Negotiations Final Paper

2245 words - 9 pages

The business relationship between Starbucks and Kraft Foods was formed in 1998 when the companies struck a contract deeming Kraft the exclusive provider of Starbucks’ packaged coffee and thus limiting Starbucks’ selling flexibility. The partnership was strong and profitable for twelve years, which resulted in a sales increase from $50 million to $500 million in 2010. Consequently, because of this growth and the popularity spike in coffee pods, Starbucks wanted additional selling flexibility. As a result, in August of 2010, Starbucks offered to buy Kraft out for $750 million, however Kraft refused declaring that the offer was well below fair market value. Despite the refusal, Starbucks ...view middle of the document...

com).
For twelve years, the companies possessed a partnership that strengthened brand awareness, boosted profits, and enhanced the positions of both parties. Therefore, it was imperative that Starbucks and Kraft Foods decided whether to sustain the relationship or terminate it. If the two parties chose the former, they would need to alter their contract, communicate more effectively, and implement ramifications for potential breaches. After deliberating though, the companies disregarded the advancements and their long-term relationship ceased. This decision was disagreeable, and not only stimulated negative buzz, but also may have tainted both companies’ positions. Finally, the last issue was to determine how Starbucks and Kraft Foods would move forward with distinct initiatives. For example, Gerd Pleuhs, executive vice president of legal affairs and general counsel of Mondelēz International stated, “We’re glad to put the issue behind us. We can now fully focus on growing our global snacks business.” Similarly, chief financial officer and group president of Starbucks, Troy Alstead, said, “Ending our agreement with Kraft also gave us the flexibility to aggressively expand our growth in the premium single-serve segment with Starbucks Coffee K-Cup Packs and Verismo (foodbusinessnews.net).”
When examining the Starbucks vs. Kraft case it is important to look at whether this is a dispute or negotiation. Based on the companies' mutual interest to win, this case could be classified as a dispute. A dispute can be resolved by the use of interests, rights, or power. The use of interests focuses on underlying needs, desires and concerns; the use of rights applies the standards of fairness and precedents; the use of power uses rank, status and the parties’ BATNA’s as power to win the dispute. Exploring the interests of each party is necessary regardless of which way they choose to resolve the dispute.
In this case, Starbucks main interest was to capitalize on the coffee pod market. They did not think its contract with Kraft was generating the amount of profit that could be made in the coffee pod market. It wanted to capture some of the market share from the Keurig market as well, but its existing contract with Kraft listed that Starbucks can only compete in the Tassimo market, a coffee maker created by Kraft (cengage.com). Starbucks first approached the situation through an interests-based approach, by offering Kraft $750 million to end their contract early, but Kraft declined the offer and planned to continue the contract through its end date. After being declined Starbucks continued to breach the contract and started producing Starbucks branded Coffee K-Cup Packs.
Kraft did not take well to Starbucks blatantly ignoring their decision to not end the contract that set the case into more of a rights-based approach. Kraft pursued litigation against Starbucks because of the breach of their contract. Starbucks fired back with the idea that Kraft did...

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