Milk sales have suffered in recent decades, but Elmhurst may have been dealt a more severe blow than most recently when Starbucks, its best customer, decided to source its milk elsewhere, according to Mr. Valentine, who started with the company loading trucks in 1982. Elmhurst is in the process of suing Bartlett Dairy-which
distributes Starbucks products-Starbucks and Dean Foods, a major food processor whose upstate Garelick Dairy has taken over supplying the coffee chain. Elmhurst claims Starbucks pulled the rug out from under it after it built Bartlett and Starbucks a $5.5 million warehouse in 2003 as part of an exclusive 10-year agreement to supply all the processed milk distributed by Bartlett, including all the milk distributed by Bartlett to Starbucks locations in the New York metro area. Starbucks, on the other hand, argues that its contract wasn't with Elmhurst, but with Bartlett, and that it was but one of many Bartlett customers. However, it conducted an RFP (request for proposals) that Elmhurst was invited to participate in but declined. Elmhurst counters that there was no reason to bid on the contract since it already had an exclusive agreement with Bartlett, and would have essentially been bidding against itself. "We're in jeopardy," Mr. Valentine said. He added that Starbucks represented 10% of its business "but all of our profits. We've tried to put pressure on Starbucks to live up to their mission statement: they believe in the community they work in." (end of quote)
a) Discuss the problems faced by Elmhurst Dairy and by Starbucks in entering into a long-term supplier relationship.
b) Did Starbucks behave opportunistically? Why or why not?
c) Can you suggest terms that Elmhurst Dairy and Starbucks might want to have included in the contract?