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NORTHFIELD, Illinois (


) --

Kraft Foods


said Monday it started an arbitration proceeding to challenge


(SBUX) - Get Starbucks Corporation Report

attempt to end their

12-year packaged coffee agreement


Starbucks, in documents obtained by


, claimed that Kraft mismanaged store displays and marketing and failed to take measures to "address the erosion of Starbucks market share." Starbucks' claims were found in an Oct. 5 letter from Starbucks' attorney Aaron Panner to Deanie Elsner, president of North American beverages at Kraft,

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Unless Kraft fixed the breaches within 30 days, the letter said, their deal. in which Kraft sells Starbucks and Seattle's Best bagged coffees at grocery stores and other retail chains, would end next March.

Starbucks, in another letter, dated Nov. 5, said Kraft "made no effort" to cure the breaches and so the deal would end, according to



Kraft, on Monday, fought back against the claims saying it has grown the Starbucks retail grocery coffee business to about $500 million in revenue "through its considerable expertise and resources." Kraft said over the years "Starbucks has recognized and acknowledged Kraft's role in building Starbucks presence in grocery stores."

"Kraft and Starbucks entered into a contract that remains in effect indefinitely, subject to certain limitations and protections. Notably, the companies agreed to a straightforward basis under which Starbucks could take over the business in order to pursue a different arrangement," Kraft said in a statement Monday. "Under the agreement, there needs to be sufficient time for Kraft to execute an orderly transition and Starbucks must compensate Kraft for the fair market value of the business plus, under most circumstances, a premium of up to 35% of that value."

-- Written by Joseph Woelfel

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Joseph Woelfel

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