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0000887557-96-000023.hdr.sgml : 20040401
19961226162300
ACCESSION NUMBER:		0000887557-96-000023
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		9
CONFORMED PERIOD OF REPORT:	19960929
FILED AS OF DATE:		19961226
DATE AS OF CHANGE:		19990916

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			STARBUCKS CORP
		CENTRAL INDEX KEY:			0000829224
		STANDARD INDUSTRIAL CLASSIFICATION:	RETAIL-EATING & DRINKING PLACES [5810]
		IRS NUMBER:				911325671
		STATE OF INCORPORATION:			WA
		FISCAL YEAR END:			0928

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-20322
		FILM NUMBER:		96686362

	BUSINESS ADDRESS:	
		STREET 1:		P O BOX 34067
		CITY:			SEATTLE
		STATE:			WA
		ZIP:			98124-1067
		BUSINESS PHONE:		2064471575

	MAIL ADDRESS:	
		STREET 1:		2401 UTAH AVENUE SOUTH
		CITY:			SEATTLE
		STATE:			WA
		ZIP:			98134


10-K
1



                                
              SECURITIES AND EXCHANGE COMMISSION
                   Washington D.C. 20549
                        FORM 10-K

    [X] Annual Report Pursuant to Section 13 or 15(d) of the
            Securities Exchange Act of 1934
        For the Fiscal Year Ended September 29, 1996 or
     [   ] Transition Report Pursuant to Section 13 or 15(d)
              of the Securities Exchange Act of 1934

               Commission File Number: 0-20322

                     STARBUCKS CORPORATION
     (Exact name of registrant as specified in its charter)

      WASHINGTON                             91-1325671
(State or other jurisdiction of           (I.R.S. Employer
 incorporation or organization)          Identification No.)

2401 UTAH AVENUE SOUTH, SEATTLE, WASHINGTON         98134
(Address of principal executive offices)          (Zip Code)

      Registrant's telephone number, including area code:
                    (206) 447-1575

Securities registered pursuant to Section 12(b) of the Act:

                                       Name of each exchange
Title of each class                     on which registered
- - ------------------------------------------------------------
      None                                       N/A

 Securities registered pursuant to Section 12(g) of the Act:
                COMMON STOCK, NO PAR VALUE
        4 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
                        (Title of Class)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes  [X]       No  [   ]

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [    ]

The aggregate market value of the voting stock held by non-
affiliates of the registrant, based upon the closing sale price
of the registrant's Common Stock on December 1, 1996, as
reported on the NASDAQ National Market System, was
$2,598,426,062.

As of December 1, 1996, there were 77,786,819 shares of the
registrant's Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for
the fiscal year ended September 29, 1996 have been incorporated
by reference into Parts II and IV of this Form 10-K.  Portions
of the definitive Proxy Statement for the registrant's Annual
Meeting of Shareholders to be held on March 6, 1997 have been
incorporated by reference into Part III of this report.


                    STARBUCKS CORPORATION

                  ANNUAL REPORT ON FORM 10-K

                      TABLE OF CONTENTS

                          Part I

                                                     PAGE
Item 1.  Business . . . . . . . . . . . . . . . . . . . 1

Item 2.  Properties . . . . . . . . . . . . . . . . . . 5

Item 3.  Legal Proceedings . . . . . . . . . . . . . . .6

Item 4.  Submission of Matters
         to a Vote of Security Holders . . . . . . . . .6

                          Part II

Item 5.  Market for Registrant's Common
         Equity and Related Stockholder Matters . . . . 7

Item 6.  Selected Financial Data . . . . . . . . . . . .7

Item 7.  Management's Discussion and
         Analysis of Financial Condition
         and Results of Operations . . . . . . . . . . .7

Item 8.  Financial Statements and
         Supplementary Data . . . . . . . . . . . . . . 7

Item 9.  Changes in and Disagreements
         with Accountants on Accounting
         and Financial Disclosures . . . . . . . . . . .7


                       Part III

Item 10.  Directors and Executive
          Officers of the Registrant . . . . . . . . . .8
Item 11.  Executive Compensation . . . . . . . . . . . .10
Item 12.  Security Ownership of Certain
          Beneficial Owners and Management . . . . . . .10
Item 13.  Certain Relationships and
          Related Transactions . . . . . . . . . . . . .10


                        Part IV


Item 14.  Exhibits, Financial Statement
          Schedules and Reports on Form 8-K . . . . . . 11



                             PART I


Item 1.  Business

GENERAL.  Starbucks Corporation and its subsidiaries
("Starbucks" or the "Company") purchases and roasts high-quality
whole bean coffees and sells them, along with fresh, rich-brewed
coffees and Italian-style espresso beverages, primarily through
Company-operated and licensed retail stores.  The Company's
objective is to establish Starbucks as the most recognized and
respected brand of coffee in the world.  To achieve this goal,
the Company plans to continue to rapidly expand its retail
operations, grow its direct response and specialty sales
operations, and selectively pursue other opportunities to
leverage and grow the Starbucks brand through the introduction
of new products and the development of new distribution
channels.

Starbucks is committed to selling only the finest whole bean
coffees and coffee beverages. To ensure compliance with its
rigorous standards, Starbucks is vertically integrated,
controlling its coffee sourcing, roasting, and distribution
through its Company-operated retail stores.  The Company
purchases green coffee beans for its many blends and varietals
from coffee-producing regions throughout the world and custom
roasts them to its exacting standards.

Company-operated retail stores accounted for approximately 86%
of net revenues during the fiscal year ended September 29, 1996.
Starbucks retail objective is to become the leading retailer and
brand of coffee in each of its target markets by selling the
finest quality coffees and related products, and by providing a
superior level of customer service, thereby building a high
degree of customer loyalty.  Of the 1,006 Starbucks stores open
on September 29, 1996, 929 were Company-operated retail stores
located in 21 states, the District of Columbia, British Columbia
and Ontario, Canada.  Licensees operated 75 stores in North
America.  In addition, the first two Starbucks stores outside
North America opened in Tokyo, Japan during the fourth quarter
of fiscal 1996.

In addition to its retail operations, the Company sells
primarily whole bean coffees through a specialty sales group and
a national direct response business.  The Company has also
entered into joint ventures with the Pepsi-Cola Company, a
division of PepsiCo, Inc. ("Pepsi"), to develop ready-to-drink
coffee-based products and with Dreyer's Grand Ice Cream, Inc.
("Dreyer's") to develop premium coffee ice cream products.

RETAIL STORES.  Starbucks stores are typically clustered in high-
traffic, high-visibility locations in each market.  Because the
Company has the ability to vary the size of its stores,
Starbucks stores are located in a variety of settings, including
office buildings, downtown and suburban retail centers, and
kiosks located generally in building lobbies, airport terminals,
supermarket foyers, and university campuses.  While the Company
selectively locates stores in suburban malls, its focus is on
stores that are convenient for pedestrian street traffic.

The Company combines its merchandising strategy with its
marketing programs to create and reinforce a distinctive brand
image for its coffees.  The Company's merchandising strategy is
reflected in its product mix, product pricing, and sale and
educational materials.

All Starbucks stores offer a choice of regular or decaffeinated
coffee beverages, changing "coffees of the day," and a broad
selection of Italian-style espresso beverages, as well as
distinctively packaged, freshly roasted whole bean coffees, a
selection of fresh pastries and other food items, sodas, juices,
tea, and coffee-related hardware products and equipment.  During
fiscal 1996, the Company's retail sales mix by product type was
approximately 61% coffee beverages, 15% whole bean coffees, 16%
food items, and 8% coffee-related hardware products and
equipment.

The product mix in each store varies and is dependent on the
size of the store and its location.  Larger stores carry a
revolving selection that can include any of the Company's whole
bean coffees and a range of coffee-related products,



including exclusive, high-quality coffee-making equipment as
well as accessories bearing various Company trademarks, such as
coffee mugs, coffee grinders, storage containers, coffee
filters, and finely packaged gourmet food products.  The smaller
stores and kiosks typically sell a full line of coffee
beverages, a limited selection of whole bean coffees and a few
hardware items, most notably logo mugs and small equipment
items.

The Company and its licensees intend to open at least 325 new
stores in North America during fiscal 1997.  The Company plans
to enter at least three major new markets in North America
during fiscal 1997, including Phoenix, Arizona, and Miami,
Florida.  For information on expansion plans outside of
continental North America, see discussion below under
International.

OTHER DISTRIBUTION CHANNELS.  Starbucks retail expansion
strategy is to increase its market share in existing markets and
to open stores in new markets where it believes it can become
the leading specialty coffee retailer.  In addition, the Company
will continue to expand its specialty sales and direct response
operations, and will selectively pursue other distribution
channels.

Specialty Sales.  Specialty Sales includes distribution to
restaurants and a wide range of institutional customers,
including airlines, hotels, wholesale warehouses, business
offices, multi-unit retailers, universities, hospitals, and
country clubs.  Specialty sales revenues (which for financial
reporting purposes include royalties and fees from licensees as
well as sales of products to licensees and joint ventures)
accounted for approximately 11% of the Company's net revenues
during the fiscal year ended September 29, 1996.  Starbucks is
committed to expanding its specialty sales operations.  During
fiscal 1996, the Company entered into an alliance with U.S.
Office Products to serve Starbucks coffee in the workplace
environment.

Licensed Stores.  Starbucks has entered into a development
agreement that allows Host International, Inc. ("Host") to
operate Starbucks retail stores in airport locations.  Starbucks
receives a license fee and a royalty from Host and sells coffee
to Host for resale in the licensed airport stores.  All licensed
airport stores operated by Host must follow Starbucks detailed
store operating procedures and all Host managers and employees
who work in the licensed airport stores must receive the same
core training given to Starbucks store managers and employees.
During fiscal 1996, the Company entered into a licensing
arrangement with ARAMARK Food and Services Group, Inc.
("ARAMARK") to put licensed Starbucks operations at various
locations operated by ARAMARK.  During the fiscal year ended
September 29, 1996, sales to and royalties from licensees were
approximately one percent of the Company's net revenues.

Starbucks does not currently intend to turn over operational
control of Starbucks stores in North America in any environment
in which it can control retail space; however, in limited
situations where a master concessionaire controls the retail
space, Starbucks may consider licensing its operations.

Direct Response.  The Company publishes a mail order catalog
that is distributed approximately six times a year and which
offers its coffees, certain food items, and select coffee-making
equipment and accessories.  The Company ships products to
customers located in all 50 states and many foreign countries.
Direct Response also operates an electronic store on America
Online, allowing customers to order their favorite coffees and
products.  During fiscal 1996, Direct Response accounted for
approximately three percent of the Company's net revenues.
Management believes its direct response operations will continue
to support its retail store expansion into new markets and
reinforce brand recognition in existing markets.

Joint Ventures.  The Company has entered into a joint venture
agreement with Pepsi, to develop and distribute ready-to-drink
coffee-based products.  The joint venture agreement contemplates
the distribution of products within the United States and Canada
by Pepsi-owned and independently licensed bottlers and other
distributors or retailers.  In May 1996, the joint venture
introduced bottled Frappuccino (TM) coffee drink in supermarkets
and other retail points of distribution throughout the West
Coast.  Frappuccino (TM) coffee drink is currently available in
two flavors - coffee and mocha.  Based on trade and consumer
reception of this product, the joint venture is planning wider
distribution.  The joint venture concluded test marketing of



MAZAGRAN (TM), a lightly carbonated coffee drink, and currently
does not have plans to market this product nationwide.

On October 31, 1995, the Company announced an agreement to form
a joint venture with Dreyer's to develop and distribute
Starbucks premium coffee ice creams.  During fiscal 1996, the
joint venture introduced five flavors of Starbucks Ice Cream,
available in grocery stores throughout the United States.

International.  The Company considers locations outside of
continental North America to be part of its international
operations.  On October 25, 1995, the Company signed an
agreement with SAZABY Inc., a Japanese retailer and
restaurateur, to form a joint venture which will primarily
develop Starbucks retail stores in Japan.  The joint venture
opened its first two stores in Tokyo, Japan during fiscal 1996.
The joint venture currently anticipates opening ten to twelve
additional stores in Japan during fiscal 1997.

On August 3, 1996, the Company signed a joint venture
partnership agreement with a Hawaii-based management team formed
by the MacNaughton Group, to develop Starbucks locations in
Hawaii.  The joint venture opened the first Starbucks retail
location in Hawaii during the first quarter of fiscal 1997.

The Company also signed an agreement with a subsidiary of
Bonvests Holding Limited ("Bonvests") on August 8, 1996, that
makes them a licensee for Starbucks retail locations in
Singapore.  The first retail location in Singapore opened during
the first quarter of fiscal 1997.  The Company and Bonvests
currently anticipate opening five additional stores in Singapore
in fiscal 1997.

PRODUCT SUPPLY.  The Company depends upon both its outside
brokers and its direct contacts with exporters in countries of
origin for the supply of its primary raw material, green coffee.
Coffee is the world's second largest traded commodity and its
supply and price are subject to volatility.  Although most
coffee trades in the commodity market, coffee of the quality
sought by the Company tends to trade on a negotiated basis at a
substantial premium above commodity coffee pricing, depending
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.
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, such as the International Coffee
Organization and the Association of Coffee Producing Countries,
which have historically attempted to influence commodity prices
of green coffee through agreements establishing export quotas or
restricting coffee supplies worldwide.

Green coffee commodity prices are subject to substantial price
fluctuations, generally a result of reports of adverse growing
conditions in certain coffee-producing countries.  Due to green
coffee commodity price increases, the Company effected sales
price increases during fiscal 1994 and 1995 to mitigate the
effects of anticipated increases in its cost of goods sold.
Because the Company had established fixed purchase prices for
some of its supply of green coffees, the Company's margins were
favorably impacted by such sales price increases during much of
fiscal 1995.  During the latter part of fiscal 1995 and
throughout fiscal 1996, gross margins were negatively impacted
relative to the prior year by the sell-through of higher-cost
coffee inventories.  The Company expects to have sold most of
these higher-cost coffees by the end of the first quarter of
fiscal 1997.

The Company enters into fixed price purchase commitments in
order to secure an adequate supply of quality green coffee and
fix costs for future periods.  As of September 29, 1996, the
Company had approximately $47 million in fixed price purchase
commitments which, together with existing inventory, is expected
to provide an adequate supply of green coffee well into fiscal
1997.  The Company believes, based on relationships established
with its suppliers in the past, that the risk of non-delivery on
such purchase commitments is remote.

In addition, the Company may from time to time purchase coffee
futures contracts to provide additional price protection when it
is not able to enter into fixed price purchase commitments.
There can be no assurance that these activities will
successfully protect the Company against the risks of increases
in coffee prices or that they will not



result in the Company having to pay substantially more for its
supply than it would have been required to pay absent such
activities.  The Company did not engage in any hedging
activities or futures contracts in fiscal 1996.

Specialty foods, such as pastries, are generally purchased from
local sources based on quality and price.  Items bearing the
Company's logos and trademarks are purchased under contract.
Hardware items, such as coffee makers, are generally purchased
directly from manufacturers.

COMPETITION.  The Company's whole bean coffees compete directly
against specialty coffees sold at retail through supermarkets,
specialty retailers, and a growing number of specialty coffee
stores.  The Company's coffee beverages compete directly against
all restaurant and beverage outlets that serve coffee and a
growing number of espresso stands, carts, and stores.  Both the
Company's whole bean coffees and its coffee beverages compete
indirectly against all other coffees on the market.  The Company
believes that its customers choose among retailers primarily on
the basis of quality and convenience, and, to a lesser extent,
on price.

Management believes that supermarkets pose the greatest
competitive challenge in the whole bean coffee market, in part
because supermarkets offer customers the convenience of not
having to make a separate trip to the Company's stores.  A
number of nationwide coffee manufacturers, such as Kraft General
Foods, Procter & Gamble, and Nestle, are distributing premium
coffee products in supermarkets, which products may serve as
substitutes for the Company's coffees.  Regional specialty
coffee companies also sell whole bean coffees in supermarkets.

In addition, the Company competes for whole bean coffee sales
with franchise operators and independent specialty coffee stores
in both the United States and Canada.  There are a number of
competing specialty coffee retailers, such as Second Cup, a
Canadian franchisor with stores primarily in Canada.  Second Cup
also owns Gloria Jeans, a franchisor of specialty coffee stores,
with locations primarily in malls throughout the United States.
In addition, in virtually every major metropolitan area where
Starbucks operates and expects to expand, there are local or
regional competitors with substantial market presence in the
specialty coffee business.

The Company's primary competitors for beverage sales are
restaurants, shops, and street carts.  In almost all markets in
which the Company does business there has been a significant
increase in competition in the specialty coffee beverage
business and management expects this trend to continue.
Although competition in the beverage market is currently
fragmented, a major competitor with substantially greater
financial, marketing and operating resources than the Company
could enter this market at any time and compete directly against
the Company.

In addition, the Company competes with established suppliers in
its specialty sales and direct response businesses, many of whom
have greater financial and marketing resources than the Company.
The Company also expects that competition for suitable sites for
new stores to support the Company's planned growth will be
intense.  The Company competes against both restaurants and
other specialty retailers for these sites, and there can be no
assurance that management will be able to continue to secure
adequate sites at acceptable rent levels.  The Company also
competes for qualified personnel to operate its retail stores.

PATENTS, TRADEMARKS AND COPYRIGHTS.  The Company owns and/or has
applied to register numerous trademarks and service marks in the