$1.58 Buys a Cup Of Gourmet Coffee in Manhattan as Delis Charge Just $1.01, PricewaterhouseCoopers Reports.

NEW YORK--(BUSINESS WIRE)--April 19, 1999--

Will M&A, Trade War Boost Price of Joe?

The average price of a 16-ounce cup of take-out gourmet-style coffee in Manhattan is $1.58 excluding tax, according to a survey of 25 high-end coffee retail establishments in Manhattan by PricewaterhouseCoopers, the world's largest professional services firm. Manhattan delis, meanwhile, charge an average $1.01 excluding tax for a 16-ounce serving of traditional coffee, the firm says. Gourmet coffee shops' pricing power stems from their superior marketing and product mix -- as the gourmet coffee industry consolidates through mergers and acquisitions into a smaller number of players. These are just a few factors that could drive retail prices for ready-made coffee higher.

"When coffee drinkers pay $1.58 for a cup of gourmet coffee, they're not merely buying coffee, they are joining in America's `experience economy,'" says Arlene Spiegel, head of food and beverage consulting for the PricewaterhouseCoopers hospitality and leisure team, a unit of the firm's financial advisory services (FAS) practice. "Consumers perceive that being in a gourmet coffee shop, enjoying the interior design, selecting from a range of blends, perhaps staying to drink, read or simply be seen says something about who they are - a person of discerning tastes, not just a coffee drinker. That's a rich draw - and a big business," she notes.

High-end coffee retailers have been on a merger and acquisition spree, Spiegel notes.

In the U.S., Starbucks recently bought the Pasqua chain for an undisclosed sum while Diedrich Coffee, Inc., which said it seeks to become a big player in mall-based coffee retail outlets, agreed to acquire Coffee people Inc. for $35 million. The combined Diedrich-Coffee People entity will have more than 360 locations, according to the companies.

In the UK, McDonald's has acquired Aroma, a coffee bar chain with 23 locations, for an estimated $24 million. McDonald's said it plans to aggressively expand Aroma in the UK coffee bar market.

"Given the vast US and overseas market for coffee and related products and the great pricing leverage some companies have achieved, I would anticipate much more coffee retailing mergers and acquisitions ahead," Spiegel says. "But there will always be a place for fast, low-cost coffee from delicatessens. Nothing will change that," she says.

Spiegel notes coffee retailers of all types will benefit from the 100 percent tariffs to be imposed by the US on European thermoelectric coffee makers. The tariffs stem from the U.S.-European trade dispute over bananas. "If you can't make coffee at home, you've got to buy it ready-made at retail," she adds.

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With a worldwide network of 6000 professionals, PricewaterhouseCoopers' Financial Advisory Services ("FAS") practice provides creative solutions and ideas that increase value to clients during critical periods and when they are making important decisions that define their future. The FAS business is organized along five product lines. The Business Recovery Services, Dispute Analysis & Investigations, and Corporate Value Consulting product lines are the largest in the world. The Project Finance & Privatization product line rated second in Privatisation International's global league table by number of privatization financial advisory assignments and second in Project Finance International's global ranking by number of project finance advisory mandates. The Mergers & Acquisitions product line was second in the world in number of deals completed, according to Securities Data Company. PricewaterhouseCoopers advised on 341 deals with a total worth of $33.2 billion.

PricewaterhouseCoopers (www.pwcglobal.com) is the world's leading professional services organisation. Drawing on the knowledge and skills of 155,000 people in 150 countries, we help our clients solve complex business problems and measurably enhance their ability to build value, manage risk and improve performance. PricewaterhouseCoopers refers to the US firm of PricewaterhouseCoopers LLP and other members of the worldwide PricewaterhouseCoopers organization.