Answer the following based on the reading.

1. Which type(s) of conflict

management strategy is/are

described in this case?

2. Is JABs approach to negotiations

distributive or integrative? Explain

your reasoning.

3. Do you think JABs approach

to negotiating extended

payment terms with suppliers

will catch on in other industries?

Why or why not?

JAB Holding Co., the closely held

investment firm thats building a coffee

and soft drinks empire, has tapped

a simple formula to help it grow: buy

now and pay later. Much later.

With Mondays purchase of

Dr. Pepper

Snapple Group, the investment

firm behind the worlds No. 2

coffee company has made some

$58 billion of acquisitions in the past

six years. One secret to its success

concerns its coffee suppliers, who

agree to be paid as many as 300 days

after selling the beans.

The lengthening payment terms

are unprecedented in the commodities

industry, where money in many

cases still changes hands shortly

after the goods are received. The

strategy is squeezing trade houses,

from No. 1 Neumann Kaffee Gruppe

to Ecom Agroindustrial Corp. and

Volcafe Ltd., turning them into bankers

supplying credit while leaving

JAB cash rich.

The main purpose of the long

payment terms is cash flow, said Jim

Watson, a senior beverages analyst

at Rabobank International, a leading

financier of the coffee trade. It just

opens up a lot of cash that would

be otherwise tied up with suppliers,

helping with acquisitions, he said.

JAB has been striking deal after

deal since 2012, buying controlling

stakes in companies such as Peets

Coffee & Tea, Caribou Coffee, and

D.E. Master Blenders 1753, now known

as Jacobs Douwe Egberts after a

merger with Mondelez Internationals

coffee unit. In 2015, the group acquired

Keurig Green Mountain Inc. for almost

$14 billion in the coffee industrys

biggest-ever deal. Last year, it snapped

up U.S. cafe chain Panera for $7.2 billion.

On Monday, Keurig expanded

beyond coffee and breakfast foods to

pay Dr. Pepper Snapple shareholders

$18.7 billion in cash to add some of

the biggest soft drink brands.

Combined, our nationwide distribution

system will be unrivaled,

Keurig Chief Executive Officer Bob

Gamgort said on a call with analysts.

Jacobs Douwe Egberts, or JDE,

last year pulled even with Nestle

SA in terms of retail coffee volumes,

though its sales still lag by value,

according to data from Londonbased

consumer research company

Euromonitor International Ltd. Some

traders estimate all companies

acquired by JAB may already be

buying more green coffee than the

maker of Nespresso.

Alongside its coffee holdings,

JABrun by senior partners Peter Harf,

Bart Becht and Olivier Goudethas

invested the fortune of Austrias Reimann

family and other investors funds

in a range of consumer-goods companies,

including fragrance maker Coty

Inc. and Reckitt Benckiser Group Plc.

Four Reimann siblingsRenate

Reimann-Haas, Matthias Reimann-

Andersen, Stefan Reimann-Andersen

and Wolfgang Reimanneach have

a net worth of about $4.3 billion,

according to the Bloomberg Billionaires

Index.

The rapid expansion into coffee has

given JAB growing market influence.

Some traders have been asked for

up to 300 days of financing, while

others provide 260 days, or about

three times as long as Nestle typically

demands, according to people familiar

with the arrangements who asked

not to be identified because they fear

losing supply contracts. Buyers pay

interest on their financed purchases,

though rates in Europe remain near

historic lows.

Bean Counters

The company doesnt disclose how

much coffee it buys, but traders estimate

that JDE alone purchases some

720,000 tons annually. While the cost

of coffee varies widely with quality

and the country of origin, that would

amount to about $1.3 billion a year

based on the current price of robusta

futures. For milder arabica beans, it

would total about $2 billion.

JAB had 4.46 billion euros

($5.52 billion) of borrowings and

15.72 billion euros of equity at the end

of June, along with 798 million euros

of cash, its financial statements show.

Moodys Investors Service affirmed

JABs long-term issuer rating of Baa1

after the Dr. Pepper deal, citing both

the sound strategic rationale of the

proposed merger and the improvement

that this transaction will bring to

JABs portfolio of investments.

As the coffee industry consolidates,

following the path of the beer industry,

traders are getting squeezed. Only

the bigger houses are able to provide

such extensive financing and tougher

competition will end up leading to a

concentration of traders as well, said

Michael von Luehrte, secretary general

of the Swiss Coffee Trade Association,

whose members represent

more than half of the bean exports

from producing countries.

Brewing Consolidation

What we have seen on the industry

side will replicate itself on the trade

side, von Luehrte said. A lot of companies

will have to look at their business

models and find out whats the

ideal mix between traditional physical

trading, speculative trading and the

financing part. But its clear that the

end users, the roasters, they are

demanding today many more services

that are more banking-related, trade

financing-related.

Our extended payment terms

have been in place for many years,

said Becht, JDEs chairman. JDE as

buyers have paid for the extra costs

that go along with the extended pay

periods, so this cannot be used as an

argument for the alleged extra pressure

some trading houses might now

be experiencing.

The longer payment terms do carry

risks. Sharply higher interest rates

or a sudden spike in futures prices

could leave traders with losses or

stretch their financing needs as hedging

costs go up. While JAB has deep

pockets, should its financial standing

deteriorate banks could pull or tighten

traders credit lines. And industry consolidation

means traders are more

exposed to fewer companies.

The counterpart risk is widely

underestimated, von Luehrte said.

We always think one dimensionally.

For instance the market is running up

and suppliers at origin are defaulting

on us. But it can also be the other way

around, that suddenly a roaster is having

financial problems.