Speech for Tully’s 2007 ANNUAL SHAREHOLDERS MEETING [Retail Case Study]

Opening

Last year, I was here as a board member.  This year, I am making this presentation as your CEO.  As I hope you all know, I spent the majority of my business career as a merchant, training director and senior marketing executive for The Bon Marché.  I have one goal for this presentation – to make you all “Tully’s Evangelists” – people who will leave this room and tell your family, friends, co-workers, and fellow stockholders that Tully’s has their act together and knowing why.

Why would you all become Tully’s Evangelists and why do I choose these words?  My favorite marketing book is “Creating Customer Evangelists: How Loyal Customers Become a Volunteer Sales Force.”

I use the words “Customer Evangelists” because this audience has watched this company for more than 15 years.  To some it has been a struggle; others a hope.  Well today I am going to report our progress and define for you how Tully’s wins – and in retail and wholesale the success metric is very easy to define – rapid and sustained sales growth.

So, here we go!  For the next 10 to 15 minutes, I will try to explain, train, teach, and sell how Tully’s is and will continue to rapidly grow and sustain sales growth.  If you have seen the progress we have made, and over the next few months you continue to witness Tully’s plan being executed, then it is in your own self interest to become a “Tully’s Evangelist.”

So first let’s talk Wholesale.  Behind me is a 2 year look at the quarterly sales growth of the wholesale channel.  We are winning in wholesale for 3 reasons:

1. It’s great coffee and the      customers buy more.
2. We have a seasoned      wholesale team lead by Ron Gai      and Mark DaCosta with over 500 years experience – which translates into      long-term relationships and market believability.
3. We understand and are      willing to work in the grocery channel.

            Tully’s has nine (9) different product offerings in the overall wholesale channel.  In grocery, we have experienced consistent growth in whole bean, pre-packaged 12 oz whole bean and ground offerings, brewed coffee stations, Ready-To-Drink (RTD) coffee capped products (Bellaccino launched August 2006), specialty coffee brewing systems (Keurig Brewing System K-Cups launched in February 2006), grocery store café’s (with more than forty-five locations in five states since September 2005), and institutional food service and office locations (official coffee of the University of Washington, Washington State Ferries, Leisure Care Housing, and Tully’s runs coffee cafés in five locations inside The Boeing Company factories and offices (started June 2006).

With more than four major program launches in the last half of 2006 and the early success of these initiatives and Tully’s continued success in all product channels of the grocery business, Tully’s is and will remain a growing factor in the premium coffee wholesale channel.

A product we launched last year was the Keurig Single Cup Brewing System and K-Cup Coffee.  It is the hottest new brewing system in American and I’m proud to report we are running our K-Cup line2 to 3 shifts 6 days a week and producing without question the best, most flavorful coffee available in K-Cup.

Grocery, food service, and the Keurig special brewing system, have all grown rapidly and we will continue to be aggressive in this channel of business.  Please acknowledge the hard working of Ron, Mark, and the wholesale team. (Pause for applause)

Thanks!

What is the reason Tully’s has been in business 15 years and has this moment in history to do something which I believe will be very special.  It is the coffee – the love, passion, and commitment of our supply chain, lead by our supply chain team ofRob Martin,Sherry Maupin, and our master roaster,Brian Speckman.  On each of your chairs is a bag of our Anniversary Roast coffee and I want to ask Brian to describe what to expect.

Brian Speckman…

BRIAN SPEAKS

Thank you Brian!

The Anniversary Roast was only available in Tully’s stores, and one of our basic merchandising strategies is how to sell more coffee beans in our stores.  So the next part of this presentation will be about selling things.

How does Tully’s win as a merchant?  I have often joked we are just simple people trying to sell you a bag or a cup.  In each of the 6 classifications of product that we sell in our stores, it is very important that our merchandising strategy is the same.  We have a classification of business, i.e. coffee beans, etc.  In addition, we want you to buy more, so we need to always have a stable assortment and items that create impact.  SO, WE ARE GOING TO WIN BECAUSE WE ARE GREAT AT CLASSIFICATION MERCHANDISING AND IMPACT MERCHANDISING.

WE ARE GOING TO WIN BECAUSE OF OUR COFFEE:

Tully’s has great coffee, so why buy it at our stores?

1. Bulk – our freshest roast will be in our stores.  We ship our stores 5 pound bags weekly.  Closest distance to the last roast.

2. WE ARE GOING TO     WIN BECAUSE OF OUR COFFEE

   Monthly Special Blends – impact merchandised, limited reserve, Anniversary Road, Romance Roast, Holiday Roast, Husky Blend, Crimson Roast; a monthly coffee program of a special blend with a coffee club approach.

1. Keurig – we will sell you the machines, but you also can get your Tully’s K-Cups at the stores.  This single cup brewing system is a big seller on the east coast and over the next 2-3 years, the sales of this system will explode!

Great coffee, special roasts, Keurig K-cups and, on top of all that, special promotions to support community causes, (i.e. October Breast Cancer Awareness where Tully’s raised $20,000 by selling coffee beans) we will increase our coffee bean sales in our stores. Tully’s will be the store of choice to buy specialty roasted coffees.

The Drinks

WE ARE GOING TO WIN BECAUSE WE HAVE THE BEST BARISTA BAR IN THE BUSINESS:

My, that’s quite a statement, so let me back it up:

1. Best Overall Assortment – coffee, teas, ice cream, smoothies, Bellaccino’s, maté, additives like Acai, hot and cold beverages.  This is a wonderful fact.  Tully’s barista bar sales do not vary by quarter.  We sell it hot and we sell it cold.

2. Pictures of drinks   Hero shots   4-8 shots                     Pictures of John and the training group         Barista Job description             Mate graphic

   Fashion – we launch new drinks monthly: White Chocolate Mint Americano, Raspberry Truffle Mocha, Traditional Mate, Peppermint Bellaccino, Chai Cider, Mango Smoothie, Pumpkin Shake, Ghirardelli Intense Dark Chocolate Mocha, Orange Ganache Bellaccino, Eggnog Latte, Chai Shake, Mate Latte, Raspberry Truffle Bellaccino, Razz-Cranberry Smoothie, White Chocolate Mint Bellaccino, Peppermint Mocha, Blueberry Shake, White Chocolate Chai… the list goes on and on.  ADD BANANA NAMES

1. People – if there is one thing outside of the coffee flavor that has held Tully’s together, it is our Baristas and their passion for the business.

In your bag is a copy of our barista job description.  Take a read and you will see a unique approach to defining this job.  Read the first statement:  “Establishes a genuine rapport and recalls customers’ names, drinks, and preferences.”  We want our baristas and customers to share their passion for Tully’s.

Now let’s just talk about a special fashion drink.  In January, we were the first to launch Maté (which is the traditional drink of Argentina).  In April, you will feel the Power of Maté.  So let me play for you a 30 second radio spot that, if you listen to the Mountain 103.7, when you leave today, you will hear this played as we kick off Tully’s energy month

PLAY 30 SECOND SPOT

Other Drinks

We have another group of beverages we refer to as Capped Drinks — products that come in bottles.  Over the last 3 months, in most stores, you have seen this classification explode by giving it its own home (new coolers) as well as increasing the assortment.  By May, you will see the addition of free standing ice baths for item impact in this classification.

The Food Case

As you know, the traditional coffee house is known for its morning segment, but in Europe food serves a much greater role – in the morning, afternoon, and desserts.

Well, Tully’s is a more traditional coffee house culture.  Last November, we partnered with Alki Bakery in Seattle and Raison D’etre in San Francisco.  Tully’s will be known as a great coffee house selling a local, regional upscale bakery product.  We also partnered with Ghirardelli Chocolate establishing a quality relationship for our chocolate products.

Our food case will be re-merchandised 3 times per day – AM, lunch, and later afternoon.  We will be keeping our neighborhood stores open until 10:30 pm Thursday through Saturday beginning this May.  Tully’s has a great selection of food for morning, lunch, afternoon, and evening, to stay or just grab and go.

Let me say a special word about Chocolate:

We have a special emphasis on our overall chocolate offerings.  From food case to wrapped grab and go and the barista bar products, Tully’s will be known for lots of fun chocolate assortments.

Snacks To Go

A large emerging classification of food product is the pre-packaged grab and go.  We American’s are always moving – cell phones have made us non-stop.  Well, Tully’s has your snack – 2-4 oz of product – healthy tasty, and easy to carry.  We have a classification with lots of variety and we will special impact items as you, our customers, tell us what you like the most.

Other Merchandise

I will make this part very short – we will have other merchandise but it will be very associated to coffee.

WE ARE GOING TO WIN BECAUSE WE ARE A TRUE COFFEE HOUSE CULTURE

Tully’s is a genuine, neo-traditional coffee shop in the classic European tradition.

Let me read the section on Tully’s store environment and culture from our employee manual:

We strive to be the place that welcomes gathering to discuss, define, and celebrate community-building activities.  This is accomplished by the color scheme, floor textures, menu system, product images, soft chairs, fireplaces, and most space devoted to large tables.  Additionally, Tully’s stores have quiet music, a children’s corner, free WiFi, and lots of electrical outlets.

The Tully’s store experience is genuine in its efforts to create a culture for employees and customers that recognize the interdependence of all people in creating healthy and sustainable local communities.  We strive to foster a store culture that encourages all individuals to not “pay back” but instead to “pay it forward.”

The Community

Tully’s empowers each store to be part of that stores’ community, both the formal organized efforts as well as the customer focused efforts.  Tully’s has a positive answer for the most frequently asked questions:

1. Does Tully’s provide free      coffee for community activities?
2. Does Tully’s have a way to      help non-profit organizations raise money?
3. Can we display our event      materials at a local Tully’s store or at all Tully’s stores?
4. My community group is      looking for a place to meet.  Can we      hold meetings on a regular basis at Tully’s?
5. Does Tully’s Coffee      contribute auction items?

Each store has a product cost budget to manage these relationships and our regional managers oversee the majority of these decisions.  Tully’s asks that our community partnership efforts are acknowledged and that groups are encouraged to make Tully’s the “coffee house of choice.”

WE ARE GOING TO WIN BECAUSE WE ARE CREATING TULLY’S CUSTOMER EVANGELISTS

Tully’s Communication Program – The Art of Creating Customer Evangelists

The basic focus of the Tully’s marketing efforts will be to create strong customer loyalty by focusing on having unique, branded Tully’s signature products and genuine local relationships to fulfill on the theme that “It’s Your Tully’s.”

The Tully’s Customer

Customers will tend to be individuals that enjoy the Tully’s Coffee profile, are engaged in their communities and feel good about participating in a business that shares their values.  The overall attitude will be that this is “their” Tully’s and have a high degree of local customer ownership.  This attitude will be shared by the Tully’s employees as well and will create Tully’s evangelists.

ADD IN THANKS TO HARD WORK OF DANA/TONY/STORE PERSONNEL

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