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IRVINE, CA-Diedrich Coffee Inc. plans to sell its 40 company-owned stores to Starbucks for $13.5 million in a move to focus on its wholesale business. The company, which operates about 200 locations under the Diedrich Coffee and Gloria Jean’s brand names, with most of them operated by franchisees, says that the franchised stores will continue to operate under those names.

The sale to Starbucks will be subject to customary closing conditions, including approval by Diedrich shareholders. The Irvine-based company, in explaining the move, says that its inherent strength is “as a premier roaster of imported specialty coffee” that wants to take advantage of “positive trends in the wholesale market.” It is one of the largest specialty coffee suppliers in the US.

Steve Coffey, CEO of Diedrich Coffee, says that with the trends shifting towards specialty coffee in restaurants, offices and specialty stores, Diedrich has expanded its wholesale business substantially. During the past 12 months, the wholesale operation grew 46% from the previous year, with sales last quarter trending up at 50% above the same period last year. Third-party sales for the quarter ended June 28, 2006 represented 78% of all coffee sold by the company.

The Gloria Jean’s franchise system and the franchisee-owned Diedrich Coffee stores “are not directly affected by thesale transaction,” according to Diedrich. It says that the sale of its company-owned stores will leave Diedrich “without the distractionof running two company store systems.”

The company’s three brands are Gloria Jean’s Coffees, Diedrich Coffee and Coffee People, which it sells through more than 800 wholesale accounts including coffeehouses, office coffee service distributors, restaurants, specialty retailers as well as direct-to-consumer via the Internet. The company’s 200 domestic retail outlets, the majority of which are franchised, are located in 33 states.

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