Peet’s Coffee & Tea (NYSE: PEET)1 Mandy Gray Katherine Jonas Jennifer Tao December 7, 2007 business overview Peet's is a specialty coffee roaster and marketer of fresh roasted whole bean coffee with a focus on artisan roasting practices and the freshness of the coffee's ingredients. Peet's markets its coffee through online sales and a mail order service. It also distributes its products through specialty food and grocery stores, as well as offices, restaurants, hotels and its own retail store locations. The driving force of Peet's Coffee & Tea is the desire to be the gold standard specialty coffee and tea brand available to the world, with one of the most dedicated and loyal customer followings of any brand. The company strives to enable and inspire customers to enjoy Peet's Coffees & Teas by providing a distinctive, superior product, superior coffee and tea knowledge and superior service to every customer, every day. Peet's largest presence is in California, but they have recently expanded to the northeastern United States. In 2003, they unsuccessfully attempted to expand in Japan by opening 4 retail locations, but all of them were closed within one year due to competition from Starbucks and other retailers in Japan. Peet's Coffee offers a wide selection of retail products consisting fresh roasted whole bean coffee, premium blends, sweets, and tea, in addition to providing freshly brewed coffee, tea, beverages, and baked goods. Essentially, it has two segments: retail stores and specialty sales, which consist of sales to home-delivery customers, grocery stores, offices, food service companies, and restaurants. The stores are designed to facilitate the sale of fresh whole bean coffee and encourage customers to purchase packages of blends to be home-brewed. The specialty sales have expanded from individual home delivery to a network of grocery stores. Within the coffee business, Peet's is well known for its commitment to providing high-end, premium coffee blends. The chain encourages customers to 1 Disclaimer: Smart Woman Securities ("SWS") reminds you that nothing contained in an Investment Report or on this website constitutes tax or investment advice. Neither the information, nor any opinion, contained in an Investment Report constitutes a solicitation or offer by SWS to buy or sell any securities, futures, options or other financial instruments. Decisions based on information contained in an Investment Report are your sole responsibility. The information in the Investment Reports is provided "AS IS" and without warranties of any kind, either expressed or implied. 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Thus, each store has a dedicated staff person at the bean counter to take orders, handscoop and grind beans to the customers' specifications, and assist them with questions on coffee origins. Since 2001, Peet's Coffee has been under the guidance of CEO Patrick O'Dea. A long time member of the Peet's management team, O'Dea plans to expand sale of Peet's coffee beans in grocery stores, introducing the brand at one thousand new locations this year. This October, Kay Bogeajis was appointed Vice-President of retail operations, where she will be responsible for Peet's 160 shops, as well as Peet's coffee sold through grocery stores nationwide. Bogeajis' is widely anticipated to bring growth and experience to the company, having previous experience managing retail operations for 1,400 of Taco Bell's restaurants, as well as experience with the Frito-Lay company and Burger King. Also in October or this year, Chris Lansing was promoted from Chief Marketing Officer to General Manager or consumer business and CMO. Lansing was largely credited with the successful introduction of Peet's Coffee to the New England market, and will now be responsible for grocery and direct channels of sales. He plans to expand upon Peet's direct-to-store delivery program. Peet's also welcomed Libby Sartain to Peet's board of directors this October. Sartain, currently Executive Vice-President at Yahoo, brings with her 30 years of experience in human resources. The founder of Peet's Coffee recently passed away. competition from Reuters Competitor Role Trends Diedrich's stock prices over the past 5 years have generally declined, alongside Peet's. Diedrich Coffee Company, a specialty coffee Although both companies roaster, wholesaler and retailer, was cater to wholesale buyers, incorporated in 1985. Like Peet's, Diedrich's Peet's focus on premium sells light food items, specialty beans and roasting techniques and high espresso blends. However, unlike Peet's, most quality set it apart from Diedrich Coffee of Diedrich's sales are wholesale to office Diedrich's. Since Diedrich's (DDRX) buildings and hotels. Most of Diedrich's supplies markets where the Coffee stores are located in Orange County, consumer has little choice California, although Gloria Jean's, a sub-brand over the brand of coffee they of Diedrich's Coffee, has retail outlets in 33 receive, Peet's can capitalize states. on the demand for high quality beans and beverages which dominates the coffee market. The Coffee Holding Company is a wholesale vendor of green coffee beans, private roasts, Coffee Holding Company has and branded roasts. The Coffee Holding maintained a steady stock Company was founded in 1971 by Sterling value which continues to Gordon, who has ceded leadership of the increase with news of the new company to his two sons, Andrew and David contract with Entenmann’s, Gordon, who are now president and vice- despite declining share prices president of the company, respectively. Green among other coffee roasters. Coffee Holding coffee beans are imported from Colombia, Since Coffee Holding Company (JVA) Mexico, Kenya, Uganda and Brazil, and Company imports green roasted at the companies facilities in Colorado. beans directly, it firmly This fall, the Coffee Holding Company controls its supply line, and is entered into a three-year contract with sheltered from much of the Entenmann’s Products, Inc., in which the competition between retail Coffee Holding Company will produce a companies such as Peet’s and specially-roasted line of beans for sale under Starbucks. the Entenmann’s brand. Founded in 1950 by Bill Rosenberg in Quincy, Dunkin’ Donuts is privately Massachusetts, Dunkin’ Donuts has one of the owned by private equity firms longest and most established histories in the Bain Capital LLC and Thomas New England region. With over 12,000 points H. Lee Partners, which of distribution worldwide, Dunkin’ Donuts is bought the company in 2005 one of the largest coffee retailers in existence. for $2.4 billion. By providing In addition, Dunkin’ Donuts has recently fast, consistent service at a begun selling roasted coffee beans through its plethora of convenient stores and online, and has secure relationships locations, Dunkin’ Donuts with airlines, hotels and restaurants that serve has established itself as a Dunkin’ Donuts brand coffee. favorite coffee supplier to customers in the New England region. New Dunkin' Donuts advertising campaigns (Private) featuring the slogan “America Runs on Dunkin’s” have allowed Dunkin’ Donuts to promote itself as the brand of choice for the average American consumer, giving it a broad base in the coffee market which Peet’s Coffee is unlikely to equal. Caribou Coffee Company, founded in Caribou Coffee occupies a Minneapolis, Minnesota in 1992, is both a market very similar to Peet’s wholesale seller of coffee beans – both Coffee, and poses direct through its retail locations and through competition to the brand. At grocery store displays – and coffee products. this time, Caribou’s location, Based on the number of coffeehouses, which is largely concentrated Caribou coffee is the second largest company- in the Midwest, does not owned gourmet coffeehouse operator in the overlap with Peet’s, so United States, with locations in eighteen states. although the retail locations The company offers espresso drinks, tea, do not compete directly, sale Caribou Coffee baked goods, whole bean coffee and branded of coffee beans on-line Company (CBOU) merchandise at its stores, with an emphasis on compete for the same market.