Starbucks in first bid to end Kraft sale deal

STARBUCKS and Kraft Foods yesterday began airing a messy divorce in public, fighting over the break-up of their partnership selling bags of Starbucks coffee at supermarkets.

News of the dispute first surfaced earlier this month when Starbucks chief executive Howard Schultz said that the coffee chain wanted to end its 12-year deal with Kraft, which markets and distributes Starbucks and Seattle's Best coffee to supermarkets and US stores such as Target.

Kraft said yesterday that it had initiated arbitration to challenge Starbucks' attempt to end the agreement.

The food giant, which earlier this year bought Cadbury in the UK, contends that if Starbucks wants to back out, it must pay Kraft the fair market value of the business plus a premium of as much as 35 per cent.

Under the deal with Kraft, Starbucks' bagged annual coffee sales grew to $500 million (321m) from $50m.

Starbucks could end up paying more than $1 billion (643m) if it is forced to compensate Kraft for the business, according to David Tarantino, an analyst at Baird.

"We suspect Starbucks will experience some difficulty in proving its case, given that sales have grown more than tenfold during the 12-year partnership," he said.