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Coffee and Tea Reports from the Front Lines

Starbucks Restores Schultz - Shares Up Most Since 2006

United States - Howard Schultz was peddling a unique idea when he turned a Seattle coffee-bean roaster into a chain of U.S. cafes called Starbucks Corp. Now he is returning to lead a company battered by the competitive landscape it created.

Investors responded by sending shares up the most in almost two years. Starbucks trained customers to demand better-tasting coffee. In the process, it spawned thousands of mom-and-pop imitators and enticed even McDonald’s Corp., the world’s biggest restaurant company, to open coffee counters.

By bringing back its leader eight years after he stepped aside as chief executive officer, Starbucks is telling shareholders the challenges run deeper than labor costs or a drop in consumer spending. Schultz, who returns after Starbucks reported its first quarterly drop in U.S. customer visits, called the chain’s problems “self-induced” and said Starbucks hadn’t introduced enough “exciting” products. “I’m here to tell you that just as we created this problem, we will fix it,’’ Schultz, recently said in a conference call.

Starbucks recently gained $1.48, or 8.1%, to $19.86 according to the New York Times in composite trading on the Nasdaq Stock Market, the biggest gain since February 2006.

Andrew M. Barish, an analyst with Banc of America Securities LLC, raised his recommendation on Starbucks to “neutral’’ from “sell’’ today. “This could be the first step to Starbucks more consistently returning cash to shareholders,’’ Barish said in a research note.

Schultz, who was raised in federally subsidized housing projects in Brooklyn, replaces Jim Donald, 53, who ran Starbucks for less than three years. Schultz took over the Seattle chain in 1987 and was CEO until 2000. The shares jumped almost 13-fold during his tenure, as Starbucks expanded from a few Seattle espresso stands to 10,684 U.S. locations as of Sept. 30, among 15,000 worldwide in 43 countries. The stock has declined in two of the past three years. Last year’s drop, 42%, was the steepest since the company went public in 1992. “The perception is that Starbucks is oversaturated in the U.S. and that the quality of the experience has deteriorated as they’ve grown,’’ said Walter Todd, a principal at Greenwood Capital Associates LLC in Greenwood, South Carolina.

Starbucks cut profit and sales forecasts in November after it raised prices 9 cents a cup to offset higher food and labor expenses. Competition is growing, Schultz, who will retain his title of chairman, said yesterday.

“Howard coming back is absolutely the right strategy,’’ Howard Penney, an analyst at Friedman Billings Ramsey & Co. in New York. “Consistent with other companies that have seen pressure on profitability, someone has to pay the price.’’

Schultz said he will slow the pace of U.S. expansion and close some cafes. Money earmarked for the U.S. will go toward international growth, he said. At the same time, he said, Starbucks has grown cautious, introducing variations of drinks instead of products that might attract new buyers. “They have not been transformative, they are not exciting,’’ Schultz said. “You could see this company buying back easily $700 million to $1 billion a year in stock,’’ Penney said.

Starbucks is still expanding. Fourth-quarter net income was $158.5 million, a 35 percent gain from the same period a year earlier. Revenue climbed 22% to $2.44 billion. The company’s earnings forecast for next year suggests an increase of as much as 21%.

South Asian Tea Workers Call for International Tea Day

South Asia - A group of workers, small growers and trade unionists states last month that they were launching a campaign urging governments, the UN, ILO and other international agencies to declare December 15th as International Tea Day.

At then end of the two day international tea convention held in Badulla, the group said that such recognition was necessary as the tea sector is among the highest employment providers, sustaining millions of people as workers (a majority of them women) and small growers in the tea producing countries. Also because there is a disproportionate value accrual at the highest end of the value chain that is never passed onto the consumers, producers or workers.

The third International Tea Day (ITD) commemorations took place in Badulla on December 14-15, organized by the Kandy-based Institute of Social Development (ISD) in Sri Lanka with the collaboration of the Plantation Sector Social Forum (PSSF) and Plantation Sector Trade Unions of Sri Lanka. It was held at Hotel Sanastar, Badulla with the chief minister of the Uva Provincial Council, Gamini Wijeyamuni Soysa gracing the occasion as the chief guest. Indian trade union leader Ashim Roy, secretary general of the New Trade Union Initiative in India and senior Sri Lankan plantation trade unionists, small tea growers, researchers and members of civil society organizations dealing with the tea plantation sector participated at the conference.

The main aim of the conference was to re-emphasize the proposed International Commodity Agreement for Tea. Four sessions were included in the conference and the following areas were discussed in the conference: leasing, sub-leasing and contract labour; Uva plantation issues; plantation migrant labor issues; 10-year plantation plan; and crisis in the wage structure and the living wage.

Kona Coffee Targets Japan Market with Touristic Efforts

Japan - Hawaii’s Kona coffee industry is trying to attract Japanese consumers with special touristic tours. The Hawaii County Research and Development Department helped produce a Japanese edition of the self-guided Kona Coffee Country Driving Tour brochure. The map highlights nearly 60 farms that offer tours, tastings and retail. The brochure also provides background information on the 180-year Kona coffee heritage, the Kona Coffee Cultural Festival in November, coffee roasting and processing, and the list of Kona coffee farms that have won the festival’s cupping competition over the last 20 years. Shunta Baba, a master purchaser for Japan’s UCC Ueshima Coffee Co. Ltd. and a veteran of the Kona Coffee Cultural Festival said, “Most people in Japan don’t know about how to process coffee so visitors here are very interested to see that. For them, it is a first time to be able see this. When you are selling coffee in Japan, you are also selling how coffee is made.” UCC Ueshima also sponsors the Miss Kona Coffee Scholarship Pageant and organizes an extended promotional tour of Japan during the queen’s reign. The relationship works both ways, with UCC Ueshima hosting a group of Japanese contest winners culled from more than 1 million entries at this year’s 37th annual Kona Coffee Cultural Festival.


Tea & Coffee - February, 2008
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