Starbucks 2010 Annual Report Download - page 12

• licensing agreements for the manufacturing, marketing and distribution of Starbucks Discoveries®,a
ready-to-drink chilled cup coffee beverage, in Japan and South Korea;
• a licensing agreement with a partnership formed by Unilever and Pepsi-Cola Company for the
manufacturing, marketing and distribution of Starbucks super-premium Tazo®Tea ready-to-drink beverages
in the US; and
• a licensing agreement with Unilever for the manufacturing, marketing and distribution of Starbucks®super-
premium ice cream products in the US.
Foodservice
Revenues from foodservice accounts comprised 23% of total specialty revenues in fiscal 2010. We sell whole bean
and ground coffees, including the Starbucks and Seattle’s Best Coffee brands, as well as a selection of premium
Tazo®teas, Starbucks VIA®Ready Brew and other 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
FoodserviceTM, 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 substantial
premium above commodity coffee prices. Both the premium and the “C” coffee 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, 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.
To help ensure sustainability and future supply of high-quality green coffees and to reinforce our leadership role in
the coffee industry, Starbucks operates Farmer Support Centers in Costa Rica and Rwanda. 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.
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 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. As of October 3,
2010, we had a total of $557 million in purchase commitments, of which $401 million represented the estimated cost
of price-to-be-fixed contracts. All price-to-be-fixed contracts as of October 3, 2010 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 2011.
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.
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