Over the past year, there has been an interesting fight building between Kraft Foods and Starbucks Coffee. Now granted, Kraft has been in a food fight of sorts with many over the past decade. Their C-Suite has been a revolving door. Their stock has been an underperformer. And they had a interesting tussle in their acquisition of Cadbury over the past couple of years. This is how Roger Carr, then CEO of Cadbury described Kraft at the time:
In my letter of 31st August, I informed you that the Board had rejected your unsolicited proposal on the grounds that it is unattractive and fundamentally undervalues Cadbury. Under your proposal, Cadbury would be absorbed into Kraft’s low growth, conglomerate business model, an unappealing prospect which contrasts sharply with our strategy to be a pure play confectionery company… Your proposal is for Cadbury shareholders to exchange shares in a pure-play confectionery business for cash and shares in Kraft, a company with a considerably less focused business mix and historically lower growth…
In recent weeks, Kraft has entered into another food fight, this time with Starbucks, which Bloomberg has done a nice job capturing why Starbucks wants out of their Kraft distribution agreement.
Starbucks Corp., the world’s largest coffee chain, will miss out on a surge in home-brewing unless it can break a 13-year-old deal that ties its fortunes to Kraft Foods Inc.’s slow-selling Tassimo machine.
Under the terms of the deal, Starbucks can’t put its coffee in the Keurig Home Brewer, which dominates the U.S. market for machines that make single cups of coffee in a minute or less. Kraft’s brewing system has 2.6 percent of the market; Keurig, owned by Green Mountain Coffee Roasters Inc., has 71 percent…
In the 52 weeks ending Oct. 31, the single-cup market, which excludes instant coffee, generated almost $200 million worth of U.S. sales, according to SymphonyIRI Group, a Chicago- based firm that tracks supermarkets. While that is 5.2 percent of the overall coffee category, single-cup coffee sales are growing 28 times as fast as the overall coffee market.
For the 12 months ending in October, Via generated $16.8 million worth of sales in U.S. groceries, according to SymphonyIRI. During the same period, Green Mountain K-Cups alone rang up $72 million in U.S. grocery sales.
The legal tussle underway between Starbucks and Kraft is a lose-lose scenario. And here is the really sad part. Kraft according to the news reports is trying to lock in a client. A client that no longer sees value in their relationship. A client that is willing to air their dirty laundry in public circles. A client that is downright angry!
Time and the courts will decide the eventual outcome. However, I am willing to bet on one thing. The Kraft/Starbucks deal will become another case study in the annals of time. It will serve as a reminder just how important it is to choose your partner(s) carefully.
