On Tuesday, Arbitrations found Starbucks responsible for paying $2.23 billion in damages plus $527 million in prejudgement interest and attorney’s fees to Kraft as a direct result of an early termination of their contract initially made in 1998.
The battle began in the spring of 2011 when Starbucks backed out of their agreement with Kraft to sell their packaged coffee in stores. The contract initially had been a partnership to develop the coffee’s at-home portfolio. Disappointed and unsatisfied with Kraft’s initiatives to manage their brand, “taking our packaged coffee business back from Kraft was the right decision for Starbucks, our brand and our shareholders,” defends Troy Alstead, who has been the chief financial officer and chief administrative officer of Starbucks since November 2008. Early this September Alstead was also named the Group President of Starbucks as a direct results of his positive impact on the company’s continued success. He has also been hugely involved in the brand’s distribution all over the world as one of the first members of Starbucks International team. As most would suspect, although Alstead stands by the decision to sever ties with Kraft, he does not support Tuesday’s outcome.
Be that as it may, it is speculated that Kraft would have taken losses of up to $500 million dollars per year by missing out on having the esteemed beans on their shelves. Following the contract’s end, Starbucks went on to pursue great profits with their at-home coffee portfolio. A huge shift in focus changed from large packages to single-serving products. This particular channel alone fortified the corporation’s pockets with an added 3.2 billion dollars from items such as the Starbucks® Coffee K-CUP® Packs and VerismoTM Numbers like these certainly support that Kraft may have been missing out on substantial gains that would have come from remaining with the partnership. Interestingly enough, the actual award will not be going to Kraft itself but to Mondelez which is a conglomerate that was formerly a part of Kraft. This international company now manages a wide variety of Kraft’s former snack brands (Trident, Milka, Tang, Oreo, Triscuit etc), leaving Kraft the opportunity to focus primarily on their grocery market. Mondelez has developed quickly since its spin-off from Kraft in October 2012 earning 36 billion dollars in its first year of operation. With major head quarters both the US and Canada, it currently operates in over 80 countries world wide.
In consolation for their hardships, one can assume that Mondelez will be satisfied to walk away with their multi-billion dollar settlement. However, very little has been heard from Mondelez headquarters, unlike the major public responses from Alstead. Starbucks share holders can rest at ease, looking forward to continuing the direct control of their products with the constantly growing fortitude of their trading portfolio. As for the general public, those of you that are concerned for the well being of your favourite caffeine addiction enabler, a conference call to discuss the future of the brand will be had by Alstead on Wednesday.
By Romana Outerbridge