Starbucks is trying to end its agreement with Kraft distribute its whole bean and ground coffee products to US supermarkets and is blaming poor marketing on the part of Kraft for the decision.
It claims that Kraft failed to work with Starbucks marketing people resulting in “the erosion of brand equity and experience at grocery that Starbucks customers have come to expect.” No doubt the lawyers know what this means.
Starbucks is also cross with Kraft for promoting its Yuban brand as a premium coffee although Kraft says it has been around as such for decades including at the time when the distribution deal was struck in 1998. Kraft has started arbitration proceedings.
This all seems a bit silly but there’s a lot of money at stake, the Financial Times reckons that the business is worth $500m in sales and $100m in profit, given the handsome margins enjoyed by premium coffees.
On these numbers exiting the deal would cost Starbucks somewhere north of $1bn unless it can show that Kraft’s duff marketing justifies such action. For its part Kraft claims the deal was signed “in perpetuity” which seems a bit odd. Those lawyers at Starbucks again.
One imagines a deal will be done before this reaches court. But it offers a rare and interesting insight into the doings of big American marketers and the margins they enjoy even in supposedly big powerful supermarkets.