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Coffee and Tea Reports from the Front Lines

Starbucks’ Expansion Runs into Trouble

JAPAN - Since it opened its first store in Tokyo’s Ginza district in 1996, Starbucks has opened 467 stores in Japan. Last year, Howard Schultz, chairman of the Starbucks group, set out plans for growth in the country with a target of 1,000 stores by 2007. But in May, Starbucks' Japanese business, a joint venture with the Sazaby Inc., announced an annual loss of $3.9 million on revenues of $467 million, according to Business Week. Starbucks seems to have expanded at a rate that could not be justified by sales or profits.

Now operating in 30 countries beyond the U.S. and Canada, Starbucks cafés abroad have encountered problems including high startup costs and existing competition, as well as, in many cases, resistance to "the Starbucks experience." To date, Starbucks' 1,532 overseas stores, which account for 23% of its stores, yet only 9% of sales, are a net money loser.

Causes of the troubles include the fact that, unlike in the U.S., Starbucks faces big rivals in Europe and Asia. Another reason Starbucks hasn't been as successful abroad as in the U.S. may be the series of joint ventures Schultz agreed to in order to expand quickly. While the company gets a portion of revenues and profits as well as licensing fees for supplying its coffee, it has been harder than in the U.S. to control costs. For instance, real estate and labor costs are sometimes far higher than those in the U.S.

Starbucks representatives insist that the ventures, after making adjustments, are on track. The company has closed six unprofitable Starbucks in Israel and cut international expansion by 50 stores, to 400 this year. The company bought out partners in its problem Swiss and Austrian stores. Starbucks is nearly debt-free and has more than $300 million in annual free cash flow, part of which it can use to finance its worldwide plans.

Vietnam Plans to Destroy Crops

VIETNAM - According to BBC News, Doan Trieu Nhan, chairman of the Vietnam Coffee and Cocoa Association, said the government wants to cut 500,000 hectares under cultivation by 20% by 2005.

"We hope we can achieve this target but it will be challenging because at the end of the day it is the farmers' decision and we cannot force them, particularly with the recent small rise in coffee prices."

Vietnam has been blamed for the global slump in coffee prices after entering the market about 10 years ago. It produced a record 900,000 tons in 2000-01 to become the second-biggest international supplier, after Brazil. But Vietnam's success in establishing a leading global coffee industry resulted in prices crashing to a 30-year low in 2001.

This year's output is expected to be about 520,000 tons. The World Bank data shows that coffee prices in real terms are less than one-third of their 1960 level, making returns for the world's estimated 20 million farmers less than the cost of production.

Tea Linked to Better Breath, Worse Teeth

UNITED KINGDOM - While two studies have shown that regular tea drinking can keep breath odors away, another, separate study, has shown that herbal teas can seriously damage teeth.

At the American Society for Microbiology’s annual meeting, as reported by the Globe and Mail, researchers from University of Illinois at Chicago presented their findings that black and green tea contain compounds called polyphenols. Polyphenols prevent the growth of bacteria, which grow in the mouth and produce sulfur compounds that cause bad breath. They also block existing bacteria’s ability to produce the sulfur compounds.

"Many toothpastes don’t fight viruses. But when we add green tea, it’s an amazing result: I get a 90% destruction of viruses," said study author Milton Schiffenbauer, a microbiologist and professor at Pace University.

The studies are preliminary and have not been tested outside of the laboratory environment, a fact which the researchers acknowledge is a weakness of the research.

Meanwhile, at University of Bristol, researchers found that many herbal teas seriously damage teeth by eroding protective enamel. "Many of the herbal teas were found to be more erosive than orange juice," was reported in the Journal of Dentistry. Some teas were three times as acidic as juice. A spokesman for Twinings teas says saliva dilutes and neutralizes any acid in herbal teas, according to The Week magazine.

Starbucks Enters Peru

PERU - Starbucks Coffee International has signed a licensing agreement with Lasino S.A. to open Starbucks retail locations throughout Peru. The first store is scheduled to open in Lima, Peru’s capital, during the second half of this year.

Starbucks plans also to enter Chile later this year.

Tea & Coffee - July/August, 2003

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