Starbucks 2004 Annual Report Download - page 4

Fiscal 2004 Annual Report 15
Product sales to and royalty and license fee revenues from
International licensed retail stores accounted for 15% of specialty
revenues in fi scal 2004. In total, worldwide retail store licensing
accounted for 39% of specialty revenues in fi scal 2004.
In fi scal 2004, the Company expanded its licensing
relationship with Kraft Foods, Inc. (“Kraft”) to include
a larger selection of Starbucks® whole bean and ground
coffees, as well as Seattle’s Best Coffee® and Torrefazione
Italia® branded coffees and a selection of premium Tazo®
teas, in grocery and warehouse club stores throughout the
United States. Kraft manages all distribution, marketing,
advertising and promotion and pays a royalty to Starbucks.
By the end of fi scal 2004, the Company’s coffees and teas
were available in approximately 20,000 grocery and warehouse
club stores: 19,000 in the United States and 1,000 in
International markets. Revenues from this category comprised
27% of specialty revenues in fi scal 2004.
The Company has licensed the rights to produce and distribute
Starbucks branded products to two partnerships in which the
Company holds a 50% equity interest: The North American
Coffee Partnership with the Pepsi-Cola Company develops and
distributes bottled Frappuccino® and Starbucks DoubleShot®
coffee drinks; and the Starbucks Ice Cream Partnership with
Dreyer’s Grand Ice Cream, Inc., develops and distributes
superpremium ice creams. In fi scal 2004, the Company entered
into an agreement with Jim Beam Brands Co., a unit of Fortune
Brands, Inc., to develop, manufacture and market a Starbucks-
branded premium coffee liqueur product in the United States.
The Company conducted tests of this product in two U.S.
markets in the fi scal fourth quarter and expects to introduce
the product nationally during the fi scal second quarter of
2005 in retail locations licensed to sell distilled spirits, such
as restaurants, bars and retail outlets where premium distilled
spirits are sold. The Company will not sell the liqueur product
in its Company-operated or licensed retail stores. The associated
revenues from this category accounted for 1% of specialty
revenues in fi scal 2004.
Foodservice Accounts
The Company sells whole bean and ground coffees, including
the Starbucks, Seattle’s Best Coffee and Torrefazione Italia
brands, as well as a selection of premium Tazo teas, to
institutional foodservice companies that service business,
industry, education and healthcare accounts, offi ce coffee
distributors, hotels, restaurants, airlines and other retailers.
Beginning in fi scal 2003, the Company transitioned the majority
of its U.S. foodservice accounts to SYSCO Corporation’s
national broadline distribution network and aligned foodservice
sales, customer service and support resources with those of
SYSCO Corporation. This alliance greatly improved customer
service levels and is expected to continue to generate new
foodservice accounts over the next several years. Starbucks and
Seattle’s Best Coffee are the only superpremium national-brand
coffees actively promoted by SYSCO Corporation.
The Company’s total worldwide foodservice operations had
approximately 13,700 foodservice accounts at fi scal year end
2004, and revenues from these accounts comprised 31% of total
specialty revenues.
Other Initiatives
The Company maintains a website at Starbucks.com where
customers may purchase, register or reload Starbucks stored
value cards, as well as apply for the Starbucks Card Duetto™
Visa® (the “Duetto Card”), issued through the Company’s
agreement with Bank One Corporation and Visa. The Duetto
Card is a fi rst-of-its-kind card, combining the functionality
of a credit card with the convenience of a reloadable
Starbucks Card. Additionally, the website contains information
about the Company’s coffee products, brewing equipment and
store locations.
In fi scal 2004, the Company entered into a strategic marketing
alliance with XM Satellite Radio related to the debut of the
24-hour Starbucks Hear Music™ channel 75. This channel is
available to all XM Satellite Radio subscribers, and Starbucks
customers will be able to enjoy the same programming when it
is launched in more than 4,000 Company-operated locations in
the United States during fi scal 2005. Collectively, the operations
of these other initiatives accounted for 2% of specialty revenues
in fi scal 2004.