Examples of Negotiation in Business: Starbucks and Kraft’s Conflict Management

What happens to a negotiated business agreement when it becomes undesirable over time

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negotiation in business

Sometimes even the best agreements arising out of the world of business negotiations are liable to fail and such is the case with the dispute between food giants Starbucks and Kraft (now Kraft-Heinz). A three-year dispute between Starbucks and Kraft Foods over distribution of Starbucks packaged coffee in grocery stores was resolved when an arbitrator determined that Starbucks had breached its agreement with Kraft and ordered the coffeemaker to pay the food giant $2.75 billion, Stephanie Strom reported in The New York Times.

The dispute dates back to an agreement negotiated in 1998 when Kraft began selling Starbucks packaged coffee through grocery stores. In 2010, with sales of its ground whole bean coffee reaching $500 million annually, Starbucks offered Kraft $750 million to end their negotiated agreement.

Starbucks wanted greater flexibility to sell the single-serve coffee pods that were taking off in the market at the time. The company’s agreement with Kraft limited Starbucks to selling pods that worked in Kraft’s Tassimo machines. Starbucks was in danger of being left behind in a race for market share against Green Mountain Coffee’s Keurig system and K-Cup single serving packs.

Kraft objected to the deal termination, but Starbucks broke off the business relationship nonetheless and began selling K-Cup packs.


Discover step-by-step techniques for avoiding common business negotiation pitfalls when you download a copy of the FREE special report, Business Negotiation Strategies: How to Negotiate Better Business Deals, from the Program on Negotiation at Harvard Law School.


Afterward, Starbucks’ share of the single-serving pod market grew 18.4% according to Strom. And, no longer sharing profits with Kraft, Starbucks saw profits for its grocery store products (including bottled drinks) climb by 47% over two years, with $1.4 billion in revenues in fiscal 2013.

The parties’ disputes over Starbucks’ termination of their partnership moved to arbitration when the two sides were unable to settle on their own. The payment was made to Mondelez, a snack and confectionary business that spun off Kraft in 2012.

Starbucks disagreed with the arbitrator’s decision. “We believe Kraft did not deliver on its responsibilities to our brand under the agreement,” the company said in a statement.

Relationships and Business Negotiation: Adaptable Agreements for Changing Conditions

The business dispute illustrates how fluid marketplace trends can be, which can cause negotiated business agreements to become undesirable over time. In their original agreement, Kraft and Starbucks would have been wise to agree upon set times for renegotiation, during which they would have had leeway to revisit existing deal terms in the face of changed economic and industry conditions.

They could also have negotiated conditions for ending the agreement early, such as cancellation penalties and other forms of compensation.

In business negotiations, there is often little way of telling how an agreement will unfold over time. Smart negotiators anticipate this uncertainty – and the potential for a costly business dispute – and build mechanisms for coping with it into their deals.


Discover step-by-step techniques for avoiding common business negotiation pitfalls when you download a copy of the FREE special report, Business Negotiation Strategies: How to Negotiate Better Business Deals, from the Program on Negotiation at Harvard Law School.


Originally published on December 10, 2013.

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One Response to “Examples of Negotiation in Business: Starbucks and Kraft’s Conflict Management”

  • Richard L.

    The numbers in the arbitrator’s dispute were huge, but probably not out-of-line with the profits being made by Starbucks outside of the Kraft contract. It sounds like Starbucks is lucky to have gotten off with damages, rather than an injunction. That’s what long term contracts are for — to distribute unknown risks over a fixed time period.A mandatory renegotiation of the fee within the contract would seem to make sense with respect to major increases in commodity prices, but why should Starbucks not have to bear the risk of foreseeable market changes without having an automatic second bite of the apple ? Of course, a mediated solution would probably have produced a faster and more business-oriented solution, but once the arbitration road was chosen, the roulette wheel started to spin.

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