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. The contract was set to expire in 2014. However, in 2010, with sales of its packaged coffee reaching $500 million annually, showing increase from 50 million, 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. Starbucks has accused Kraft of failing to meet certain provisions of their arrangement, including keeping Starbucks involved in major marketing initiatives, and said those failures caused "the erosion of brand equity. Kraft in turn accused Starbucks of trying to walk away from their partnership without honoring its conditions.

Kraft objected to the deal termination, but Starbucks broke off the business relationship nonetheless. The two officially separated in March 2011. Since then, Starbucks' share of the single-serving pod market and grocery-store products have 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.

1.What caused the rise of conflict between Starbucks and Kraft? State its impact on both parties.

2.Why did both parties refer to the arbitrator to solve the dispute?

3.How one handles a conflict tells much about his/her strength as a negotiator. How do you think such problem could have been resolved?