Mrs. Fields Turns Up the Heat in Interbake Battle Over Cookies

(Bloomberg) -- Mrs. Fields Brands Inc. thought it had a solution for declining mall traffic and changing consumer tastes when it inked a distribution agreement with Interbake Foods LLC. Instead, the deal crumbled.

Three years into a five-year pact, Interbake walked away. Now the two companies are locked in a courtroom battle and a Delaware judge will have to decide who’s to blame. Mrs. Fields is seeking tens of millions of dollars in damages at a trial starting Nov. 9 in Wilmington over lost sales of chocolate-chip cookies and brownies at grocery and convenience stores.

Interbake, which makes Girl Scout cookies and store-brand treats for retailers such as Wal-Mart Stores Inc., walked away from the agreement in April, accusing its partner of manipulating sales figures and failing to promote the brand. Mrs. Fields sued, claiming Interbake sabotaged the deal so it could steal its customers and recipes after the cookie company rejected a buyout offer.

“Agreements designed to increase retail sales outside malls are very meaningful to companies like Mrs. Fields,” said Darren Tristano, president of Chicago-based Technomic, an industry research and consulting firm.

The deal required Interbake, a unit of Canadian conglomerate George Weston Ltd., to reach targets for retail sales of the cookies. Ms. Fields says Interbake failed to hit the marks. Interbake says it did, with sales of $23 million in 2013, $17 million in 2014 and $18 million in 2015, but was promised it could sell much more.

Iconic Treats

Geoff Wilson, a George Weston spokesman, and Dustin Lyman, chief executive of Mrs. Fields’ parent Famous Brands International, declined to comment on the Delaware case. Lyman is a former tight-end for the National Football League’s Chicago Bears.

Both sides in the battle over these iconic confections have deep roots. Mrs. Fields, based in Broomfield, Colorado, traces its start to founder Debbie Fields’ original store, opened in 1977 in Palo Alto, California. Interbake was born as Southern Biscuit Works in 1899 and began selling its famous Sailor Boy Pilot Bread 20 years later, according to its website. In 1937, the company became an official baker of Girl Scout cookies.

While Mrs. Fields has name recognition, the brand wasn’t among the top 20 U.S. cookies during the past 12 months ending in September, according to data from consumer research firm IRI. Global-snack giant Mondelez International Inc.’s Oreos and Chips Ahoy are the largest cookie brands in the $8 billion market.

Mrs. Fields Turns Up the Heat in Interbake Battle Over Cookies

Mrs. Fields filed for bankruptcy in 2008 in hopes of wiping out $145 million in debt and revitalizing the brand, according to court filings. Z Capital Group, a private-equity fund and one of Mrs. Fields’ creditors, acquired the chain in 2013. 

In March 2015, the Wall Street Journal reported that the New York-based fund was considering putting Famous Brands up for sale. That prompted Interbake officials to renew efforts to buy Mrs. Fields’ line of retail cookies, according to court filings. 

Cookie Lies

“Interbake repeatedly sought to purchase the brand beginning shortly after signing the license agreement,” Mrs. Fields’ lawyers said.

After being rebuffed, Interbake sent a letter to Mrs. Fields signaling its plans to pull out of the five-year licensing pact, scheduled to run until December 2017. Interbake said Mrs. Fields lied about how many cookies Interbake could expect to sell in grocery and convenience stores, according to court papers.

“Mrs. Fields filed this lawsuit seeking to make Interbake the scapegoat for its own faults,” Interbake’s lawyers said in a court filing.

Mrs. Fields countered that Interbake’s claims were a pretext for pulling out. Interbake launched a “covert plan” last year to scuttle the sales pact and “convert Mrs. Fields’ assets, including shelf space, goodwill with retailers and even recipes for its own benefit,” Mrs. Fields lawyers said in court papers.

Delaware Chancery Court Judge Andre Bouchard ordered Interbake to keep selling Mrs. Fields cookies until he rules.

Disputes over distribution agreements are rare in the food industry, said Peter Hsia, a partner at Kurt Salmon Associates, a retail consulting firm that was acquired in September by Accenture Plc.

“If a brand is growing and doing really well and making you money, you’re never going to have a conflict,” he said. “The challenge is when the brand you’re committed to isn’t doing that well.”

The case is The Mrs. Fields Brands v. Interbake Foods LLC, CA12201, Delaware Chancery Court (Wilmington).