Starbucks Corporation, which was formed in 1985 as a Washington corporation, (together
with its subsidiaries, ?Starbucks? or the ?Company?) purchases and roasts high-quality
whole bean coffees and sells them, along with fresh, rich-brewed coffees, Italian-style
espresso beverages, cold blended beverages, a variety of complementary food items,
coffee-related accessories and equipment, a selection of premium teas and a line
of compact discs, primarily through Company-operated retail stores.
Starbucks sells coffee and tea products through other channels, and, through
certain of its equity investees, Starbucks also produces and sells bottled Frappuccino?
and Starbucks DoubleShotTM coffee drinks and a line of premium ice creams. These
non-retail channels are collectively known as ?Specialty Operations.? The Company?s
objective is to establish Starbucks as the most recognized and respected brand
in the world. To achieve this goal, the Company plans to continue rapid expansion
of its retail operations, to grow its Specialty Operations and to selectively
pursue other opportunities to leverage the Starbucks brand through the introduction
of new products and the development of new channels of distribution.
The Company?s retail goal is to become the leading retailer and brand of coffee
in each of its target markets by selling the finest quality coffee and related
products and by providing superior customer service, thereby building a high
degree of customer loyalty. Starbucks strategy for expanding its retail business
is to increase its market share in existing markets primarily by opening additional
stores and to open stores in new markets where the opportunity exists to become
the leading specialty coffee retailer. In support of this strategy,
Starbucks retail stores are typically located in high-traffic, high-visibility
locations. Because the Company can vary the size and format, its stores are
located in a variety of settings, including downtown and suburban retail centers,
office buildings and university campuses. While the Company selectively locates
stores in suburban malls, it focuses on stores that have convenient access for
pedestrians and drivers.
All Starbucks stores offer a choice of regular and decaffeinated coffee beverages,
a broad selection of Italian-style espresso beverages, cold blended beverages,
iced shaken refreshment beverages and a selection of teas and distinctively
packaged roasted whole bean coffees. Starbucks stores also offer a selection
of fresh pastries and other food items, sodas, juices, coffee-making equipment
and accessories, a selection of compact discs, games and seasonal novelty items.
Each Starbucks store varies its product mix depending upon the size of the store
and its location. Larger stores carry a broad selection of the Company?s whole
bean coffees in various sizes and types of packaging, as well as an assortment
of coffee and espresso-making equipment and accessories such as coffee grinders,
coffeemakers, coffee filters, storage containers, travel tumblers and mugs.
Smaller Starbucks stores and kiosks typically sell a full line of coffee beverages,
a limited selection of whole bean coffees and a few accessories such as travel
tumblers and logo mugs.
Starbucks is committed to selling only the finest whole bean coffees and coffee
beverages. To ensure compliance with its rigorous coffee standards, Starbucks
controls its coffee purchasing, roasting and packaging, and the distribution
of coffee to its retail stores. The Company purchases green coffee beans from
coffee-producing regions around the world and custom roasts them to its exacting
standards for its many blends and single origin coffees.
Competition
The Company?s primary competitors for coffee beverage sales are restaurants,
specialty coffee shops and doughnut shops. In almost all markets in which the
Company does business, there are numerous competitors in the specialty coffee
beverage business, and management expects this situation to continue. Although
competition in the beverage market is currently fragmented, a major competitor
with substantially greater financial, marketing and operating resources than
the Company could enter this market at any time and compete directly against
the Company.
The Company?s whole bean coffees compete directly against specialty coffees
sold through supermarkets, specialty retailers and a growing number of specialty
coffee stores. Both the Company?s whole bean coffees and its coffee beverages
compete indirectly against all other coffees on the market. The Company believes
that its customers choose among retailers primarily on the basis of product
quality, service and convenience, and, to a lesser extent, on price.
The Company believes that supermarkets are the most competitive distribution
channel for specialty whole bean coffee, in part because supermarkets offer
customers a variety of choices without having to make a separate trip to a specialty
coffee store. A number of nationwide coffee manufacturers are distributing premium
coffee products in supermarkets that may serve as substitutes for the Company?s
coffees. Regional specialty coffee companies also sell whole bean coffees in
supermarkets.
In addition to the competition generated by supermarket sales of coffee, Starbucks
competes for whole bean coffee sales with franchise operators and independent
specialty coffee stores. In virtually every major metropolitan area where Starbucks
operates and expects to expand, there are local or regional competitors with
substantial market presence in the specialty coffee business. Starbucks Specialty
Operations also face significant competition from established wholesale and
mail order suppliers, some of whom have greater financial and marketing resources
than the Company.
The Company faces intense competition from both restaurants and other specialty
retailers for suitable sites for new stores and qualified personnel to operate
both new and existing stores. There can be no assurance that Starbucks will
be able to continue to secure adequate sites at acceptable rent levels or that
the Company will be able to attract a sufficient number of qualified personnel.
