Starbucks Corp unveiled new details about its unraveling relationship with Kraft Foods Inc on Wednesday, ahead of a court conference on Kraft's request to force Starbucks to stop plans to take over distribution of its packaged coffee.
The two have been battling publicly since November over their 12-year-old agreement by which Kraft
Starbucks considers the deal ended as of March 1 due to alleged breaches by Kraft, and has announced plans to move forward with another partner.
Kraft disputes the breaches and termination, and claims that if Starbucks wants out, it must pay. The business brings in annual revenue of $500 million and analysts have valued a payment at as much as $1.5 billion. Kraft has also asked a federal court to stop Starbucks from proceeding with its new partner, privately held Acosta Inc.
Representatives for Kraft and Starbucks will appear in U.S. district court in New York on Thursday to hear whether a judge will allow the request to be expedited, as Kraft has requested.
Starbucks said in a court filing on Wednesday that Kraft's performance has been poor and that its coffee has lost market share in the grocery aisle every year since 2004, despite growth in the premium coffee sector overall. The duration of those losses is several years longer than what Wall Street analysts had cited.
Kraft has claimed that the brand has subsequently gained share in the first three quarters of 2010.
Forcing Starbucks to leave its brand in Kraft's hands beyond March 1 pursuant to a preliminary injunction would threaten irreparable harm to Starbucks' reputation and the continuing erosion of its market share, Starbucks said.
In a filing on Dec 17, Kraft said it was advised by Starbucks that coffee supplies would stop on January 29, presumably in order to be in a position with another partner to take over the business by March 1.
By the week of February 13, Kraft would be out of stock on many products, thereby causing harm to its retail customers in the form of lost sales, Kraft's lawyer said in a letter to the court.
That is not accurate, Starbucks said in its filing on Wednesday.
Starbucks will guarantee adequate supplies of packaged coffee to enable Kraft to perform its distribution function without disruption until March 1, 2011. Starbucks has no interest in having empty shelves or unhappy customers.
Starbucks has said that it communicated its dissatisfaction with Kraft's performance repeatedly and at the highest levels long before the dispute became public.
In Wednesday's filing, Starbucks said the companies had made earlier attempts to negotiate arrangements for the coffee company to take back the grocery distribution business.
Starbucks believed that the parties had reached an agreement in principle in May 2010. Kraft subsequently withdrew from negotiations, and rejected Starbucks' further efforts to negotiate a resolution.
Kraft earlier said that Starbucks had offered it $750 million for the business, but that it refused. Starbucks has declined to comment on that detail.
(Editing by Gary Hill)