In 2011, Starbucks terminated a contract with Kraft Foods that allowed Kraft to sell bagged Starbucks coffee in grocery stores. The early termination resulted in litigation between Kraft and Starbucks. After an arbitrator found in Kraft's favor, Starbucks recorded a liability for $2.8 billion. Required:
This behavior is typical of many companies today. What is your opinion on the reasons companies behave this way? Is it realistic? Why or why not?

Starbucks and Kraft Foods

The reasons companies terminate contracts before their expiration include impossibility of performance, material breaches of contract terms, misrepresentation, fraud, lack of capacity, mutual mistake, and frustration.

The reason for Starbucks' termination of the contract was "multiple material breaches."  These were not established by the arbitrator, who  delivered judgment in Kraft's favor.

It is not always realistic to terminate a long-standing contract without abiding by the contract termination terms because the damages and accruing interests that can be awarded against the terminating company may be too huge.

Explanation:

The "multiple material breaches" that Starbucks alleged against Kraft included the allegation that "Kraft did not always meet minimum advertising budgets or keep Starbucks involved in major initiatives."  According to Starbucks, these violations eroded its "brand equity."

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