Starbucks Nears Deal With Ethiopia By JANET ADAMY May 4, 2007; Page B3, WSJ

Starbucks Corp. said it has moved a step closer to signing a licensing agreement with Ethiopia for its regional coffee names.

The decision marks a reversal for the Seattle coffee chain, which spent months discouraging the African country from trying to win trademarks for the names of the regions where it grows some of the world’s finest coffee beans. Ethiopia has been trying to trademark the names of three coffee-growing regions to gain control over its intellectual property and, eventually, increase the value of its coffee. The dispute was the subject of a page-one article in The Wall Street Journal in March.

Starbucks, which doesn’t have an official say in whether Ethiopia gets the trademarks, initially said that the licensing agreement Ethiopia wanted it to sign several months ago was legally onerous, and that the trademarks wouldn’t necessarily bring more money to coffee farmers in Ethiopia. Starbucks’s handling of the issue prompted complaints from customers, and investors peppered executives with concerns at the company’s annual shareholder meeting in Seattle in March.

After two days of discussions in Seattle this week, the two sides said they have agreed in principle to sign a licensing, distribution and marketing agreement. Starbucks officials declined to say what the agreement entails, or why they’ve now moved closer to signing it. “We’ve always been very bullish on our business with Ethiopia,” Starbucks Chief Executive Jim Donald said in an interview. “This is just another great step.”

Getachew Mengistie, the director general of Ethiopia’s intellectual-property office, said the agreement meets the needs of small Ethiopian fine-coffee farmers and traders as well as the coffee-roasting and distribution companies and their customers.

Also yesterday, Starbucks said its comparable-store sales grew 4% in its fiscal second quarter, ended April 1. The figure was at the low end of the company’s long-term forecast, primarily because Starbucks was up against an unusually strong quarter a year earlier, Mr. Donald said. The company also cited pockets of store closures due to poor weather. Still, the addition of hot breakfast sandwiches at more Starbucks locations as well as strong sales of a sugar-free Cinnamon Dolce Latte drink helped fuel sales.

Starbucks faces increased competition from McDonald’s Corp., which is adding specialty coffees in some locations, and Dunkin’ Brands Inc.’s Dunkin’ Donuts, which is in the early stages of a national expansion. Mr. Donald said Starbucks is mindful of competition, but, “We know where our customers tastes are heading and we’re staying ahead of that curve.”

Write to Janet Adamy at janet.adamy@wsj.com