Report subject negotiation in business topic contract violation in fb industry the case of starbucks and kraft

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TON DUC THANG UNIVERSITY

FACULTY OF BUSINESS ADMINISTRATION

Contract Violation In F&B Industry

The case of Starbucks and Kraft

LECTURE: Mr Tran Khanh

CLASS: 702057, Friday 3" shift

Ho Chi Minh City, March 2023

GROUP MEMBERS AND EVALUATION

TABLE OF CONTENTS

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2.1 The best choices in negotiation (BATNAS) 0ccccccceccctececctteeeeeeeteeees 15 2.2 The worst choices in negotiation (WATNAS) 0.ccccccccscecctteceeeeeneeees 16 2.3 Distributive negotiation 0 ccc ccc c1 22211121 112111 121112211 1211110111281 11 112g kk 16

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PREFACE

In the first place, to successfully complete the subject of Negotiation in Business and the final report "Contract Violation In F&B Industry", our team received

a lot of help and facilitated advantages from Ton Duc Thang University In particular,

we would like to express our sincere and profound gratitude to Mr Tran Khanh — our lecturer, who directly guided and accompanied our team throughout the process of completing this course and this report This is the reason and the motivation that we can get our research done

Our report is based on the efforts of the team members (team 4) as well as the references, lessons learned from books, research works, and information from news sites Although we have tried our best in the implementation process, because of limited knowledge and a lack of practical experience, it is challenging to avoid shortcomings We hope to receive feedback and suggestions from teachers to be able to complete the essay most comprehensively

Finally, we wish you all good health and success in your work

We sincerely thank you!

CHAPTER 1: INTRODUCTION 1.1 F&B INDUSTRY OVERVIEW

In general, the F&B industry is a business that sells food and drinks on the market The food and beverage business are also a significant component of the agriculture economy The food and beverage sector, in instance, may be divided into two major segments: production and distribution Manufacturing covers the

manufacture and processing of finished meals and drinks, as well as the majority of packaged or prepared commodities Foods generated through farming or horticulture that are not further processed are not included in the produce category since they are just part of the agricultural business (Tam, 2020)

In the food and beverage sector, distribution entails delivering the product to the customer Companies that ship to retailers, restaurants, and consumers directly are included in the food and beverage distribution business Fresh food, packaged food, and drinks are all part of this business (both alcoholic and non-alcoholic) This business services a wide range of retail outlets, from grocery store products to prepared meals provided at restaurants, institutions, and events In reality, F&B services are more common outside of hotels and independent business units (1.e., restaurants, eateries, cafes, tea shops, pubs, bars, lounges, etc.) (Tam, 2020)

The Covid-19 epidemic caused some interruption in every business, with food and beverage being one of the most directly and instantly affected Yet, the food and beverage business has rebounded swiftly and is opening several expansion prospects internationally (Tam, 2020)

The F&B business, which was valued more than $5.9 trillion in 2019, is predicted to expand just little in 2020 owing to pandemic limitations, but to recover with a 7% increase to about 7.5 trillion USD in 2023 In 2019, Asia had 42% of the F&B market, followed by North America (22%) F&B is one of the few industries in Europe that is expected to rise by 2022 Food deliveries increased by 100% during the Covid-19 interruption, resulting in a rise in delivery services and online orders in the industry Improvements in healthy living have led to a surge in consumer expenditure

on natural-ingredient products, forcing many firms to abandon artificial colors and flavors A healthy lifestyle has also increased consumption of plant-based proteins, which are predicted to climb from $10.3 billion in sales in the United States to $14.5 billion in the next five years The figures shown above show that the food and beverage business is rebounding and growing (Tam, 2020)

Starbucks, McDonald's, KFC, Subway, and Domino's Pizza are examples of today's major food and beverage corporations This article is about two major firms in the food and beverage industry: Starbucks and Kraft Company (Tam, 2020)

1.2 Brief information about Starbuck and Kraft Company

1.2.1 Overview of Starbucks coffee brand

On March 30, 1971, three people opened the first Starbucks coffee shop at 2000 Western Avenue (Seattle, Washington): English teacher Jerry Baldwin, history teacher Zev Siegl, and writer Gordon Bowker Starbucks was a modest store dealing in exquisite coffee and coffee grinding equipment back then When Howard Schultz, the famous CEO of Starbucks, discovered the possibility of introducing the Italian manner

of coffee service to America, the history of this business was altered On a trip to Milan, Italy, he took the initiattve and proposed that the firm sell both coffee beans and ground coffee The proprietors rejected the suggestion, feeling that moving into the beverage market would divert the company's focus They brew coffee at home, but when they wanted to present clients with samples of ready-to-drink concoctions, they launched the Il Giornale coffee shop franchise in April The rise of the big guy in the F&B business began here in 1986 (Brandsvietnam, 2019)

Over the course of 40 years, Starbucks has expanded beyond the borders of Seattle and the United States, introducing the contemporary art of drinking Italian coffee to nations such as Japan, Hong Kong, and South Africa Starbucks' revenues reached around 73 million USD when it went public for the first time The company's shares increased by 70% in just a few years Starbucks' primary growth strategy is acquisition Starbucks quickly purchases Seattle's Best Coffee, Coffee People, and Torrefazione Italy Tazo, Teavana, and Ethos were also bought to expand the

company's product portfolio

According to Brand Finance's most recent statement, the well-known coffee giant Starbucks continues to reign supreme for the second year in a row, with a brand value of $ 38.4 billion, up 21% from the previous year Starbucks coffee continues to create additional outlets in order to enhance its position through smart strategies such as: doubling the number of stores in China - a nation with 1.6 billion people - or forming a joint venture with the brand A popular non-alcoholic beverage in India that has entered the packaged coffee industry through a collaboration with Swiss brand Nestlé At the same time, Starbucks collaborated with UberEats to bring hot beverages

to customers’ doors, clearly understanding the demands of today's customers,

particularly amid the complex COVID-19 epidemic (Samantha Loveday, 2021)

The result of extremely correct directions is that by 2019 Starbucks had 28,000 stores in 77 different countries and territories The Starbucks coffee brand now serves more than 40 million customers a week and sells 4 billion cups of coffee a year (Brandsvietnam,2019)

Number of Starbucks Stores 1987 - 2O17

Figure 2; Number of Starbucks stores 1987-2017 (Brandsvietnam, 2019)

1.2.3 Overview of Kraft Company

Kraft Foods is one of America's leading confectionery manufacturers with sales

of more than $55 billion in 2013 The company operates in over 150 countries More than 98% of American households have some Kraft Foods product in their home It could be a Ritz cake, an Oreo, or a Kraft Cadbury chocolate (Brandsvietnam, 2014) Kraft Foods was founded by James L Kraft in 1903 The company specializes

in the production of cheese products Over the years, Kraft Foods continues to own

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many food-related brands such as Milka, Toblerone, Jacobs, Oscar Mayer, or Oreo (Brandsvietnam, 2014)

In 2012, Kraft Foods split into two separate companies, Kraft Foods Group and Mondelez Mondelez was founded in 2012 as the "money printing machine" of Kraft Foods due to its frequent high dividend payments The company was spun off from Kraft Foods' Snacks division and mainly focused on the domestic market specializes

in snacks and confections such as Cadbury, Nabisco, Oreo, and Trident Meanwhile, Kraft Foods Group's 2013 revenue and profit were $18.2 billion and $2.7 billion, respectively The core businesses of Kraft Foods Group are beverages, cheese, dairy products, and snacks (Brandsvietnam, 2014)

In July 2007, Kraft Foods acquired the Cookies industry of France's Danone Group with leading brands such as Lefévre Utile (LU), Tuc and Prince This merger made Kraft Foods the largest cookie maker in the world At the same time, the company continued to consolidate and expand its business (Brandsvietnam, 2014)

In 2010, Kraft Foods acquired Cadbury, a competitor in the UK confectionery market The value of this deal is 19.6 billion USD.Although it has dominated the US and European markets, Kraft Foods is only the world's 2nd largest company in the confectionery industry, after Nestlé Nestlé, headquartered in Switzerland, has consistently held the leading position in the world in this category The Nestlé brand stands out in both developed and developing countries Market expansion and the opportunity to enter emerging markets were the main motivations behind Kraft Foods' acquisition of Cadbury The merger between the two companies also resulted in a few brands being merged, such as: Kraft's Oreo cookies, Velveeta cheese and Cadbury chocolate The potential confectionery industry is waiting for the rise of a giant confectionery company with an estimated $55 billion in annual revenue (Brandsvietnam, 2014)

The acquisition turned Kraft Foods into a powerful player in the confectionery industry With the acquisition of Cadbury, Kraft Foods 1s already a company with 70% market share in chocolate and 1.2 million retail stores in India (Brandsvietnam, 2014)

With a history of more than 100 years in the confectionery industry, Kraft Foods currently leads the world's 2nd position in the industry, after Nestlé, and completely dominates the US and European markets Kraft Foods is expanding to lead this category (Brandsvietnam, 2014)

1.2.4 Kraft Company Strategy

Kraft Foods has been a pioneer in digital media and online content publishing, delivering branded content online through its CRM (Customer Relationship

Management) since the early 90s Kraft Foods launched kraftfoods.com in 1992 and food and family magazine in 2001 They have had a YouTube channel since 2005 and have since gradually expanded their platform in mobile apps and social media Kraft Foods' Marketing Strategy: Methodical 4Ps

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Product: Kraft Foods' products are diverse for all types of customers Kraft Food provides packaged beverages and food items for consumer use

Place: Kraft Food is a company that originated in the US and has expanded worldwide The international presence of the brand has spread to almost one hundred and seventy countries such as the UK, Germany, Australia, India, Bangladesh, and Canada Kraft Food has manufacturing plants in more than 70 countries globally and has become one of the largest food companies in the world It has a strong and extensive distribution network covering the services of distributors, retailers, manufacturers and end consumers through convenience stores, supermarkets, supermarkets, malls shopping and food market All its brands have a personal distribution network that makes distribution of products easy and convenient for customers

Price: At the end of fiscal 2011, Kraft Foods had estimated sales of $54.365 billion and profits of $3.547 billion The company made the decision to reduce its cost structure without affecting the quality of its products The operators have adopted a reasonable pricing policy for most of their brands and products because of the purpose

of serving diverse consumer markets Kraft Foods must keep its product prices at the same level as rival brands in order to gain a competitive advantage

Promotion: Kraft Food has applied intensive advertising plans for its brands and products Right in the early years of development, the brand distributed circulars to advertise its products It then began advertising in many countries through radio, newspapers, and leaflets It now uses every possible means to successfully process its products through more popular channels such as television, magazines, and billboards

in popular places Kraft Food pays special attention to advertising on social media platforms and regularly sponsors community campaigns to create a positive brand image

Content is the "lifeline" of Kraft "Killer content strategy", that's exactly what the media thinks of when they look at Kraft Kraft was really at the forefront of Content Marketing long before that term was coined They launched kraftfoods.com in

1992 — the year before many of their competitors launched websites This site has

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evolved over the years to include a wide range of recipes and food-related content By

2005, they also included the content on the Website into the content of print

publications, food, and family magazines (SIC)

“Content used to be a side project, but now it is our lifeline,” said Julie Fleischer, director of Data, Content, Media at Kraft Foods This is a great asset for Kraft.”

“Content increases RO] (Return on Investment)” 1s also reported by Fleischer, who says that food spend has been greatly increased thanks to Kraft Foods’ content strategy with figures increasing by about 300%-600 %

Kraft Food Make themself a part of users' lives

Kraft educates its audience, in other words, it teaches customers about creating easy meals that families will love, Kraft Foods "makes itself an integral part" of their lives parents But it's not just Kraft Foods that runs recipes online regularly on its homepage

As Julie Fleischer pointed out in an interview with Forbes, Kraft's culinary experts are responsible for one-third of the content on kraftrecipes.com, with the other two-thirds coming from “the users themselves." By allowing users to take the lead and create massive amounts of content on the homepage, Kraft promotes its positive relationship with consumers In its content marketing strategy, the PR is not in the direct marketing messages, but the brand turns it into suggestions for consumers, such

as suggesting some dishes consumers can use for each of your meals

Content is the marketing strategy of Kraft Foods and is also a huge asset that puts Kraft in the No 2 position in the world in the confectionery industry Making myself a part of my parents’ housework helped boost both the sales of the Kraft brand

as consumers saw Kraft in their daily meals and in helping to make the food delicious food and create a community for consumers

1.3 ISSUE

The disagreement stems from a contract signed when Kraft started distributing Starbucks packaged coffee through retailers in

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1998 Starbucks made Kraft an offer of $750 million in 2010 when sales of its ground whole bean coffee reached $500 million yearly

(Katie, 2023)

Starbucks wanted more flexibility to advertise the single-serve coffee pods that were becoming increasingly popular at the time Starbucks was only permitted to sell pods compatible with Kraft's Tassimo machines under the terms of the company's contract with Kraft In a race for market share with Green Mountain Coffee's Keurig system and K-Cụp single serving packs, Starbucks was in risk of leaving behind

The arrangement was eventually terminated despite Kraft's objections, but Starbucks chose to do so anyway and started selling K-Cup packs (Katie, 2023)

After that, Starbucks' market share for single-serving pods increased by 18.4% Moreover, Starbucks’ profits for its grocery store items (including their bottled drinks) increased by about 47% over the course of two years as a result of no longer sharing profits with Kraft, generating $1.4 billion in revenue in fiscal 2013 (Katie, 2023)

Since the two sides were unable to come to an agreement on their own, the disagreement over Starbucks’ decision to dissolve their cooperation ultimately moved to arbitration The payment was given to Mondelez, a 2012 spinoff of Kraft that makes snacks and confections (Katie, 2023)

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