Starbucks 2007 Annual Report Download - page 6

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Licensing — Grocery and warehouse club
The Company, through a licensing relationship with Kraft Foods, Inc. (“Kraft”), sells a selection of Starbucks,
Seattle’s Best Coffee and Torrefazione Italia branded packaged coffees and Tazo»teas in grocery and warehouse
club stores throughout the United States. Kraft manages all distribution, marketing, advertising and promotion of
these products.
The Company sells packaged coffee and tea internationally both directly to warehouse club customers such as
Costco and through an expanded licensing relationship with Kraft. In February 2007, the licensing relationship with
Kraft was expanded globally and now also includes distribution of packaged coffee in Canada and the UK.
By the end of fiscal 2007, the Company’s coffees and teas were available in approximately 34,000 grocery and
warehouse club stores, with 30,000 in the United States and 4,000 in International markets. Revenues from this
category comprised 23% of specialty revenues in fiscal 2007.
Licensing — Branded products
The Company licenses the rights to produce and market Starbucks branded products through several partnerships
both domestically and internationally. The North American Coffee Partnership, a joint venture with the Pepsi-Cola
Company in which Starbucks is a 50% equity investor, manufactures and markets ready-to-drink beverages,
including bottled Frappuccino»beverages and Starbucks DoubleShot»espresso drinks. Other partnerships produce
and market branded products in these categories: superpremium ice cream (joint venture with Dreyer’s Grand Ice
Cream, Inc.), premium coffee liqueur (license agreement with Beam Global Spirits & Wine) and chocolate (license
agreement with The Hershey Company). Internationally, the Company licenses Starbucks Discoveries», a ready-to-
drink chilled cup coffee beverage, in Japan, Taiwan and South Korea.
Collectively, the revenues from these branded products accounted for 3% of specialty revenues in fiscal 2007.
Foodservice
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 and other related products, to institutional foodservice
companies that service business & industry, education, healthcare, office coffee distributors, hotels, restaurants,
airlines and other retailers. The majority of the Company’s direct distribution accounts are through national
broadline distribution networks with SYSCO Corporation and U.S. Foodservice
TM
. Starbucks foodservice sales,
customer service and support resources are aligned with those of SYSCO Corporation and U.S. Foodservice.
Starbucks and Seattle’s Best Coffee are the only superpremium national-brand coffees actively promoted by
SYSCO Corporation.
The Company’s total foodservice operations had approximately 18,000 accounts, primarily in the U.S., at fiscal
year end 2007, compared to approximately 16,200 accounts at fiscal year end 2006. Revenues from foodservice
accounts comprised 26% of total specialty revenues in fiscal 2007.
Other Initiatives
Included in this category is the Company’s entertainment business, which encompasses multiple music, book, film
and technology based initiatives designed to appeal to new and existing Starbucks customers. Among these
initiatives are strategic marketing and co-branding arrangements, such as the Starbucks XM Café Channel 45
available to all XM Satellite Radio subscribers and the availability of wireless broadband Internet service in United
States and Canadian Company-operated retail stores. The entertainment business also includes the Hear Music
label, an innovative record label and partnership between Starbucks Entertainment and Concord Music Group. In
fiscal 2007, Starbucks and Apple»announced an exclusive partnership that lets customers wirelessly browse,
preview, buy and download music from the iTunes»Wi-Fi Music Store onto their wireless devices while at
participating Starbucks locations.
The Company has a strategic agreement with Chase Bank USA, N.A. and Visa to issue the Starbucks Card Duetto
TM
Visa»(the “Duetto Card”) in the United States, and a similar arrangement with Royal Bank of Canada and Visa
4