Starbucks slapped with $2.7bn fine in grocery fight with Kraft

Starbucks must pay Kraft Foods $2.7bn (£1.7bn) in damages for cutting short its grocery deal with the food producer after claiming it mismanaged the coffee brand in supermarkets.

Starbucks must pay Kraft almost $3bn after terminating its deal with the US food producer.

The ruling, decided by an arbitrator, comes  after the coffee chain was found guilty of “improper termination” of its bitter marketing pact with Kraft in 2011.

Kraft, which had supplied the Starbucks-branded coffee beans to retailers since 1998, was accused of multiple breaches of contract including mismanaging the brand. Kraft disagreed, claiming Starbucks intentionally damaged the tie-up, “unreasonably denying” it the opportunity to sell new products introduced at its own cafes. In 2010, it claimed it had grown the coffee brand’s packaged business to $500m (£314m) in sales from $50m (£31.4m).

Starbucks said it “strongly disagreed” with the fine.

Troy Alstead, chief financial officer and group president for global business services at Starbucks, says: “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. While we disagree Kraft is entitled to damages, the amount awarded reflects the value of our at-home coffee business and the continued global growth opportunity that lies ahead for Starbucks.”

The coffee chain promised it had “cash on hand” and the “borrowing capacity” to fund the payment to Kraft. Starbucks reported net profit of $1.7bn (£1.06bn) in the 12 months to September 2013.

Starbucks now markets its packaged products through privately-owned marketing firm Acosta.

Meanwhile, Kraft recently struck a coffee distribution deal with McDonald’s, which includes selling its McCafe branded coffee in grocery stores across the US.

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