STiR Tea & Coffee Industry International

Volume 5, Number 6

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10 STiR coffee and tea / Issue 6, 2016 (December/January) NEWS Keurig Subscriptions Keurig Green Mountain launched in November a monthly coffee subscrip- tion program featuring K-Cup capsules from Starbucks, Dunkin' Donuts and Folgers in custom assortments or single brands. Subscriptions are purchased online, starting at $49.95. Customers can subscribe for 3 months, 6 months or 12 months. In addition to its own Green Mountain label, Keurig has partnered with 70 brands offering 445 beverage varieties. During the holidays Keurig offered its K55 brewer for $99.99 in a gift package with a personalized message. Learn more: www.keurig.com Board Wins Proxy Fight Farmer Bros. board nominees survived a fierce proxy fight led by family members unhappy with management and the firm's recent move from California to Texas. Stockholders led by Carol Farmer Waite organized Save Farmer Bros. (www. savefarmerbros.com) and financed the proxy fight asserting "the business has lost its way under its current leadership." "We are no longer willing to stand idly by as the board and management fail to address our significant concerns," wrote Waite, who hoped to oust senior manage- ment for its "inability to instill a positive corporate culture or improve sinking employee morale." She also questioned the board's corporate governance. "The vast majority of FARM's talented and dedicated employees would welcome a change in the toxic tone at the top," she wrote in a letter to stockholders. Institutional Shareholder Services and two other independent proxy advisory firms recommended stockholders reject Waite's three board candidates. "Management is responsible for a proven turnaround plant that has returned Farmer Bros. to profitability," according to board chairman Randy Clark. The stock price is up 225% and valued at $400 million since Farmer's c.e.o. Mike Keown took over. In a letter to stockholders he noted coffee volume was up 8.1% to 91 million pounds. Gross profits were $197 million in fiscal year 2015. The move to Ft. Worth, Tex. will save an estimated $18-20 million a year, according to Clark, who vigorously opposed the Save Farmer Bros. slate. Schultz Seeks to Reinvent Retail In December when Howard Schultz handed the c.e.o. baton to c.o.o. Kevin Johnson he made it clear that his work reshaping Starbucks retail had only just begun. A few years ago Schultz connected the dots to explain a holiday slump in store traffic even as record sums were loaded into the company's loyalty and gift cards (now at $2.65 billion). As the recession faded Schultz noticed the firmament supporting brick and mortar retail had shifted. The total number of Howard Schultz shoppers visiting Starbucks on their holiday errands eroded a bit that year… as sales increased. He voiced a clear warning that traditional holiday patterns were changing citing a 6.4% decline in foot traffic marking a five-year trend. The amount of new retail space that opened annually has since fallen from 300 million square feet to less than 45 million sq. ft. He recognized that Amazon and the surge of e-commerce was the source of the anomaly. By 2015 e-commerce accounted for 12% of all retail revenue and is expected to reach 14% of retail value by 2018. To compete he advocated a retail revolution to "premiumized, experiential consumer venues." Unwilling to concede the retail coffee shop experience he invented, Schultz committed to find formats that provide even greater profits. At the heart of this challenge is "experiential" retail as evidenced in his Reserve Roasteries. Retail will neatly divide into digitally-efficient quick stops where 6 million loyalty card holders per month already charge 25% of total US sales to Starbucks cards with mobile order and pay accounting for 6% of transactions — and a few elaborate, coffee palaces. It is the latter where Schultz intends to make a lasting mark. Starbucks is now the #2 US coffee brand. He said that "break- through innovation and experiential design" will be his primary tools in realizing a vision to expand and re-energize the super-premium coffee category. He intends to double foot-traffic compared to regular Starbucks stores while increasing ticket size by 3.5 times. The flagship Roastery in Seattle already yields four times the average transactions per store. At 63 this is likely the last time Schultz will re-invent coffee retail. There is a good chance of success, after all has done it before – twice. - Dan Bolton 7-Eleven Introduces Single Origin Coffees In November the 10,700-store US-based 7-Eleven convenience chain began selling Rainforest Alliance certified Nicaraguan coffees from the Matagalpa region. This is the first wide rollout of a sustainably-certified coffee by the Japanese-owned chain of 60,000 stores. "Our Matagalpa Nicaraguan coffee delivers a smooth, rich and robust flavor – it's a great tasting, premium cup of coffee without the premium price," said Nancy Smith, The 100% arabica is priced at $2.19 for an extra large cup, the same as 7-Eleven's other coffees. Smaller sizes are $.99-1.89 depending on location. "Nearly every major coffee-pro- ducing region of the world is under stress as changing weather patterns affect coffee production," said Nancy Smith, 7-Eleven s.v.p of fresh food and proprietary beverage merchan- dising. "By working with the Rainforest Alliance, we can help foster sustainable farming practices that protect natural resources," smith said in a press release. 7-Eleven is the fourth largest coffee retailer in the US. Learn more: www.7-eleven.com

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