Starbucks & Kraft Foods Negotiation Presentation PDF

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####### Yelissah Gabala, Yash Daftary, Maria Costa, Alex Luis, Tony Han&AGENDACase IntroductionIssues & Interests DiscussedStrategy Of a Consultant To Resolve The DisputePotential SolutionsAnalysis & Relation To OAM 442Context ● Thedistributionfromthe twopartiescontractstarte...

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Yelissah Gabala, Yash Daftary, Maria Costa, Alex Luis, Tony Han

AGENDA Case Introduction Issues & Interests Discussed Strategy Of a Consultant To Resolve The Dispute Potential Solutions Analysis & Relation To OAM 442

CASE INTRODUCTION What? In 2013, Starbucks breached its contract of distribution of packaged coffee in grocery store Kraft Foods (now Kraft-Heinz).

Why? Starbucks wanted out because they needed the flexibility to sell “singleserve” coffee pods, at the time highly successful. But, the contract limited sales to only pods that worked with Kraft Foods’ machines.

Outcome: Kraft did not want to terminate its deal with Starbucks who walked away regardless.

CASE INTRODUCTION Context ●

The distribution from the two parties contract started in 1998

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In 2010 Starbucks offered $750 million to Kraft to end their agreement

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$2.75 billion payment in damages to Kraft

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Illustration of fluid market trends, change in the industry ○

Undesirable agreements overtime. Terms of renegotiation were not set (should have been).

Parties Involved Starbucks, Kraft Foods, & Independent Arbitrator Relationships Status ●

Starbucks & Kraft Foods were in a successful business relationships until Starbucks decided to back track on their agreement

INTERESTS, BATNAS, & RESERVATION POINTS Issue at hand ●

Starbucks wanted autonomy in the distribution and sale of their packaged coffee ○

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Kraft-Heinz owned those rights

Starbucks offered $750M to exit the contract which previously gave Kraft those rights ○

Kraft did not agree, Starbucks breached the contract

Interests ●

Both parties wanted the right to sell Starbucks prepackaged coffee in supermarkets ○

Kraft viewed the agreement as providing positive cash flows in the near term

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Starbucks wanted autonomy in selling their own brand

INTERESTS, BATNAS, & RESERVATION POINTS BATNA Kraft BATNA- Refuse to relinquish the terms of the initial deal, continue selling prepackaged Starbucks’ coffee Starbucks BATNA- Wait until product sales decline and repurchase rights and alternatively focus on other business segments

Reservation Points Kraft - unwilling to relinquish rights to product line for less than their perceived present day estimate of the contract value Starbucks - unwilling to pay more for the rights to sell their product than what it’s estimated to be worth

STRATEGIES & POTENTIAL PROBLEMS Both parties need to understand each others interests Possible strategies: ○

Reworking the contract to make it contingent for both parties

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Keep dispute focused on both parties interests

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Situation is not a fixed pie

Potential Problems: ○

Starbucks is not interested in working with Kraft foods for their coffee pods initiatives

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Kraft wants exclusivity on the Starbucks coffee pods so they can increase sales on their own brewer products

POSSIBLE SOLUTIONS ●

Fixed time of exclusivity ○

Undesirable agreements overtime--terms of renegotiation were not set (should have been).

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Preferred Partnership ○

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Kraft stays as Starbucks’s preferred single serve brewer but loses exclusivity

Launching cross compatible coffee pods ○

Starbucks does not stay limited to Kraft brewing devices, but Kraft still keeps the partnership and exclusivity

THEMES Why is mediation necessary in this case? ●

Starbucks and Kraft were unable to communicate due to the high level of mistrust

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Disputants were at an impasse, they had a limited overlapping bargaining zone, hard to establish a ZOPA since both had opposing desires:

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Mediation can get interests on the table and integrate interests to reach agreement

Negotiation Themes Limited in this Negotiation ●

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Distributive solutions ○

Starbucks limited the possibility of a ZOPA

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Didn’t making a distributive solution impossible

Integrative Solutions ○

Possibility of integrative solution--made difficult by Starbucks

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Independent arbitrator serving as a mediator

Arbitration, Mediation and Disputes Being Resolved Outcome ●

Kraft did not want to terminate its deal with Starbucks ○

Starbucks walked away regardless

Takeaways: ● Appeal to interets, rights, and power ●

Kraft’s legal rights combined with the power of an arbitrator to conduct mediation provided a billion dollar solution to the case presented.

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Importance of an arbitrator to mediate negotiations when both parties are incapable of negotiating independently.

THANK YOU!

Work Cited

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17, R. (2020, June 25). Negotiation in Business: Starbucks and Kraft's Coffee Conflict. Retrieved November 10, 2020, from https://www.pon.harvard.edu/daily/business-negotiations/the-starbucks-kraft-dispute-in-business-negotiations-preparefor-problems/

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Mondelez: Arbitrator rules Starbucks must pay $2.7B to end contract dispute. (n.d.). Retrieved November 10, 2020, from https://finance.yahoo.com/news/mondelez-arbitrator-rules-starbucks-must-220826849.html?guccounter=1...