Breaking up is hard to do! Legendary Neil Sedaka couldn't have been more right when he co-wrote and recorded that famous song. And although Neil didn't have business relationships in mind, those words have fallen on the ears of Starbucks (NASDAQ:SBUX) shareholders as the coffee giant has recently been ordered to pay Mondelez International (NASDAQ:MDLZ), who was then part of Kraft Foods, a pretty hefty sum for breaching their contract in 2010 to sell the iconic coffee in grocery stores. In the wake of a soon to be drained cash balance, a restated quarterly loss, and even a small debt issuance to help cover the fees, did Starbucks make the right decision?
Nurturing the brand for future growth
Fast approaching 17,000 stores back around 2010, Starbucks realized red hot growth, especially through their U.S. stores, wouldn't last forever. The company would need to bulk up their international efforts as well as selling packaged goods through other channels. Both of these initiatives would become backbones of the company's future growth strategy. It's no coincidence that revenues for Starbucks' Channel Development segment, which include bagged coffee, Via, Verisimo, and K-cups, have accelerated to the tune of a 28% compound annual growth rate since around the time of its fateful break with Kraft. Keep in mind this segment was largely flat prior to the shift.
As a result of the company now having a firmer grip on this key growth segment that still holds untapped potential it's no wonder Motley Fool analysts Mike Finarelli and Mark Reeth both agree Starbucks made the right call. Get their insights in the video below.