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1 Starbucks' Starry Statistics [Special] February 2, 2004

David and Tom Gardner recently interviewed Starbucks(Nasdaq: SBUX) CEO Orin Smith onThe Motley Fool Radio Show on NPR. Starbucks' stock has risen 60% over the last three years, a period in which the S&P 500 dropped 15%. This is the first of five parts.

TMF: Orin, I think a lot of us feel as if we probably understand Starbucks' business, serving coffee to repeat customers -- and increasingly around the world. Why not tell us something that might surprise us about Starbucks' business?

Orin Smith: I think most customers see us as a retail coffee store, as so many coffee houses are, but we are a vertically integrated company and we do everything except grow that coffee. As a matter of fact, this week we are opening an agronomy office in Costa Rica and one purpose of that office is to work with the farmers to help them grow better coffee. So we are right at the roots of this industry.

TMF:  How often does the typical customer go into Starbucks in a month these days?

Smith: Well, the most frequent users go probably about 18 times. The total average is in the mid- to high-single digits.

TMF: How much is that person spending?

Smith: Probably $3.50 to $4.00 a trip.

TMF: So 18 times three-and-a-half or four, I am coming up with something around $60 a month for the average Starbucks customer.

Smith: It is in that neighborhood.

TMF: What is the most popular Starbucks order?

Smith: I think the latte still remains the most popular.

TMF: How about Orin Smith's favorite order?

Smith: I am a dark or a drip coffee drinker. By the way, drip coffee is still the most frequent of any coffee drink that is ordered. It is a lower price point, but when you look to the espresso side of our business, it still remains the latte.

TMF: Customers are dripping that themselves aren't they, in some cases?

Smith: Yes, they are.

TMF: The Atkins Diet has been all the rage lately. Since Starbucks tends to offer a lot of breakfast pastries and muffins at your shops, how has this trend affected you?

Smith: It doesn't seem to have influenced us at all. As that trend has developed, we have actually improved our food program and its rate of sale.

TMF: What are you hearing from your regional managers?

Smith: Nothing but positive things right now. As you know, we just had a spectacular quarter. This has been going on now for well over a year. Our business just continues to grow both in old stores and new stores as we offer new products and invite different segments of the population into our stores.

TMF: At some point, the food police could well turn their sights on coffee. I am curious, if they do, do you think Starbucks would be a major target -- and how worried would you be about this if scrutiny went from the obesity of America and doughnuts to coffee?

Smith: I don't think that is at all likely. We track very closely what the medical findings are. It is one of the most studied products in the entire world; people may remember that in the early 50s there were a few studies that came out that tended to frighten people. All of those studies have been debunked. What is now happening is that these studies are coming out indicating that coffee has many of the antioxidants that tea has, something that is not much publicized. Just recently, I believe it was out of the Harvard Medical School, the findings were that for Diabetes 2, coffee was a good antidote. So what we are hearing of late and back to the last twenty-some years are only positive things from the research of the use of coffee.

Tomorrow: Expanding the Starbucks brand internationally.

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