Starbucks 2013 Annual Report Download - page 15

7
Foodservice
Revenues from foodservice accounts comprised 4% of total net revenues in fiscal 2013. We sell Starbucks® and Seattle’s Best
Coffee® whole bean and ground coffees, a selection of premium Tazo® teas, Starbucks VIA® Ready Brew, and other coffee and
tea related products to institutional foodservice companies that service business and industry, education, healthcare, office
coffee distributors, hotels, restaurants, airlines and other retailers. We also sell our Seattle’s Best Coffee® through arrangements
with national accounts. The majority of the sales in this channel come through national broadline distribution networks with
SYSCO Corporation, US Foodservice™, and other distributors.
Product Supply
Starbucks is committed to selling only the finest whole bean coffees and coffee beverages. To ensure compliance with our
rigorous coffee standards, we control coffee purchasing, roasting and packaging, and the global distribution of coffee used in
our operations. We purchase green coffee beans from multiple coffee-producing regions around the world and custom roast
them to our exacting standards for our many blends and single origin coffees.
The price of coffee is subject to significant volatility. Although most coffee trades in the commodity market, high-altitude
arabica coffee of the quality sought by Starbucks tends to trade on a negotiated basis at a premium above the “C” coffee
commodity price. Both the premium and the commodity price depend upon the supply and demand at the time of purchase.
Supply and price can be affected by multiple factors in the producing countries, including weather, natural disasters, crop
disease, general increase in farm inputs and costs of production, inventory levels and political and economic conditions. Price is
also impacted by trading activities in the arabica coffee futures market, including hedge funds and commodity index funds. In
addition, green coffee prices have been affected in the past, and may be affected in the future, by the actions of certain
organizations and associations that have historically attempted to influence prices of green coffee through agreements
establishing export quotas or by restricting coffee supplies.
We buy coffee using fixed-price and price-to-be-fixed purchase commitments, depending on market conditions, to secure an
adequate supply of quality green coffee. Price-to-be-fixed contracts are purchase commitments whereby the quality, quantity,
delivery period, and other negotiated terms are agreed upon, but the date, and therefore the price, at which the base “C” coffee
commodity price component will be fixed has not yet been established. For these types of contracts, either Starbucks or the
seller has the option to select a date on which to “fix” the base “C” coffee commodity price prior to the delivery date. Until
prices are fixed, we estimate the total cost of these purchase commitments. Total green coffee purchase commitments as of
September 29, 2013 were $882 million, comprised of $588 million under fixed-price contracts and an estimated $294 million
under price-to-be-fixed contracts. As of September 29, 2013, approximately $0.3 million of our price-to-be-fixed contracts
were effectively fixed through the use of futures contracts. All price-to-be-fixed contracts as of September 29, 2013 were at the
Company’s option to fix the base “C” coffee commodity price component. Total purchase commitments, together with existing
inventory, are expected to provide an adequate supply of green coffee through fiscal 2014.
We depend upon our relationships with coffee producers, outside trading companies and exporters for our supply of green
coffee. We believe, based on relationships established with our suppliers, the risk of non-delivery on such purchase
commitments is remote.
To help ensure the future supply of high-quality green coffees, and to reinforce our leadership role in the coffee industry,
Starbucks operates farmer support centers in six countries. The farmer support centers are staffed with agronomists and
sustainability experts who work with coffee farming communities to promote best practices in coffee production designed to
improve both coffee quality and yields.
In addition to coffee, we also purchase significant amounts of dairy products, particularly fluid milk, to support the needs of our
company-operated stores. We believe, based on relationships established with our dairy suppliers, that the risk of non-delivery
of sufficient fluid milk to support our stores is remote.
Products other than whole bean coffees and coffee beverages sold in Starbucks® stores include tea and a number of ready-to-
drink beverages that are purchased from several specialty suppliers, usually under long-term supply contracts. Food products,
such as La Boulange™ pastries, breakfast sandwiches and lunch items, are purchased from national, regional and local sources.
We also purchase a broad range of paper and plastic products, such as cups and cutlery, from several companies to support the
needs of our retail stores as well as our manufacturing and distribution operations. We believe, based on relationships
established with these suppliers and manufacturers, that the risk of non-delivery of these items is remote.
2013 10-K
Starbucks Corporation Form