Starbucks ready to divorce Kraft

Analysts fear coffee firm could end up paying $1bn to end deal allowing Kraft to sell coffee beans under Starbucks name

Starbucks is determined to end its increasingly bitter relationship with US food producer Kraft, the coffee firm told investors today.

Kraft, whose brands include Cadbury and Maxwell House, has supplied Starbucks-branded coffee beans to supermarkets and retailers for the past 12 years.

But the two firms are now heading to court – with Starbucks accusing Kraft of shutting its executives out of sales meetings, using knowledge gained from their relationship to launch its own coffee brand and damaging Starbucks's image.

Starbucks executives told analysts they intended to go it alone and terminate their agreement with Kraft as soon as possible.

Howard Schultz, its chief executive, said the firm was looking at acquisitions to build its grocery business. Jeff Hansberry, president of global consumer products, said the firm would be now be working with Acosta, the US's largest supermarket marketing firm, to sell its packaged coffee. Acosta already markets Via, Starbucks's instant coffee brand.

Kraft filed for legal arbitration of the dispute this week. It is looking to enforce provisions in the deal that it says mean Starbucks must pay for ending a business it estimates generates $500m (£321m) in annual revenue. The company has staunchly defended its side of the deal. Earlier this week a Kraft spokesman dismissed Starbucks's complaints as "both small in number and trivial in nature".

But Corey duBrowa, Starbucks vice-president of global communications, said: "Kraft appears to accept that they are in breach of our agreement but are now disputing the magnitude and significance of their violations. That's not for them to decide." He said the company looked forward to resolving the dispute in court.

Analyst David Tarantino, at Robert W Baird in Milwaukee, said Starbucks could have to pay $1bn to end the relationship. In a note to investors he said the coffee firm would "experience some difficulty" proving Kraft did not sufficiently market Starbucks's coffee beans "given that sales have grown more than tenfold".

But Rick Shea, president of Shea Marketing, which first disclosed the spat, said Kraft would be the biggest loser. "This is potentially a huge loss for them. Not just in sales but in their strength in the coffee category," said Shea.

From: Guardian.co.uk