A three-year dispute between Starbucks and Kraft Foods over distribution of Starbucks packaged coffee in grocery stores was resolved on November 12, when an arbitrator determined that Starbucks had breached its agreement with Kraft and ordered the coffeemaker to pay the food giant $2.75 billion, Stephanie Strom reported in The New York Times.

The dispute dates back to an agreement negotiated in 1998 when Kraft began selling Starbucks packaged coffee through grocery stores. In 2010, with sales of its ground whole bean coffee reaching $500 million annually, Starbucks offered Kraft $750 million to end their agreement.

Starbucks wanted greater flexibility to sell the single-serve coffee pods that were taking off in the market at the time. The company’s agreement with Kraft limited Starbucks to selling pods that worked in Kraft’s Tassimo machines. Starbucks was in danger of being left behind in a race for market share against Green Mountain Coffee’s Keurig system and K-Cup single serving packs.

Kraft objected to the deal termination, but Starbucks broke off the business relationship nonetheless and began selling K-Cup packs.

Since then, Starbucks’ share of the single-serving pod market has grown 18.4% according to Strom. And, no longer sharing profits with Kraft, Starbucks has seen its profits for its grocery store products (including bottled drinks) climb by 47% over the last two years, with $1.4 billion in revenues in fiscal 2013.

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