bagged Starbucks coffee to supermarkets and other retailers under contract for 12 years.

The money covers both damages and interest and attorneys’ fees, and will go to Mondelez, which split off its North American Operations as Kraft Foods Group last year.

“We’re pleased that the arbitrator validated our position that Starbucks breached our successful and long standing contractual relationship without proper compensation,” said Gerd Pleuhs, Mondelez’s executive vice president for legal affairs.

“We’re glad to put this issue behind us. We can now fully focus on growing our global snacks business.”

Mondelez said it had built up its exclusive Starbucks roast and ground coffee distribution to a $500 million business by 2010, only to see Starbucks late that year announces its plan “to unilaterally terminate” the agreement.

Kraft initiated arbitration over what it alleged was improper termination of the contract, and sought damages.

In a statement Starbucks said it strongly disagreed with the conclusion, but was happy that the long fight was over.

“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,” the company said.

“Taking our packaged coffee business back from Kraft was the right decision for Starbucks, our brand and our shareholders,” said chief financial officer Troy Alstead.

Alstead said the company had adequate liquidity and could handle the award with cash on hand and already available borrowing capacity.

The payment would be marked as a charge to operating expenses in the company’s fiscal 2013 books.

Starbucks shares were down 1.5 percent at $79.41 in after-hours trade, while Mondelez added 3 percent to $33.40.

Kraft was up 0.4 percent at $52.14.

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