Early contract termination and renegotiation

In 2013, Starbucks and Kraft Foods concluded a three-year negotiation to resolve a conflict over distributing Starbucks packaged coffee in grocery stores. An arbitrator ordered Starbucks to pay $2.75 billion to Kraft for breaching the contract.

Under the 1998 agreement, Kraft began distributing Starbucks packaged coffee in grocery stores. In ten years, the annual sales of Starbucks packaged coffee in grocery stores climbed to $500 million. Starbucks offered to buy out the contract for $750 million. Kraft refused to terminate the agreement.

Starbucks terminated the business relationship and saw its share of the single-serving pod market and grocery-store products grow significantly. The parties moved the dispute over Starbucks’ termination to arbitration.

The changing market dynamics can cause business agreements to become undesirable over time. So, how do you manage that?

When negotiating the original contract, Starbucks and Kraft should have set terms and conditions for initiating contract renegotiation. The negotiated agreement must include a predetermined specification (compensation and other consequences) agreed upon for terminating or an option to renegotiate the contract early.

Contract law requires most specific terms and conditions to be in writing for them to be enforceable. Often, negotiated agreements are more of a plan of action than a binding agreement. The parties must document the deal’s specific and complete terms and conditions in all business negotiations.

I would love to hear about your experiences! Could you share your negotiation stories here?