In March of 2011, Starbucks terminated its contract with Kraft Foods for the distribution and marketing of Starbucks merchandise to grocery and convenience stores; however, the contract was not due to expire until 2014. In the following law suit, Starbucks was sentenced to pay 2.76 billion dollars to compensate for damages, interest and legal fees. While Starbucks was gathering expendable money to pay for the fees, they were much larger than anticipated, forcing Starbucks to add 750 million dollars to their debt.
The choice to sever the contract was obviously a monetary risk for Starbucks, but they decided to go forth anyway. This is because Starbucks believed that Kraft wasn’t pushing their products in the right direction, and were lacking on some of their contractual obligations, therefore preventing Starbucks from reaching its potential by not achieving the maximum amount of sales and growth thought attainable.
CEO Howard Schultz, while unhappy with the outcome of the court’s decision, stands his ground saying that their choice to leave Kraft was, “without question, the right strategic decision for Starbucks, our brand and our shareholders.”