Starbuck owes Kraft Foods $2.7 billion for pulling out early from a distribution deal. On Tuesday an arbitrator concluded that Starbucks must pay $2.23 billion in damages plus $527 million in prejudgment interest and attorney fees. The dispute came about due to an early termination of a bagged coffee grocery deal between Starbucks and Kraft Foods.
The disputes begin in March 2011when Starbucks opted out a contract early with Kraft that permitted them to sell bagged Starbucks coffee in grocery stores. That contract was started in 1998.
Both Kraft and Starbucks started finger pointing for months not taking responsibility for the deal breaker. Starbucks said, “Kraft mismanaged the brand and had breached the contract.”
Kraft denied the Starbucks charges and demanded that Starbucks pay them a fair value for the business. The business brought in $500 million for annual revenues.
Troy Alstead, Starbucks chief financial officer said, “we strongly disagree with the arbitrator conclusion. We believe Kraft did not deliver on its responsibilities to our brand under the agreement.”
Alstead said that Starbucks will host a conference call to discuss the outcome of the arbitration on Wednesday.
Alstead said in a statement, “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 years clearly demonstrate that Starbucks at home coffee portfolio is significantly healthier than it was before we assumed direct control from Kraft.”