Specialty Coffee Industry Snapshot Contrary to popular belief, egged on by some commercials, coffee did not originate in Brazil or Columbia; rather, it originated in Ethiopia. It is the world's second most traded commodity after oil. Specialty coffee has been defined as "a coffee that has no defects and has a distinctive flavor in the cup." The premium variety is Arabica coffee, which accounts for seventy percent of the world's coffee production. Since 1985, the specialty coffee business has risen from multi-million dollar industry to a multi-billion dollar industry. Specialty coffee is one of the fastest growing food service markets globally, with a net income of approximately $9.6 billion in 2004 in the U.S. alone, due to the explosion of cafées and gourmet coffee retailers in the 1990s. The industry trade group Specialty Coffee Association of America (SCAA), in its Retail in the USA 2005 report, stated that at the end of 2005, coffee sales had reached $11.05 billion. These sales were divided into several sub-groups: 13,900 coffee cafées (retailers with seating) had sales of $7.65 billion; coffee kiosks (retailers without seating) reported sales of $.99 billion; coffee carts (mobile retailers) had sales of $.35 billion; and coffee bean roasters/retailers (roasting on the premises) showed sales of $1.57 billion. This was up from total sales of $9.62 billion in 2004 and $8.96 billion in 2003. In 2005, Americans drank more than 300 million cups of coffee, with 75 percent of those being home brewed. Fifteen percent of all Americans drank a cup or more of specialty coffee daily, an increase of 6 percent from 2000. Organization and Structure After growing in any of roughly 20 countries, coffee beans pass through many intermediaries and brokers before coming to industry firms in the United States. Usually, the beans arrive green, or un-roasted, whereupon industry firms buy and roast them in small batches. From that point, the beans reach consumers through several channels, including supermarkets, gourmet delis, fancy food stores, housewares/gift stores, mail order, mass merchandisers, the Internet, specialty coffee stores, and coffee cafées. In non-proprietary retail stores such as supermarkets, specialty coffee is prepackaged or in bulk, depending on the individual retailer's store format. Industry firms often sell their beans through a combination of supermarkets, their own bean stores and/or cafées, mail order, and the Internet. The difference between a bean store and a cafée is that the former emphasizes selling beans (and assorted brewing gadgets) so consumers can make gourmet coffee at home while a cafée prepares single drinks for customers to consume on the premises or to take out. Many industry firms such as Starbucks sell whole beans as well as individual drinks at their stores and serve coffee drinks to consumers in two forms: the filtered drip coffee familiar to most Americans, and European-style espresso, a more concentrated form of the brew, which is harder for consumers to make at home. Shots of espresso are "pulled" from espresso machines by cafée workers called baristas,coffee bartenders of sorts. Most espresso beverages have one or more shots combined with steamed or foamed milk to make such drinks as cappuccinos, cafée mochas, or cafée au laits. Interestingly, a one-ounce espresso contains less caffeine than a regular cup of drip coffee. The water is in contact with the grounds for only 20 to 25 seconds, unlike drip coffee, in which the grounds are in contact with the water for several minutes. It takes 42 coffee beans to make an average-sized serving of espresso. Although the coffee industry as a whole lacked standards for coffee brewing since 1975, the Specialty Coffee Association of America (SCAA) re-instituted such standards in the late 1990s. The SCAA's standards require that the coffee grounds to water ratio must fall between 3.25 and 4.25 ounces of ground coffee per every 64 ounces of water. Other standards cover water temperature and quality, brewing time, and coarseness or fineness of coffee grounds. An early 1990s study by the SCAA noted above-average consumption in the Pacific, Middle Atlantic, and New England states and found gourmet coffee drinkers tended to be slightly more affluent than average and that they lived or worked in big cities. Gourmet coffee consumption also rose with the drinker's educational level. Those who finished college bought 49 percent more gourmet coffee on average and those with some postgraduate education bought 71 percent more. They also found that households with children and two working parents bought 28 percent more gourmet coffee. The SCAA described its typical customer as "an educated urban resident with the disposable income to spend on fine coffee." Background and Development Until the 1960s, nearly all Americans bought their coffee at the supermarket. During the late 1960s, some entrepreneurs opened shops carrying hard-to-find gourmet food items, such as specialty coffees, aimed at affluent consumers. Some of these businesses even roasted their own coffee to control the degree of roast and keep the coffee fresh. By 1969, the United States had about 50 specialty coffee stores. During the early 1970s, one hundred gift/housewares stores and 1,200 specialty food stores carried gourmet coffee. In 1975, a killing frost in Brazil devastated the coffee crop, which raised coffee prices by 500 percent. Large roasters tried to calm consumer sticker shock by selling coffee in 13-ounce cans instead of the usual 16-ounce cans. Since consumers got less for their coffee dollar, some of them switched to the more flavorful gourmet blends, following a quality-versus-quantity consumer trend. Throughout the 1970s, the industry experimented with roasting beans darker to make a smokier, more distinct coffee than the lighter supermarket roasts. Thus, many consumers came to associate dark roasted coffee with gourmet coffee and many specialty coffee companies developed proprietary house blends during the 1970s. Decaffeinated coffees became a popular seller during the 1980s, with 17 percent of the population drinking it by 1988. The demand for flavored coffees emerged in the mid-1980s, causing producers to add flavors such as cocoa, vanilla, or hazelnut in liquid or powder form to coffee beans. This required little capital investment and allowed specialty shops to sell flavored coffees at a higher price. Industry firms tried many different flavors and several became big hits, particularly by attracting new, younger coffee drinkers to the customer base. Some coffee purists scoffed at flavored coffees, despite their apparent popularity. Starbucks, for example, refused to flavor its beans, but sold flavored syrup to add after brewing. Syrups provided retailers with more sales options than simply flavoring coffees. These could be used in Italian sodas, "granitas," and other drink concoctions popular with the 18-to-35-year-old cafée patron. These drinks could also be sold at a premium. Standard flavors included vanilla, hazelnut, and raspberry, but companies such as Boyd Coffee expanded their lines to include crème brûlée and wild huckleberry flavored syrups, and Stasero added praline, marshmallow, and a combination of passion fruit, orange, and guava. Marketing syrup-flavored drinks proved to fuel creativity from employee and customer alike. Signature drinks offered by some retailers included Lemon Meringue Pie Italian Soda; Nutty Buddy, a mocha spiked with three nut-flavored syrups; and Starburst, with white chocolate and lemon syrups mixed in sparkling water. Another trend included consumer requests for organic coffees. The industry in the 1990s, however, could not tell if consumers would pay more for the harder-to-find organics. Certainly more emphasis was placed by retailers on the beans' growing environment. One growing environmental and economic concern within the industry was the plight of wintering songbirds. The shade trees sheltering coffee bushes of Central and South America have long been home to migratory birds. Ornithological surveys have found 150 or more bird species living on traditional coffee plantations. Strong demand for coffee and advice from the U.S. government caused growers to convert their land to so-called sun plantations. The U.S. Agency for International Development spent $81 million in efforts to get growers to change planting methods to increase volume. Economic studies completed since dispute those assumptions, and the process of changing these once-fertile habitats from shade tree to sun plantations, started in 1978, has caused a decline in the migratory bird species population in these traditional locations. Increased attention to the plight of the birds meant coffee drinkers began asking for shade-grown beans in an attempt to change the trend. Companies including Thanksgiving Coffee marketed specially labeled coffees to educate coffee lovers about the issue. According to a 1997 Knight Ridder/Tribune News Service article, most specialty coffee is actually shade grown. The SCAA said that most mass-market coffees are grown on sun plantations, where volume and price are a bigger factor. Growth of the roaster/retailer segment shows how the industry evolved during the 1970s and 1980s. In 1979, there were about 50 coffee roaster/retailers in the United States; by 1989, there were 400. Growth of specialty coffee retail stores (no roasting on premises) was also dramatic as their number increased from 250 in 1979 to 1,000 by 1989. The Competition As coffee prices rose during the 1990s, some analysts predicted that the specialty coffee business could only prosper. Since an ordinary cup of coffee was already considered expensive, specialty roasters and retailers believed consumers would spend slightly more for gourmet coffee. The array of products was never wider as retailers added more flavors to whole beans and variations to the basics of espresso and steamed milk. The more clever retailers added coffee shakes and iced tea concoctions such as chai to their menus, to outdo competitors who offered mere iced lattes. Since most specialty retailers also retailed whole beans, their stores added home espresso machines, coffee grinders, and other brewing supplies for add-on sales. Many industry firms did all they could to increase market share. They ran catalog sales departments, added retail locations, and competed for new wholesale clients such as restaurant chains and supermarkets. Several industry firms started sites on the World Wide Web during the 1990s to sell coffee beans over the Internet. Some roasters even created private label blends for their institutional customers. Starbucks Corp.'s Nordstrom Blend, for example, was created for the upscale department store chain. Courting corporate accounts became increasingly important because the principal place for drinking coffee in the late 1990s was the workplace. The specialty coffee industry reaped sales of approximately $1.5 billion in the mid to late 1990s. The specialty coffee industry benefited in part from an overall surge in coffee consumption in the United States. By 1999, seventy-six percent of the population consumed coffee, including espresso and gourmet coffee potables as well as coffee consumed by occasional drinkers, according to Restaurant Business. This number represented the highest level of consumption in the last 40 years, surpassing the 1962 peak of coffee consumption when 64 percent of the population consumed coffee. Moreover, the number of cups consumed also rose in 1999, climbing to 3.5 cups a day, up from three cups earlier in the decade. As a final indicator of this growth, one-third of coffee drinkers used larger, eight-ounce cups in 1999, up 10 percent from 1998, according to Restaurant Business. Led by specialty coffees, whole bean sales by grocery, mass merchant, and drug stores rose 16 percent in 1999, hitting $264.8 million, according to Information Resources Inc., a marketing research company. These retailers reported that other coffee categories declined by 6.2 percent, as overall sales by grocery, mass merchant, and drug stores dipped to $2 billion. While ground coffee sales dropped, however, whole bean sales continued to do well, more than tripling their 1989 level, according to the SCAA. Starbucks was a major catalyst in the growth of whole bean sales because the company began selling its whole beans in these stores in 1998. By 1999, Starbucks accounted for almost 10 percent of the whole bean sales in these stores, with revenues of $23.8 million. Most affected was the Eight O'Clock brand. Its sales fell about 10 percent due in part to Starbucks' presence. With strong demand for specialty coffee, more competitors entered the business during the late 1990s, with varied success. General Foods captured some market share from the smaller players with its line of Gevalia Coffees, sold only by mail order. Procter & Gamble, maker of Folgers, entered the specialty coffee fray in 1995 with its purchase of Millstone, which it distributes to about 7,000 stores. In 1999, Procter & Gamble even attempted to upgrade Folgers as a specialty coffee by selling whole coffee beans under the Folgers flag. In addition, another mass market coffee producer, Chock full o'Nuts Corp., bought an industry firm called Quikava in 1994. Based in Boston, Quikava is a chain of drive-through espresso shops that offers franchising. Quikava kept expanding and Chock full o'Nuts set a precedent for other established retailers to enter the market with its streamlined business approach and its careful expansion plans. Sara Lee Corp. expanded its presence in the industry in 1999 by acquiring Chock full o'Nuts. The influx of coffeehouses also has driven the specialty coffee industry, since many cafées and coffeehouses sell specialty coffee primarily or exclusively. The number of cafées jumped to 12,000 in 1999, up from just 5,000 in 1995. One industry trend of the late 1990s was the consolidation of specialty coffee companies (or the rumors of such consolidation), as smaller competitors scrambled to compete with the industry giant, Starbucks Corp. For example, the nation's number two specialty coffee chain, Diedrich Coffee, acquired Coffee People in 1999 for $23 million, as well as Pannikin Coffee in 1997 for $2.8 million. In addition, Peabodys Coffee Inc. bought a number of smaller specialty coffeehouses, including Northern Lights Coffee, in 1999, and Capitol Coffee and Arrosto Coffee Co. in 2000. "The definition of specialty coffee is changing," wrote Donald N. Schoenholt in a 1998 Tea & Coffee Trade Journal article. "The lines between specialty and commercial products are beginning to blur. The big companies' threat to the existence of regional brands increases. This is so even as specialty coffee's appeal continues to grow across the land. Our ranks have swelled, been thinned, and filled again with specialty coffee businesses that are in significant ways different kinds of businesses than those of the movement's founders. Many are extensions of much bigger companies whose primary products and services often have more to do with tobacco and soap than they do with any kind of coffee. None of this is bad by itself. But things have changed. Today, 'specialty coffee' most often means a beverage of flavored coffee in a 12-ounce container to go. Enough said. Things change." Schoenholt went on to say that aggressive business tactics by big companies served to "alienate some companies from their specialty coffee community roots." The roots of the industry, he wrote, were in a strong and viable independent group of businesses with the sole mission "to never let the blight of coffee sameness again creep over the land." Throughout 2003, the market continued its rapid expansion. One of the newest trends in the domestic market was in drive-through coffee stores. Starbucks had 540 drive-through stores in early 2004, all of which were seeing continual growth and long lines. Some analysts said the industry trend toward consolidation indicated that the specialty coffee industry was maturing and that mergers and acquisitions brought needed capital. Ted Lingle, head of the SCAA, said in a published story, "We see growth peaking in this industry around the year 2010, and between now and then you'll see a slow but steady increase in the number of mergers. After that, I don't think you'll see merger mania tapering off until after the year 2020." Such growth was not without concern, however. By early 2004, soaring dairy prices were expected to begin affecting coffee stores in the prices of milk purchased for use in their specialty beverages as well as for the standard creamers. In addition, despite its widespread presence, Starbucks alone was purchasing only 2 percent of the coffee produced worldwide. But because the specialty beans required by Starbucks and Diedrich and the other industry leaders were grown in far smaller qualities, the concern was that demand was rapidly exceeding supply, causing both increased prices and shortage. Starbucks was addressing the concern proactively, going directly to the source to ensure better quality coffee by opening a Costa Rican support office for coffee farmers and rewarding environmentally responsible farms through its CAFE Practices program. In fact, "Fair Trade" practices were springing up in much of the coffee industry by 2004. The non-profit organization Global Exchange had this to say about the import of Fair Trade Certified Coffee: "The chief concern of the Fair Trade movement has been to ensure that the vast majority of the world's coffee farmers (who are small holders) get a fair price for their harvests in order to achieve a decent living wage ($1.26/pound regardless of the volatile market); much needed credit at fair prices; and long term relationships. These fair payments are invested in health care, education, environmental stewardship, and economic independence." Green Mountain saw sales of its Fair Trade products grow 92 percent in 2003. Ahold USA launched its own brand of five Fair Trade coffee bean products in 1,200 of its grocery stores. Dunkin' Donuts, which in 2004 still had the number one U.S. spot in terms of coffee sold on a per cup basis, particularly in the New England area, was test-marketing a Fair Trade espresso brand. Current Conditions In the fall of 2005, Burger King and McDonalds introduced upgraded coffee blends, brewing procedures, and packaging in an effort to compete with Starbucks and others in the breakfast business. Burger King launched its "BK Joe" branded made-to-order coffee program across the country in October, 2005, while McDonalds planned to began selling its new premium coffee early in 2006. As sellers of premium coffee, fast food restaurants are in a good position to deliver it quicker and cheaper. They are masters of convenience and are able to keep prices low. In 2006, coffee trendsetters began buying coffee beans the way winemakers shop for top-quality grapes. Estate-grown beans, which are then roasted into lighter brews to bring out distinct flavors, began replacing the trademark charcoal-scented Northwest blended coffee. Blends are typically used to ensure enhanced flavor, but if an excellent coffee bean, called single-origin coffee, is found and brewed in a French press or Cona vacuum pot, there is no need to compromise with a blend. Some of these single-origin beans bear names that describe their origin. For example, Guatemala Huehuetenango Finca Vista Hermosa Estate Reserve describes the bean right to the farm that grows it. But roasting these single-origins to a deep, dark one-size-fits-all brew is not the goal. To bring out the unique characteristics in the bean, custom coffee roasters experiment with time and temperature to highlight flavors and find the perfect balance of caramelized sugars to acidity, rather than simply roasting the beans dark, as specialty coffees are expected to be. A heavy roast can hide flaws in the coffee bean, so a medium roast of really good beans "is a revelation for people," according to Kenneth Davids, a Berkeley-based coffee expert. Nescafée launched a lighter version of its Cappuccino and Latte instant coffees in March of 2006. Their Skinny Cappuccino and Skinny Latte will have the fat content of the regular brews: 0.9g fat and 62 calories per mug for Skinny Cappuccino and 1.5g fat and 86 calories for Skinny Latte. They hope to attract women who enjoy those specialty coffees, but don't want all the fat. Industry Leaders Starbucks Corp., based in Seattle, Washington, led the industry in the late 1990s and looked poised to continue its dominance in the first decade of the twenty-first century. The company posted 1999 sales of $1.68 billion, up 28 percent, and had more than 2,800 retail locations spread throughout the world. Starbucks also distributes its specialty coffee to about 3,500 supermarkets. By 2002 it operated about 6,200 stores worldwide, and in early 2004, that number had grown to 7,800. At the end of April 2006, net revenues increased from $1.5 billion for the same period in 2005 to $1.9 billion, an increase of 24 percent. The company hoped to open 25,000 locations worldwide, with 15,000 of those outside North America, particularly in developing countries. In addition to expanding its drive-through presence domestically, the company launched Music Cafées with Hewlett-Packard, where people can come in for their coffee fix and custom burn their own music CDs. Some in the industry were dubious about the profitability of such a venture, but according to the president of the International Recording Media Association, "You can never underestimate a company that convinced people to pay $5 for a cup of coffee." The company began in 1971 with one store in Seattle. Three entrepreneurs--Gordon Bowker, Jerry Baldwin, and Zev Siegl--founded the original business. They named it after a character who loved coffee from Herman Melville's classic novel Moby Dick, and they developed the now-familiar mermaid logo. Starbucks originally sold bulk tea and specialty coffee beans by the pound. They did not add a coffee bar to sell drinks until 1984. The coffee bar idea came from Howard Schultz, who was the company's marketing director. Schultz quit the company in 1985 to start a chain of espresso cafées like those he had seen in Milan, Italy. He called his cafées Il Giornale, and they served Starbucks coffee. In 1987, Schultz raised money from private investors and bought Starbucks from its founders for $3.8 million. The venture paid off for Schultz, whose personal fortune was $100 million in 1997, 75 percent of which came from Starbucks stock. During the late 1980s, Starbucks built a larger roasting plant, started a mail order catalog, and opened stores in British Columbia, Oregon, and the Chicago area. By 1992, the company grew to 165 stores and issued shares that were available on NASDAQ. Their specialty sales division landed prized institutional accounts throughout the 1990s, including Nordstrom's coffee bars, United Airlines, Barnes & Noble, ITT/Sheraton Hotels, Westin Hotels, and Star Markets. Starbucks also offered some of their catalog items on the Internet through America Online. In 1994, Starbucks had 425 U.S. stores and bought a smaller competitor, the Coffee Connection, Inc. In 1995, the company also bought a minority stake in Noah's New York Bagels, Inc., a coffee and bagel chain based in Golden, Colorado. Starbucks began joint ventures from 1995 to 1997 to get its coffee into other products, including Double Black Stout, a dark beer with a shot of espresso, developed with Redhook Ale Brewery; Frappucino, a bottled iced coffee beverage, developed with PepsiCo Inc.; and a line of Starbucks coffee-flavored ice creams marketed with Breyer's Grand Ice Cream, Inc. and sold in supermarkets. One of the company's few failures was a carbonated coffee beverage called Mazagran. Joint ventures extended to non-food items as well, including the sale of music CDs in Starbucks stores, a concept developed with Capitol Records's Blue Note Jazz label. Furthermore, Starbucks sells its beans via mail order catalogs and the Internet. Starbucks opened almost one new store per day in the late 1990s, including five on a single day in Toronto. During this period, Starbucks expanded to the Pacific Rim, opening stores in Hawaii, Japan, and Singapore. The expansion effort helped the company realize its goal of having 2,000 stores by the year 2000, which it handily exceeded by 800 cafées. Part of the company's expansion campaign also included the acquisition of Seattle Coffee Co. Seattle Coffee operates 68 cafées, primarily in the United Kingdom, under the names Seattle's Best Coffee and Torrefazione Italia, as well as a roasting and packaging facility. Furthermore, Seattle Coffee products can be found in about 1,600 grocery stores nationwide. Starbucks bought the company in order to penetrate the European market. Despite critics calling them the "golden arches" of the specialty coffee industry, the company's cash registers kept ringing; Starbucks claimed to serve about four million customers per week. Starbucks' biggest competitor, publicly held Diedrich Coffee Inc. of Irvine, California, specializes in sourcing, roasting, and selling high quality coffees. Diedrich also sells its coffees through wholesale accounts, including office coffee service distributors, restaurants and specialty retailers, mail order, and the Internet. Diedrich increased its revenues for the third quarter of FY 2006, which ended in March 2006, by $2,425,000.00 over the same period in 2005, an increase of 20.9%. Breaking it into components, retail sales increased by $860,000 or 12.1 percent, wholesale revenue went up $1,675,000 or 48.9 percent, but franchise revenue declined $110,000, a decrease of 10.2 percent. In 1999, Diedrich acquired another leading specialty coffee company, Coffee People, Inc., which propelled it toward the top of the industry. By 2003, Diedrich planned to expand this profitable line. Diedrich's coffee portfolio includes brands such as Diedrich Coffee, Gloria Jean's, and Coffee Plantation. The company also planned to open cafées in bank branches owned by Home Savings of America. Diedrich, founded in 1912, owns Central American plantations and is credited with designing and manufacturing "one of the world's most popular batch roasting machines.". Caribou Coffee was started with a mere $200,000 in 1992, when Starbucks only had 116 stores nationwide, as the vision of newlyweds John and Kim Puckett, who opened the first shops in Minneapolis in 1993. Planned expansion was to take Caribou Coffee throughout the Southeast and Midwestern United States. In the late 1990s, Caribou Coffee had estimated sales of $75 million, but the company had operating capital problems that had plagued them almost from the start. In December 2000, although its investors had contributed over $40 million, it couldn't raise further operating capital and sold 70 percent of its stock (later it would become 87.8 percent) to a group of international investors led by the First Islamic Investment Bank, E.C. of Bahrain. The investment by this group enabled Caribou to continue the expansion of its store base in the United States. The bank described itself as purely a financial investment organization based in and regulated by the government of Bahrain, which is an ally of the U.S. in the Middle East and the headquarters of the U.S. Navy's 5th Fleet. The company's strategy for the first decade of the 2000s was expansion in its core Midwestern markets--such as jumping on the 2003-2004 "low carb" bandwagon by introducing its low carb and low calorie line for dieters-- and exploration of the possibility of a public offering. However, after the terrorist attacks of September 11, 2001, Internet and media attention focused on the fact that the First Islamic Investment Bank of Bahrain's heavy investments in American companies were reviewed for compliance with Islamic religious tenets by the bank's Shari'ah advisory board, which at that time was chaired by an Islamic cleric and scholar named Yusef al-Qaradawi, who became controversial when his association with the Muslim Brotherhood, the Egyptian political group that spawned Ayman al-Zawahiri, Osama bin Laden's second in command, and Mohammed Atta, the leader of 9/11 terrorist attacks, came to light, along with reports of al-Qaradawi's endorsement of Hamas and suicide bombings against Israel and increasingly anti-American pronouncements. In 2002, al-Qaradawi retired from his position as chairman of First Islam's Shari'ah advisory board. Also, according to its "Urban Legends" reference page on Caribou Coffee, Snopes.com reported that in July 2002, the First Islamic Investment Bank hired a Washington, D.C. law firm to " review its charitable donations, and they have certified that no charitable contributions from Caribou's coffers go to groups banned under U.S. law." On March 15, 2005, the First Islamic Investment Bank changed its name to Arcapita with wholly owned subsidiaries Crescent Capital Investments, Inc. in Atlanta, Georgia, and Crescent Capital Investments (Europe) Limited in the UK. On September 29, 2005, Caribou Coffee Company announced its initial public offering on Nasdaq of 5.358 million shares of its common stock at $14.00 per share. At the time of its initial public offering, Caribou Coffee, headquartered in Minneapolis, was the nation's second largest U.S. specialty coffee company with 337 coffeehouses and over 4,000 employees in fourteen states and the District of Columbia, including 154 coffeehouses in Minnesota and 56 in Illinois. In a July 30, 2006 article in The Atlanta Journal-Constitution (AJC), Caribou's CEO, Michael Coles, said that the company presently had over 400 stores. The article further stated that Arcapita's CEO and global head of corporate investment, Charlie Ogburn, confirmed that "Before a deal is consummated, it has to get a nod from Arcapita's four-person Shari'ah advisory board, which consists of a retired judge from Saudi Arabia's Supreme Court and religious scholars from Pakistan and Bahrain" because Arcapita does not invest in companies that " offer credit or charge interest, or companies peddling pornography or alcohol. Even pork is off limits." The AJC also attributed Ogden with adding, "But beyond ensuring a potential acquisition is Shari'ah-compliant, the board does not play a role in the company's operations or decide the financial merits of a particular deal. Nor does it dictate who can be hired or promoted." The article further notes that Coles is Jewish, Ogburn is Episcopalian, and that women comprise some 60 percent of Caribou's management team and "hold several key spots in Arcapita's senior management team." In its December 2004 issue, Consumer Reports magazine reported that based on a blind taste test by two coffee experts, Caribou's coffee outperformed 41 other regular and decaffeinated Columbian and Kona coffees, including Starbucks, to win the magazine's excellent rating. On July 5, 2005, Caribou Coffee Company announced that it would "support sustainably produced coffee -- and the communities and farms in coffee growing lands -- through a new partnership with the Rainforest Alliance," an international nonprofit organization which certifies farms that meet the "highest standards for the conservation of natural resources and the rights and welfare of workers and local communities." Caribou is planning that by 2008, half of all the coffee it purchases will be Rainforest Alliance Certified. However, in August 2006, Caribou was still a distant second to Starbucks, which at that time had 5,393 company operated coffeehouses in the U.S. and 6,391 coffeehouses outside the U.S. in 36 countries that were either licensed, company operated, or joint venture/licensed Starbucks operations. Second Cup Ltd., a Toronto-based firm, is Canada's largest specialty coffee cafée franchiser and its second largest retailer. It opened its first coffee cafée in Toronto in 1975 and in 2005, had 360 cafées across Canada, 90 percent of which are franchised. Another major player in the industry is Green Mountain Coffee Roasters, Inc. of Waterbury, Vermont. The firm sells gourmet coffee to catalog patrons and institutional customers. Although Green Mountain once ran about 12 cafées, it decided to divest itself of them in the late 1990s to focus on its core wholesale business. In the fall of 2003, the company scored a coup when Amtrak began selling the brand on its trains. By 2004, Green Mountain was a major participant in the "Fair Trade" coffee movement and was guaranteeing its Mexican coffee co-op $1.26 per pound, more than twice the world price. In September 2004, the end of its fiscal year, GMCR recorded sales in excess of $137 million, with the majority of these sales generated by the wholesale business serving more than 7,000 customer accounts. Its mail order catalog is mailed to customers nationally. One of Starbucks' founders, Jerry Baldwin, retained and runs privately-held Peet's Coffee and Tea, based in Emeryville, California. Peet's opened seven stores in the first half of 2005--one in Seattle, one in Portland, and the rest in California--and plans to open thirteen to eighteen more in the second half. Peet's is not a major company, but is a profitable one, maintaining its quality commitment while it gears up to keep pace with the market and grow its business. At the end of March 2006, net revenue increased to $49.7 million, an increase of 24.3 percent over the same period of 2005, which was $40.0 million. That breaks down to a 22.4 percent increase to $33.4 million and two new locations for retail revenue; a 28.4 percent increase to $16.3 million for specialty sales, including its fastest growing area, grocery sales, which was up 48.3 percent over 2005 with Pete's being in more than 4,000 grocery stores; home delivery business sales, which had a 12.9 percent increase; and foodservice and office business, which grew 11.5 percent. America and the World Gourmet coffee comes from about 20 different countries. Free trade between the United States and producer countries is vital to the industry, since the domestic crop is so small. The only gourmet coffee grown on U.S. soil comes from the Kona area on the island of Hawaii. However, Kona's crop is impractical for two reasons: price and authenticity. The coffee costs more than similar-tasting Latin American coffees because American coffee pickers do not work for Third World wages. Since the beans are so expensive, scams have occasionally surfaced. For example, in 1996 a Berkeley, California wholesaler got caught diluting Kona beans with cheaper Latin American beans, after having fooled consumers, and some in the industry, for years. Other specialty beans come from the Arab states and East Africa, including Yemen, Ethiopia, Kenya, Tanzania, and Zimbabwe. The final group of coffees comes from the Malay Archipelago, including such areas as Sumatra, Sulawesi, Java, and New Guinea. The most prominent coffee-growing region is Latin America. Brazil grows one-third of the world's coffee, but only a small portion of that is gourmet quality. The second largest coffee-producing country is Colombia, which produces the most consistent coffee, according to some analysts. Mexico, Ecuador, Peru, and Venezuela produce coffees most often used by specialty purveyors for blends, although better varieties from these countries are sometimes sold unblended. Some analysts believe Costa Rica grows the region's finest coffee, particularly the estate coffee, La Minita, from Tarrazu. In January 2006, Australian and Canadian companies paid $6,580 USD (U.S. dollars) for a 60-kg bag of Brazilian coffee at a specialty coffee auction. The record-breaking price was the equivalent of paying $49.75 per pound. Ten years earlier, world coffee importers were not convinced that Brazilian coffee producers could grow a top-quality bean on a par with Columbian coffees. However, technical investments in the plants have produced coffee in Brazil that is treated by coffee growers the same way grapes are treated, by paying special attention to the plant. In 2005, Brazil produced 800,000 bags of specialty coffee--ten percent of the eight million bags consumed worldwide annually. Three percent was consumed domestically, while the rest was shipped abroad. Germany has entered the realm of the American-style coffeehouse--Starbucks had nearly 50 units in Germany in 2005--and is attracting the upwardly-mobile 20- to 40-year-olds, while smaller, old-fashioned coffeehouses are fading away. German consumers are increasingly favoring the premium coffees imported from private estates and farms around the world. The year 2004 saw a rise in imports from Mexico and Central America, along with Rwanda and the islands in the South Pacific. Decaffeinated coffees also experienced an increase from 14.54 million bags in 2003 to 15.96 million bags in 2004, signifying a growing after-dinner enjoyment of coffee, regardless of caffeine. Further Readings "About Us." Caribou Coffee Website, 18 May 2006. Available from http://www.cariboucoffee.com/aboutus/corporateprofile.asp. Allen, Robin Lee. "Boldly Going Where No QSR Has Gone Before: McD, BK's Premium-Java Risk Could Pay Off." Journal: Nation's Restaurant News, 17 October 2005. "Al-Qaradawi full transcript." BBC Two Newsnight, 7 July 2004. Available from http://www.bbc.co.uk/2/hi/programmes/newsnight/3875119.stm. "Amtrak Is Brewing Coast-to-Coast Green Mountain Coffee." The Vermont Business Magazine, September 2004. Aoki, Naomi. "Starbucks' Chairman Discusses Company's Future in New England, World." Knight Ridder/Tribune Business News, 18 April 2004. "Caribou Coffee." Urban Legends Reference Pages, 17 July 2002. Available August 29, 2006 from http://www.snopes.com/business/alliance/caribou.asp. "Caribou Coffee Company, Inc. Announces Pricing of Initial Public Offering." Caribou Coffee Company Press Release, 29 September 2005. Available from http://www.cariboucoffee.com/aboutus/pressrelease.asp. "Caribou Coffee Co. Rolled Out Skinny 'Bou." Nation's Restaurant News Daily News Fax, 19 January 2004. "Caribou Coffee Company Takes a Leadership Role in Backing Sustainable Coffee Growing Practices." Rainforest Alliance Web Site, 5 July 2005. Available from http://www.rainforest-alliance.org/news/2005/caribou.html. "Caribou Coffee Top Consumer Reports' Latest Ratings; Latest Braun's Aromaster Coffeemaker Outperforms Pricier Models." Consumer Reports, December 2004. Available August 2006 from http://www.consumerreports.org/cro/cu-press-room/presssroom/eng0412/cof.htm?resultPage. Castle, Timothy J. and Joan R. Nielsen. "Emerging Trends in Germany's Growing Coffee Culture: Country Shows Appreciation for Quality Specialty Coffee." Specialty Coffee Retailer, December 2005. Chater, Amanda. "Specialperks; The Buzz About Specialty Coffee is Enlivening Sales in an Otherwise Declining Category." Supermarket News, 19 December 2005. Clements, Barbara. "Starbucks Posts 53 Percent Rise in Second-Quarter Profits." Knight Ridder/Tribune Business News, 22 April 2004. Cole, Leslie. "The New Brew." Knight Ridder/Tribune Business News, 18 April 2006. "Company Info: Investor Pages." Peet's Coffee and Tea Website, 2 May 2006. Available from http://investor.peets.com/Edgar.cfm. Desjardins, Doug. "Starbucks Joins Wal-Mart in Click-N-Rip." DSN Retailing Today, 5 April 2004. "Diedrich Coffee Reports Third Quarter Results." Diedrich Coffee Website, 21 April 2006. Available from http://www.diedrich.com/companypages.tpl?cart= 11479796184785424&comppage=aboutus&tname=companyhistory. "DJ Brazilian Specialty Coffee Fetches $6,580 A 60-Kg Bag." FWN Financial News, 12 January 2006. "DJ Starbucks Attention Turns to Finding Enough Coffee Growers." FWN Select, 16 April 2004. Duxbury, Sarah. "Coffee buzz." San Francisco Business Times, 17 June 2005. Elliott, Stuart. "Designer Coffee, a Cup at a Time, While Keeping Your Taste Buds at Home." The New York Times, 3 March 2004. "Get skinny with Nescafée." Grocer, 14 January 2006. Hadi, Mohammed. "Fighting Rumors, Companies Face Hard Choices, New Forums." Dow Jones Newswires, 24 August 2006. Available from http://money.cnn.com/services/tickerheadlines for 5/200608241457DOWJONESDJONLIN. Johannsson, Catrine. "Diedrich Reports Loss, Still Acting Like Profitable Company." Knight Ridder/Tribune Business News, 26 September 2003. "No. 2 Coffeehouse Chain Operator Diedrich Coffee Inc., While Reporting a Wider Third-Quarter Loss Friday, Said Roger "Rocky" M. Laverty Was Named Chief Executive." Nation's Restaurant News Daily News Fax, 28 April 2003. Paul, Peralte C., and Sheila M. Poole. "Branching out, with limits." The Atlanta Journal-Constitution, 30 July 2006. Available from http://www.ajc.com/search/content/auto/epaper/editions/sunday/business_44bcbaeab6ce31. Pearl, Daniel. " 'Moderate' Islamic Cleric in Qatar Shows How It's Possible to Take the Middle Road," Wall Street Journal, 15 October 2001. Available from http://www.geocities.com/spyjaguar/151001.htm?200629. "Planting Trouble." The Economist, 13 December 2003. Roosevelt, Margot. "The Coffee Clash." Time, 8 March 2004. The Second Cup Ltd. Website, 18 May 2006. Available from http://www.secondcupincomefund.com/. Specialty Coffee Association of America Website, April 2004. Available from http://www.scaa.org. "Starbucks Announces Q2 2006 Results and April 2006 Revenues." Starbucks Website, 3 May 2006. Available from http://www.starbucks.com/aboutus/pressdesc.asp?id=663. "Thanksgiving Coffee Co." Available from http://www.thanksgivingcoffee.com. "What is Fair Trade Coffee All About?" Global Exchange. Available 19 August 2006 from http://www.globalexchange.org/campaigns/fairtrade/coffee/background.html.pf. "What is Specialty Coffee?" SCCA Website, 18 May 2006. Available from http://www.scaa.org/. "Yusuf Al-Qaradawi tells BBC Newsnight that Islam justifies suicide bombings." BBC Press Office, 7 July 2004, Available from http://www.bbc.co.uk/pressoffice/pressreleases/stories/2004/07_July/07/newsnight.shtml. Source Citation: "Specialty Coffee." Encyclopedia of Emerging Industries. Online Edition. Thomson Gale, 2007. Reproduced in Business and Company Resource Center. Farmington Hills, Mich.:Gale Group. 2007. http://galenet.galegroup.com/servlet/BCRC