Starbucks 2005 Annual Report Download - page 9

usually under long-term supply contracts. Food products, such as fresh pastries and lunch items, are generally
purchased from both regional and local sources. Coffee-making equipment, such as drip and French press
coffeemakers, espresso machines and coffee grinders, are generally purchased directly from their manufactur-
ers. Coffee-related accessories, including items bearing the Company's logos and trademarks, are produced
and distributed through contracts with a number of different suppliers.
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 Starbucks.
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.
Starbucks 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 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.
Starbucks 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.
Patents, Trademarks, Copyrights and Domain Names
The Company owns and/or has applied to register numerous trademarks and service marks in the United
States and in more than 150 additional countries throughout the world. Rights to the trademarks and service
marks in the United States are generally held by a wholly owned affiliate of the Company and are used by the
Company under license. Some of the Company's trademarks, including Starbucks», the Starbucks logo,
Frappuccino», Seattle's Best Coffee» and Tazo» are of material importance to the Company. The duration of
trademark registrations varies from country to country. However, trademarks are generally valid and may be
renewed indefinitely as long as they are in use and/or their registrations are properly maintained.
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