The contract dispute between Starbucks
Starbucks asserts that Kraft mismanaged the marketing and distribution of its packaged coffee products, damaging its brand and therefore giving it the right to end the relationship. Not surprisingly, Kraft sees things a bit differently, arguing that Starbucks can’t end the partnership without paying a fair price for the Starbucks packaged coffee business that it built. Market analysts estimate Starbucks might have to pay Kraft more than $1.5 billion to end the deal.
When Starbucks struck the distribution deal with Kraft 12 years ago, it gained access to a big distribution channel, but it lost hands-on control of its brand in grocery and other retail stores.
During this period, competition intensified. Green Mountain Coffee Roasters
In the company’s most recent earnings conference call, and at an investors’ conference last week, CEO Howard Schultz and members of the executive team made clear the importance of packaged goods and the grocery store channel to Starbucks’ growth strategy. The company needs to reclaim control of the brand in this sales channel, which would likely result in an expensive lesson in what can happen when you don’t maintain direct control. Owners of other premium brands should be watching and heed the lesson on Starbucks’ dime rather than their own.
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Fool contributor April Taylor does not own shares of the companies mentioned. Peet's Coffee & Tea is a Motley Fool Big Short short-sale pick. Green Mountain is a Motley Fool Rule Breakers selection. Starbucks is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.