Starbucks Corporation

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International Guild of Hospitality & Restaurant Managers

2401 Utah Avenue South, P.O. Box 34067
Seattle , WA 98134

Phone: (206) 447-1575

www.starbucks.com

Starbucks Corporation purchases and roasts high-quality whole bean coffees and sells them, along with fresh, rich-brewed coffees, Italian-style espresso beverages, cold blended beverages, a variety of pastries and confections, coffee-related accessories and equipment, a selection of premium teas and a line of compact discs, primarily through Company-operated retail stores. In addition to sales through its Company-operated retail stores, Starbucks sells coffee and tea products through other channels of distribution including its Business Alliances business unit and other specialty operations (collectively, Specialty Operations). Starbucks, through its joint venture partnerships, also produces and sells bottled Frappuccino coffee drink and a line of premium ice creams.

Starbucks' strategy for expanding its retail business is to increase its market share in existing markets and to open stores in new markets where the opportunity exists to become the leading specialty coffee retailer. In support of this strategy, the Company opened 647 new stores during the fiscal year ended September 30, 2001 (fiscal 2001). At fiscal year end, Starbucks had 2,971 Company-operated stores in 38 states, the District of Columbia and five Canadian provinces (which comprise the Company-operated North American retail operations), as well as 252 stores in the United Kingdom, 25 stores in Thailand and 18 stores in Australia (which comprise the Company-operated international retail operations). Company-operated retail stores accounted for approximately 84% of net revenues during fiscal 2001. Starbucks retail stores are typically located in high-traffic, high-visibility locations. All Starbucks stores offer a choice of regular and decaffeinated coffee beverages, including at least one "coffee of the day," a broad selection of Italian-style espresso beverages, cold blended beverages, a selection of teas and distinctively packaged roasted whole bean coffees. Starbucks stores also offer a selection of fresh pastries and other food items, sodas, juices, coffee-making equipment and accessories and a selection of compact discs. Each Starbucks store varies its product mix depending upon the size of the store and its location.

Starbucks Specialty Operations strive to develop the Starbucks brand outside the Company-operated retail store environment through a number of channels. Starbucks strategy is to reach customers where they work, travel, shop and dine, by establishing relationships with prominent third parties that share Starbucks' values and commitment to quality. These relationships take various forms, including arrangements with foodservice companies and retail store licensing agreements for North American locations (which together comprise the Business Alliances business unit), grocery channel licensing agreements, warehouse club accounts, international retail store licensing agreements, direct-to-consumer market channels, joint ventures and other initiatives related to the Company's core businesses.

The Company sells whole bean and ground coffees to office coffee distributors, institutional foodservice companies that service business, industry, education and healthcare accounts, and to hotels, airlines, retailers and restaurants. As of September 30, 2001 , the Company had approximately 5,500 foodservice accounts, and revenues from these accounts comprised approximately 31% of specialty revenues in fiscal 2001.

Although Starbucks does not generally relinquish operational control of its retail stores in North America, in situations in which a master concessionaire or another company controls or can provide improved access to desirable retail space, the Company licenses its operations. As of September 30, 2001 , the Company had 809 licensed stores in continental North America , and revenues from these stores accounted for approximately 15% of specialty revenues in fiscal 2001.

Starbucks has a long-term licensing agreement with Kraft Foods, Inc. (Kraft) to market and distribute Starbucks whole bean and ground coffees in the grocery channel in the United States . Pursuant to that agreement, Kraft manages all distribution, marketing, advertising and promotions for Starbucks whole bean and ground coffee in grocery and mass merchandise stores.

The Company sells whole bean and ground coffees to warehouse club chains. As part of its agreement with Starbucks to market and distribute to the grocery channel, Kraft also distributes Starbucks products to warehouse club stores. Revenues from warehouse club accounts accounted for approximately 13% of specialty revenues in fiscal 2001.

Starbucks retail stores located outside of North America, the United Kingdom, Thailand and Australia are operated through a number of joint venture and licensing arrangements with prominent retailers. During fiscal 2001, the Company expanded its international presence by opening 282 new international licensed stores, including the first stores in Bahrain , Saudi Arabia , Switzerland and Israel . At fiscal year end, the Company had a total of 634 licensed international stores, including 289 stores in Japan, 74 in Taiwan, 62 in China, 33 in the Philippines, 30 in Singapore, 26 in Hawaii, 26 in New Zealand, 24 in South Korea, 21 in Malaysia, 12 in the United Arab Emirates, 11 in Saudi Arabia, nine in Kuwait, six in Switzerland, five in Lebanon, three in Qatar, two in Bahrain and one in Israel.

The Company makes fresh Starbucks coffee and coffee-related products conveniently available via mail order and on-line. Starbucks publishes and distributes a mail order catalog and a catalog of business gifts that offer coffees, certain food items and select coffee-making equipment and accessories, and the Company maintains a Website at www.starbucks.com with an on-line store that allows customers to purchase coffee, gifts and other items via the Internet.

The Company has several other initiatives related to its core businesses that are intended to enhance the customers' experience at Starbucks retail stores. For example, the Company is currently in the process of implementing wireless Internet access in its retail stores and has marketed a selection of premium tea products since the acquisition of Tazo, L.L.C. in 1999.

The Company has two non-retail domestic 50-50 joint ventures. The North American Coffee Partnership, a joint venture with the Pepsi-Cola Company, a division of PepsiCo, Inc., develops and distributes ready-to-drink coffee-based products. By the end of fiscal 2001, the joint venture was distributing bottled Frappuccino coffee drink to approximately 200,000 supermarkets, convenience and drug stores and other locations throughout the United States and Canada. The Company has a joint venture with Dreyer's Grand Ice Cream, Inc. to develop and distribute Starbucks premium coffee ice creams. By the end of fiscal 2001, the joint venture was distributing a variety of ice cream and novelty products to over 20,000 supermarkets throughout the United States .

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The data included within the Financial section is solely for information and does not construe a recommendation and/or endorsement by IGHRM or its members to invest funds with any of the companies listed. You are strongly advised to obtain professional advice with qualified individuals or corporations for any investments of funds.

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