Case Study for Starbucks Corporation October 2010 Arthur A. Thompson John E.

Gamble The University of Alabama

Starbucks Corporation is an international coffee and coffeehouse chain based in Seattle, Washington. Starbucks is the largest coffeehouse company in the world, with 17,009 stores in 50 countries, including over 11,000 in the United States, over 1,000 in Canada, over 700 in the United Kingdom, and over 150 in Turkey. Starbucks Mission Statement: Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow. Starbucks Mission Statement: establish Starbucks as the most recognized and respected brand in the world. Starbucks sells drip brewed coffee, espresso-based hot drinks, other hot and cold drinks, coffee beans, salads, hot and cold sandwiches and panini, pastries, snacks, and items such as mugs and tumblers. Through the Starbucks Entertainment division and Hear Music brand, the company also markets books, music, and film. Many of the company's products are seasonal or specific to the locality of the store. Starbucksbrand ice cream and coffee are also offered at grocery stores. In 2003, Starbucks was listed as one of the Fortune 500. Despite the ongoing recession, the company had managed a 31% increase in net revenues for the year. This was reasonable, considering they only spent about 1% of total sales on marketing. All of this, coupled with the fact that they were popular with customers and employees, was a sure recipe for success. From Starbucks' founding in later forms in Seattle as a local coffee bean roaster and retailer, the company has expanded rapidly. In the 1990s, Starbucks was opening a new store every workday, a pace that continued into the 2000s. The first store outside the United States or Canada opened in the mid-1990s, and overseas stores now constitute almost one third of Starbucks' stores. The company planned to open a net of 900 new stores outside of the United States in 2009, but has announced 900 store closures in the United States since 2008. Starbucks has been a target of protests on issues such as fair-trade policies, labor relations, environmental impact, political views, and anti-competitive practices. Sale and expansion In 1984, the original owners of Starbucks, led by Jerry Baldwin, took the opportunity to purchase Peet's (Baldwin still works there). In 1987, they sold the Starbucks chain to Schultz's Il Giornale, which rebranded the Il Giornale outlets as Starbucks and quickly began to expand. Starbucks opened its first locations outside Seattle at Waterfront Station in Vancouver, British Columbia, and Chicago, Illinois, that same year. At the time of its initial public offering on the stock market in 1992, Starbucks had grown to 165 outlets. Currently Starbucks is present in more than 55 countries.

In October 1995 Starbucks partnered with Dreyer's Grand Ice Cream to supply coffee extract for a new line of coffee ice cream made and distributed by Dreyer's under the Starbucks brand. The new line, featuring such flavors as Dark Roast Espresso Swirl, JavaChip, Vanilla MochaChip, Biscotti Bliss, and Caffe Almond Fudge The first Starbucks location outside North America opened in Tokyo, Japan, in 1996. Starbucks entered the U.K. market in 1998 with the $83 million acquisition of the then 60-outlet, UK-based Seattle Coffee Company, re-branding all the stores as Starbucks. In September 2002 Starbucks opened its first store in Latin America, in Mexico City. In August 2003 Starbucks opened its first store in South America in Lima, Peru. In November 2010, Starbucks opened the first Central American store in El Salvador's capital, San Salvador. On March 17, 2011 Starbucks opened its third restaurant in Central America and its first in Guatemala City , Guatemala. In April 2003, Starbucks completed the purchase of Seattle's Best Coffee and Torrefazione Italia from AFC Enterprises, bringing the total number of Starbucksoperated locations worldwide to more than 6,400. On September 14, 2006, rival Diedrich Coffee announced that it would sell most of its company-owned retail stores to Starbucks. This sale includes the company-owned locations of the Oregon-based Coffee People chain. Starbucks converted the Diedrich Coffee and Coffee People locations to Starbucks, although the Portland airport Coffee People locations were excluded from the sale. Many bookstores have Starbucks licensed stores within them, including Barnes & Noble in the United States, ChaptersIndigo in Canada (company operated), Livraria Saraiva and Fnac in Brazil and B2S in Thailand. The Starbucks location in the former imperial palace in Beijing closed in July 2007. The coffee shop had been a source of ongoing controversy since its opening in 2000 with protesters objecting that the presence of the American chain in this location "was trampling on Chinese culture."Also in 2007, Starbucks cancelled plans to expand into India, but opened its first store in Russia, ten years after first registering a trademark there.In 2008, Starbucks continued its expansion, settling in Argentina, Belgium, Bulgaria, the Czech Republic and Portugal. In Buenos Aires, the biggest Starbucks store in Latin America was opened. In April 2009, Starbucks entered Poland.New stores will be opened in Algeria.Starbucks has also opened its doors on August 5, 2009, in Utrecht, Netherlands. On October 21, 2009 it was announced that Starbucks will finally establish in Sweden, starting with a location at Arlanda airport outside Stockholm.On June 16, 2010 Starbucks opened its first store in Budapest, Hungary. In May 2010, Southern Sun Hotels South Africa announced that they had signed an agreement with Starbucks that would enable them to brew Starbucks coffees in select Southern Sun and Tsonga Sun hotels in South Africa. The agreement was partially reached in order for Starbucks coffees to be served in the country in time for the commencement of the 2010 FIFA World Cup hosted by South Africa. Recent changes In March 2008, Schultz made several announcements to Starbucks shareholders. Schultz introduced Starbucks' "state of the art espresso system", the Thermoplan AG manufactured Mastrena, which replaced their previous superauto, the Thermoplan Verismo 801 (known internationally as the Thermoplan Black & White). Starbucks also announced that the company hopes to enter the energy drink market. Preground beans will no longer be used, so that the grinding of whole bean coffee will "bring aroma, romance and theater" to American stores. The company also announced the acquisition of The Coffee Equipment Company,the manufacturer of

the Clover Brewing System. They are currently test marketing this "fresh-pressed" coffee system at six Starbucks locations; three in Seattle, and three in Boston. In early 2008, Starbucks started a community website, My Starbucks Idea, designed to collect suggestions and feedback from customers. Other users comment and vote on suggestions. In May 2008, a loyalty program was introduced for registered users of the Starbucks Card (previously simply a gift card) offering perks such as free Wi-Fi Internet access, no charge for soy milk & flavored syrups, and free refills on brewed drip coffee.[34] Free Wi-Fi Internet access varies in different regions. US & Canadian card holders can access 2 hours of Internet access through AT&T in the United States and through Bell Canada within Canada. In Germany customers can get 2 hour of free Wi-Fi through BT Openzone, and in Switzerland and Austria customers can get 30 minutes with a voucher card (through T-Mobile). In June 2009, the company announced that it will be overhauling its menu and selling salads and baked goods without high-fructose corn syrup or artificial ingredients. The move is expected to attract health- and cost-conscious consumers and will not affect prices. At least three stores in Seattle were "debranded" to remove the logo and brand name, and remodel the stores as local coffee houses "inspired by Starbucks." The first, 15th Avenue Coffee and Tea, opened in July on Capitol Hill after Starbucks employees visited local coffee houses to look around. It serves wine and beer, and plans to host live music and poetry readings. The practice has been criticized as "local-washing", similar to greenwashing. VIA "Ready Brew" instant coffee Starbucks introduced a brand new line of instant coffee packets called VIA "Ready Brew", in March 2009. It was first unveiled in New York City with subsequent testing of the product also in Seattle, Chicago and London. The first two VIA flavors include Italian Roast and Colombia, which were then rolled out in October 2009, across the U.S. and Canada with Starbucks stores promoting the product with a blind "taste challenge" of the instant versus fresh roast. Many people could not tell the difference between the instant and fresh brewed coffee. Some analysts theorized that by introducing instant coffee, Starbucks will devalue its own brand. After the VIA was successfully launched, they introduced the Decaf Italian Roast as well as a sweetened version called "iced". In October 2010, Starbucks expanded the VIA selection by introducing four new presweetened flavored versions: Vanilla, Caramel, Cinnamon Spice and Mocha. In 2003 Starbucks closed all six of its locations in Israel, citing "on-going operational challenges" and a "difficult business environment." On July 1, 2008, the company announced it was closing 600 underperforming company-owned stores and cutting U.S. expansion plans amid growing economic uncertainty. On July 29, 2008, Starbucks also cut almost 1,000 non-retail jobs as part of its bid to reenergize the brand and boost its profit. Of the new cuts, 550 of the positions were layoffs and the rest were unfilled jobs. These closings and layoffs effectively ended the companys period of growth and expansion that began in the mid-1990s. On January 28, 2009, Starbucks announced the closure of an additional 300 underperforming stores and the elimination of 7,000 positions. CEO Howard Schultz also announced that he had received board approval to reduce his salary.Altogether, from February 2008 to January 2009, Starbucks terminated an estimated 18,400 U.S. jobs and began closing 977 stores worldwide.

In 2004, Starbucks began reducing the size of their paper napkins and store garbage bags, and lightening their solid waste production by 816.5 metric tons (1.8 million pounds). In 2008, Starbucks was ranked No.15 on the U.S. Environmental Protection Agency's list of Top 25 Green Power Partners for purchases of renewable energy. Fair trade In 2000, the company introduced a line of fair trade products.[104] Of the approximately 136,000 metric tons (300 million pounds) of coffee Starbucks purchased in 2006, only about 6% was certified as fair trade. According to Starbucks, they purchased 2,180 metric tons (4.8 million pounds) of Certified Fair Trade coffee in fiscal year 2004 and 5,220 metric tons (11.5 million pounds) in 2005. They have become the largest buyer of Certified Fair Trade coffee in North America (10% of the global market). Transfair USA, the only third-party certifier of Fair Trade Certified coffee in the United States, has noted the impact Starbucks has made in the area of Fair Trade and coffee farmer's lives: Since launching {its} FTC coffee line in 2000, Starbucks has undeniably made a significant contribution to family farmers through their rapidly growing FTC coffee volume. By offering FTC coffee in thousands of stores, Starbucks has also given the FTC label greater visibility, helping to raise consumer awareness in the process. All espresso roasts sold in the UK and Ireland is 100% Fairtrade.This means that the coffee in all cappuccinos and lattes are brewed with 100% Fairtrade Espresso. Groups such as Global Exchange are calling for Starbucks to further increase its sales of fair trade coffees Beyond Fair Trade Certification, Starbucks argues that it pays above market prices for all of its coffee. According to the company, in 2004 it paid on average $1.42 per pound ($2.64 kg) for high-quality coffee beans.This is in comparison to commodity prices which were as low as $0.50$0.60 in 200304. After a long-running dispute between Starbucks and Ethiopia, Starbucks agreed to support and promote Ethiopian coffees. An article in BBC NEWS, states that Ethiopian ownership of popular coffee designations such as Harrar and Sidamo is acknowledged even if they are not registered. The main reason Ethiopia fought so hard for this acknowledgement was to allow its poverty-stricken farmers a chance to make more money. Unfortunately, this has not been the case. In 2006 Starbucks says it paid $1.42 per pound for its coffee. At,the coffee Starbucks bought for $1.42 per pound had a selling price of $10.99 per pound. As of August 2010, Starbucks sells only one Ethiopian coffee on its website and it is proclaimed by the website to be new. Ethos, a brand of bottled water acquired by Starbucks in 2005, is sold at locations throughout North America. Ethos bottles feature prominent labeling stating "helping children get clean water", referring to the fact that $.05 from each $1.80 bottle sold ($.10 per bottle in Canada) is used to fund clean water projects in under-developed areas. Although sales of Ethos water have raised over $6,200,000 for clean water efforts, the brand is not incorporated as a charity. Market strategy Some of the methods Starbucks has used to expand and maintain their dominant market position, including buying out competitors' leases, intentionally operating at a loss, and clustering several locations in a small geographical area (i.e., saturating the market), have been labeled anti-competitive by critics. For example, Starbucks fueled its initial expansion into the UK market with a buyout of Seattle Coffee Company, but then used its capital and influence to obtain prime locations, some of which operated at a financial loss. Critics claimed this was an unfair attempt to drive out small, independent competitors, who could not afford to pay inflated prices for premium real estate. In the 2000s, Starbucks greatly increased its "licensed store" system, which permits Starbucks licenses only if they contribute to less than 20% of the licensee's gross income, are inside other stores or in limited or restricted access

spaces, as to not dilute the brand image. License agreements are rare in volume and usually only made with Fortune 1000 or similar sized chain stores. The licensed store system can create the illusion of 2 or more Starbucks cafes in the same shopping plaza, when one is a standalone company owned, and the others are licensed. The menus of licensed stores can be the same or trimmed or modified versions of the cafes, or be positioned as independent cafes that happen to sell Starbucks products (ex. Barnes & Noble). Coffee quality The March 2007 issue of Consumer Reports of American fast-food chain coffee called McDonalds Premium Roast coffee to be "cheapest and best", beating Starbucks, Burger King and Dunkin Donuts coffee. The magazine called Starbucks coffee "strong, but burnt and bitter enough to make your eyes water instead of open" Starbucks Financial Performance During the fiscal year ending September, 2007, reported revenues were $2.649 Billion. This was over $500 million higher than the previous year. Reported gross profit increased over $100million from 2000 to $581 million. Starbucks reported 2007 Operating Income of $252.5million, and Total Net Income $181.2 million, both figures increasing substantially from the previous year (Starbucks Corporation). Starbucks Corporation has quite a few very strong financial ratios, which we will now look at. The P/E ratio (profit/earnings) in 2001 was 49.08, which is far superior to the Industry average of 27.58 (Ratio, 2002). Starbucks EPS, earnings per share, of 81.79 is over five times higher than the industry average of 12.67 (Ratio, 2002). The quick ratio, which relates total current liabilities to cash, marketable securities, and receivables of 1.48 is a strong figure. Starbucks Corporation's Current Ratio of 0.91 is stronger than the industry average of 0.56. As the Current Ratio is the company's current assets / current liabilities, this indicates that Starbucks Corporation has the ability to satisfy it's current liabilities with it's current assets, and with the ratio of 0.91 it is a signal of financial strength. Some other ratios found from Multex.com include a Return on Assets of 11.31, a Return on Investment of 14.52, and a Return on Equity of 14.86. Starbucks ROA, and ROI are both stronger the industry average, but the ROE is slightly weaker than the industry average of 17.80. Inventory Turnover ratio is 11.48, which indicates that Starbucks Corporations inventory is highly liquid, and its operating cycles are very healthy (Ratio, 2002). This ratio is one more strong measure that Starbucks is a corporation that has exhibited strong financial performance. Operations Starbucks specialty operations strive to develop the Starbucks brand outside the Company-operated retail store environment though a number of channels. By establishing relationships with well-known third parties that share their values and commitment to quality, Starbucks is able to reach customers where they work, shop, and travel. These relationships take various forms, including grocery channel licensing agreements, warehouse club accounts, international retail store licensing agreements, direct-to-consumer market channels, joint ventures and more. Although Starbucks does not usually outsource operational control of its retail stores in North America, in situations where another company can provide improved access to desirable retail space, the Company licenses its operations. Starbucks has a longterm licensing agreement with Kraft Foods, Inc. to market and distribute Starbucks whole bean and ground coffees in the grocery channel in the United States. Kraft manages all distribution, marketing, advertising and promotions for this particular product. The Company has two non-retail domestic 50-50 joint ventures. This

includes one with PepsiCo, Inc. who develops and distributes ready-to-drink coffeebased products. Also, they have a joint venture with Dreyer's Grand Ice Cream, Inc. to develop and distribute Starbucks premium coffee ice creams. Starbucks also makes their coffee and coffee-related products available via mail order and online. For the most part, Starbucks is vertically integrated, controlling its coffee sourcing, roasting, and distribution through its retail stores. Marketing&Sales One of the main strengths of Starbucks over the years has been their tireless effort to make their product an uplifting part of people's daily lives. Starbucks' strategy for expanding its specialty operations is to reach customers where they work, travel, shop, and dine by establishing relationships with prominent third parties who share their values and commitment to quality. Starbucks has carried out their strategy by moving distribution into grocery stores, convenience stores, department stores, movie theatres, businesses, airports, schools, and homes. Starbucks has shown to use less of traditional advertising; instead relying more on its image advertising, such as movie and television placement, in order to promote the success of the business. CustomerService One of Starbuck's primary objectives is to provide a superior level of customer service. One of their guiding principles in their mission statement states, "Develop enthusiastically satisfied customers all of the time". In building customer loyalty, not only does Starbucks offer high levels of customer service, but they also strive to educate customers about coffee quality. There is an information section in each store that provides customers a good resource for becoming more knowledgeable about the world of coffee. Starbucks also publishes and distributes a mail order catalog and a catalog of business gifts that offer coffees, certain food items and select coffeemaking equipment and accessories. The company has several other initiatives to enhance the customers' experience at Starbucks retail stores. For example, the Company is currently in the process of implementing wireless Internet access in its stores. Starbucks does provide a "comment card" on their web site that allows customers to give constant feedback about their experiences or concerns they may have. This is used as a means of improving the business where necessary. Procurement Starbucks depends upon both its outside brokers and its direct contact with exporters for the supply of green coffee. Coffee sought by Starbucks tends to trade on a negotiated basis, usually quite a bit higher in price compared to their competitors. Supply and price can be affected by many factors in the producing countries, such as weather, political, and economic conditions. To reduce the risks associated with the unpredictability of coffee price and supply, Starbucks enters into long-term fixed price contracts with its suppliers to ensure an adequate supply of quality green coffee over extended periods of time. Starbucks is confident with such relationships and believes the risks of non-delivery on such purchase commitments are remote. Starbucks believes how they choose partners is critical to their success and have listed a few criteria: Shared values and corporate culture Strong multi-unit retail/restaurant experience Dedicated human resources Commitment to customer service Quality image Creative ability, local knowledge and brand-building skills Strong financial resources

During the past year Starbucks has been developing a new set of coffee sourcing guidelines. These sourcing guidelines are a flexible point system that rewards performance in sustainable categories with financial incentives. Ultimately, those who qualify for 100 points will be granted preferred supplier status with the Company's coffee buyers. TechnologicalDevelopment Starbucks is continuously searching for ways to better a customers' experience. With the introduction of the Starbucks Card for example, the Company has created the opportunity to improve customer service, shorten lines and make a customer's visit at Starbucks quicker and more convenient. Production-Operations Starbucks stores are typically clustered in high-traffic, high-visibility location in each market. Stores vary in size, with an average of approximately 1,500 square feet. Since the Company is able to vary the size of its stores, Starbucks stores are located in a variety of settings, including office buildings, downtown and suburban retail centers, airport terminals, and kiosks located usually in building lobbies. Whatever location the Company chooses to be in, its focus will be on attracting high pedestrian street traffic. The product mix in each store varies depending on the size and location of the store. Starbucks takes great care in picking the right location. Analyst Mitchell Speiser says that, "while chains like McDonalds and Wendy's routinely shutter 50 to 100 restaurants a year, Starbucks has closed only a small number of outlets in its 30year history". Starbucks has focused on improving efficiency and increasing its gross profit margins. Milk, for example, is the second most expensive product after coffee beans. Where Starbucks once had 65 different milk suppliers in the U.S., they now have fewer than 25. Without a doubt, this efficiency gain has saved them a lot of money. Marketing Starbucks is the leading specialty coffee retailer in the nation, with over 5,000 locations in 22 international markets. Starbucks positions their products on a relatively simple plane. They focus on quality and experience, rather than price. A comparison of specialty drinks with its competitors reveals very minor differences. Starbucks' image is one of the key elements to their success. The company has realized that people don't only come for the coffee; they come for the atmosphere. People socialize, read, study, or just enjoy the music while drinking their coffee. Knowing this, Coffee shops try to make their stores unique in some way or another that will create an appealing atmosphere. Starbucks has less of a distinct setting for their locations; instead, they focus on having plenty of comfortable seating so that people feel welcome to stay longer than they might have planned. Starbucks also positions each store individually according to the specific location it is in. This flexibility has attributed to the great success of the Company in the past decade. Another important part of Starbucks' positioning is that they are environmentally friendly. While other retailers position themselves in similar ways, no one focuses to the extent that Starbucks has. Consumers seem to respond to environmentally friendly companies who seem to truly care about the future of the world. Advertising strategies used by Starbucks has also been a key success factor. Starbucks has found more success advertising on a local level rather than to the nation as a whole. The Company advertises a lot through print mediums, as Starbucks' target market tends to be educated people who do more reading than the average person.

Research&Development Starbucks's organizational culture is one of innovation and creativity. This is evident through the continuous developments of new and exciting products. Whether it's the new 4-cup thermal coffeemaker recently introduced to the market, or the Starbucks 'DoubleShot' Espresso beverage, Starbucks seems to be the market leader when it comes to new products and ideas. In November 2001, the Company introduced the 'Starbucks Card', which is a stored-value card that can be loaded and re-loaded in denominations up to $500. The Starbucks Card is a wonderful convenience tool for customers that can serve as great gifts, and reduces time spent at the cash register. This contributes to the overall enhancement of the customer's experience. Starbucks is extremely pleased with the ongoing positive customer response to the Starbucks Card. It is through the introduction of new products and the development of new distribution channels that Starbucks focuses on their Company's goal of becoming the most recognized and respected brand in the world. Starbucks is one of the fastest growing companies in the U.S.; from just 17 coffee shops in 1987 to over 5,000 today. Future plans include opening at least 1,200 new stores during 2002 and by 2005, to have over 10,000 stores worldwide. Management Starbucks firmly believes that their employees are one of their important assets and that it's through their high quality workforce, that they are able to maintain a competitive advantage. They have successfully built a nation wide Retail Company by creating pride in the labor force produced through an empowering corporate culture; exceptional employee benefits, and employee stock ownership programs. Employees are empowered by management to make decisions without having to first report to management, and are encouraged to think for themselves as an entity of the business. The culture towards employees can be described as 'relaxed' and supportive. Starbucks has avoided a hierarchical organization structure and has no formal organizational chart. It is evident that employees at Starbucks share common goals. An employee was quoted as saying; "We all have this common belief in the product we sell". Economic Forces Economic factors are an important aspects that concern the nature and direction of the economy in which a firm operates. As part of its expansion strategy of clustering stores in existing markets, Starbucks has experienced a certain level of cannibalization of existing stores by new stores as store concentration has increased. However, management believes such cannibalization has been justified by the incremental sales and return on new store investments. This cannibalization, as well as increased competition and other factors, may continue to put downward pressure on the Company's comparable store sales growth in future periods. Sociological Forces As a result of Starbucks closely following their objectives, the company has installed a list of principles that further outline the company's willingness to make sure that its affect on the environment is as positive as possible. The importance of these guidelines is further illustrated by the company's mission to show leadership towards environmental issues Issues As stated previously, Starbucks still has a firm hold on the coffee market despite the rise of some major competitors. They set the standard for the modern coffee house, and many try to emulate their stores look and feel, but Starbucks still has many well-known beverages. New entrants will tend to be smaller neighborhood startups

and kiosks that will appeal to local markets and should pose only a minor threat to Starbucks loyal customer base. Internationally, coffee businesses can utilize the currently unpopular view of the U.S. and all things American to keep Starbucks from entering certain countries. Discounting anti-American sentiments, entry into the coffee business has few if any real barriers. Coffee has a deeply rooted presence in American culture, but in Asia and Europe, tea is consumed as much if not more frequently. As for Starbucks signature beverages, there is nothing about them that cannot be imitated either by other businesses or home-brewing experts. The truth is, anyone can brew a cup of coffee. With 45% of the market share and a loyal customer base, Starbucks does well at satisfying its clientele. A sluggish economy, however, can force even the most hardcore coffee lovers to cut costs wherever possible. When people decide to start making coffee at home or going to the local joint to save some money on their favorite beverage, one would think that Starbucks would take notice, but they continue to have the highest priced coffee products on the market. With consumption at all time highs in the U.S., customers are becoming increasingly picky when it comes to their coffees. Starbucks does offer reloadable cards for purchasing products online, which many customers certainly find convenient. Starbucks purchases their own coffee beans and uses them for their own products, but have been accused in the past of obtaining their beans from non-certifiable sources. They are very much under scrutiny from environmentalists and watchdog groups worldwide, which act to educate and protect the rights of the lower income growers in distant countries. Also, as the market for specialty beans continues to grow, growers will demand higher prices for their harvests.

Starbucks with three major competitors in the market. NWCI - New World Coffee Inc. DDRX - Diedrich Coffee, Inc. GMRC - Green Manhattan Coffee Inc. Because of the diversity of Starbucks competition, in the past three years the stocks do not seem to be a parallel population to each other. In specific, Green Manhattan stock peaked the highest of the four around one year ago. Starbucks Corporation stock has been on a steady and consistent rise for the past five years, and Diedrich Coffee, Inc., possibly because of the increased market share competition put on by Starbucks Corporation and Green Manhattan Inc, has seen a steady drop in stock prices over the past two years.

Business Summary New World Coffee - Manhattan Bagel, Inc. is the largest franchisor of bagel bakeries and coffee bars in the United States. It operates and franchises bagel bakeries and coffee bars in 26 states throughout the United States and the District of Columbia. The first Company-owned New World Coffee store opened in 1993 and the first franchised New World Coffee store opened in 1997. On November 24, 1998, the Company acquired the stock of Manhattan Bagel, Company, Inc. resulting in the addition of 6 Company-owned and 285 franchised and licensed Manhattan Bagel stores. On August 31, 1999, the Company acquired the assets of Chesapeake Bagel Bakery resulting in the addition of 80 franchised and licensed Chesapeake Bagel

Bakery stores. At December 26, 1999, the Company's retail system consisted of approximately 377 stores, including 15 Company-owned and 362 franchised and licensed stores. New World Coffee stores are designed to be conducive to capturing all three dayparts. In addition, the store atmosphere is designed to be a comfortable and inviting cafe setting through the use of natural materials, warm lighting, appropriate music and a comfortable seating area to promote the stores use as neighborhood gathering places. The Company's prototype store averages 1,400 - 1,800 square feet. New World Coffee stores offer, over the course of any given year, up to 30 varieties and blends of fresh roasted coffee, in brewed and whole bean format, from coffee producing countries around the world. Regular and decaffeinated "Coffees of the Day" are fresh brewed daily with strict brewing and freshness standards. The stores also offer a broad range of Italian-style beverages such as espresso, cappuccino, caffe latte, caffe mocha and espresso machiato. New World Coffee stores offer a selection of black, herbal and fruit teas, with one selection offered as the fresh brewed "Iced Tea of the Day," and also offer freshly squeezed orange and grapefruit juice. New World Coffee stores also offer a broad and deep variety of fresh, high quality food items. Breakfast offerings include bagels, croissants, muffins, danishes and scones; lunch offerings include Italian panini sandwiches and soups; dessert items include various cakes and cookies, dessert muffins, brownies and biscotti. Management is consistently working with its suppliers to develop a selection of quality food items which will complement beverage sales. Financial Summary New World Coffee-Manhattan Bagel owns, operates and franchises coffee bars, bagel bakeries and integrated coffee bar/bagel bakeries in 26 states and internationally. For the fiscal year ended 12/31/00, revenues increased 15% to $45.7 million. Net income applicable to Common before extraordinary item rose 78% to $3.9 million. Revenues reflect the acquisions of additional Company owned stores and the Chesapeake Bagel Bakery. Earnings also reflect increased margins and income tax benefits. Recent Earnings Announcement For the 3 months ended 04/01/2001, revenues were 10,475; after tax earnings were 250. (Preliminary; reported in thousands of dollars.) Business Summary Diedrich Coffee is a coffee company based in Irvine, CA. Its first coffee house in Orange County, CA was opened in 1983. It owns the American mall-based stores for Gloria Jean's Coffees. In Oregon, it previously ran Coffee People until nearly every location was bought and closed or converted into a Starbucks (Diedrich retained ownership of the Coffee People locations inside the Portland Airport.) The history of the company started with Charlotte Diedrich inheriting a coffee plantation in Costa Rica in 1916. Her son, Carl Diedrich joined the business in 1946 and purchased a coffee plantation in Antigua Guatemala in 1966. The first coffeehouse, a roastery, opened in Newport Beach in 1972. Diedrich Coffee, a neighborhood coffeehouse, was founded by Martin Diedrich in 1983. He took over the retail, roasting and importing facets of the family business from retiring Carl. In September 1996, Diedrich Coffee went public. The company bought up Coffee People, a company that included Gloria Jean's Coffees, in July 1999. In June 2004, Martin Diedrich resigned his position at Diedrich Coffee. In September 2006, Diedrich Coffee announced its plans to close its company-owned retail stores, 40 of which were sold to rival Starbucks and reopened under that brand. Franchisee-owned stores remained unchanged. The company continued as a roaster and wholesaler of coffee beans. However, a few independently owned and operated

Diedrich locations remained open in California and Texas. On November 3, 2009, California-based Peet's Coffee announced that it was buying Diedrich. On December 8, 2009, Vermont-based Green Mountain Coffee Roasters Inc. trumped the offer from Peet's Coffee and agreed to buy Diedrich for $290 million.