Back in 2013, a three-year negotiation and dispute between Starbucks and Kraft Foods over distribution of Starbucks packaged coffee in grocery stores was finally resolved. On November 12, 2013, an arbitrator determined that Starbucks had breached its agreement with Kraft and ordered the coffeemaker to pay the food giant $2.75 billion.
After negotiating an agreement in 1998, Kraft began selling Starbucks packaged coffee through grocery stores. In 2010, with sales of its packaged coffee reaching about $500 million annually, Starbucks offered to buy Kraft out of the contract for $750 million. Starbucks wanted greater flexibility to sell the single-serve coffee pods that were hot at the time. The company’s agreement with Kraft limited Starbucks to selling pods that worked only in Kraft’s Tassimo machines.
Kraft objected to the deal termination, but Starbucks broke off the business relationship nonetheless. Since then, Starbucks’ share of the single-serving pod market and grocery-store products has grown significantly. The parties’ dispute over Starbucks’ termination of their partnership moved to arbitration when the two sides were unable to settle it on their own.
The business dispute illustrates how the fluid nature of marketplace trends 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.
Business Negotiation: Writing a Negotiated Agreement
Some negotiations end with a negotiated agreement that is a plan of action rather than a signed contract – for example, a plumber agrees to fix the tile damage caused by his work. Other negotiations wouldn’t be appropriate to commemorate in writing, such as how you and your spouse decide to discipline your young child. But in virtually all significant business negotiations, parties should put pen to paper after negotiating the terms of their deal. In fact, contract law requires certain types of deals to be in writing for them to be enforceable.
Sometimes you and your counterpart can draft the agreement on your own. In larger deals and dispute settlement, however, lawyers or other third-party professionals draft the terms for you. Unfortunately, the handoff from deal makers to deal drafters is error prone – and these errors can have real business consequences.
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Originally published in 2013.