Star Tribune from Minneapolis, Minnesota • Page 57

TODAYS BUSINESS BRIEFING FRIDAY, NOVEMBER 17 2000 STAR TRIBUNE PAGE D3 REGIONAL NEWS GOURMET from Dl Overseas coffeehouses become a big part of expansion plans BRIEFS Babbage's appears to be phasing out ex-Functfs Eden Prairie headquarters Move of Operations to Texas expected By Netri St Anthony Star Tribune Staff Writer A Dallas-based Barnes Noble subsidiary that bought Funco Inc. earlier this year apparently is phasing out most of Funco's Eden Prairie headquarters and distribution center, which once employed about 200 people. Also, Funco President Stan Bo-dine has left the company. A spokeswoman for Babbage's the Barnes Noble unit, would confirm only that some functions are being moved to Eschelon, Qwest sign network deal worth about $150 million in revenue complements the upscale image Target has created for ilseif, he said. Target Corp.

also has opened Starbucks coffeehouses in its department stores, such as Dayton's in downtown Minneapolis. As a Starbucks' licensed operator, Dayton's hires its own employees and runs the coffee shops. At the same time, both traditional Targets and the super-centers carry gourmet bagged coffee from several roasters, including Starbucks and Caribou, on their shelves. The coffee is more expensive than traditional brands such as Folger's, but the demand for gourmet is strong, Bove said. "We're looking at other gourmet coffee products such as gifts and candy.

Our goal is to work into it." Cariboo strategy Minneapolis-based Caribou, a market leader in the Twin Cities, has coffee shops at upscale grocery stores such as Byerly's and sells bagged coffee at Byerly's and Target. It also sells coffee through a toll-free order phone line and via the Internet. While it has sought some new distribution channels, Caribou continues to focus on its coffeehouses, which are located in the Midwest and Southeast, said Don Dempsey, chief executive officer. The private company has 154 coffeehouses, all corporate-owned, and has no intention of franchising, he said. "While others have leveraged their brand into other ventures, we've decided it's best to stick to our knitting.

Our family jewels are the coffee shops," he said. The company's growth will come through opening new coffee shops and increasing store sales with the help of new products such as coffee coolers, which help the company draw in consumers who want something cold on a hot day. New distribution in some cases includes overseas growth. Starbucks, in particular, has traveled that path. The Seattle-based company has more than 500 international locations in 19 One saves money; one builds rivals By Steve Alexander Star Tribune Staff Writer Local phone company Qwest Communications and competitor Eschelon Telecom Inc.

of Minneapolis have signed a cooperative agreement that will generate an estimated $150 million in revenue for Qwest over five years. It is the second deal Qwest has struck with a competitor that provides favorable "resale rates." These rates encourage the competitor to use Qwest's phone network rather than build its own. Eschelon is a small but significant Qwest competitor that provides about 5 percent of the business telephone lines in the Twin Cities. Eschelon does not serve residential customers. Last month Qwest signed a similar agreement with McLeod-USA Inc.

of Cedar Rapids, Iowa. That deal was worth $600 million over three years. The discounted rates for using Qwest's network will be important to Eschelon, which this week pulled a planned initial public Starbucks in particular, as the nation's largest specialty coffee company, has been aggressive in finding new revenue streams. Wall Street has gone with the flow: Starbucks' stock is up nearly 90 percent this year. "You wish you owned it.

It's been on a tear," Hickok said. Starbucks now has about 3,500 coffeehouses and predicts it will reach 10,000 by fiscal 2005. The company on Thursday announced year-end results that, as expected, included a $58.8 million charge tied to its ill-fated investments in outside Internet ventures. Excluding that onetime item, the company had a net income of $136.8 million, a 35 percent jump from a year earlier. During the year, Starbucks had store sales of $1.8 billion and specialty sales of $346 million.

The specialty sales, including revenue from grocery store sales of coffee and brand extension products such as bottled coliee dnnks, represent an important growth vehicle, Hickok said. The company initially used its own sales reps to get the coffee on the shelves, but now is working with Kraft. Growth is eye-catching The growth in the retail segment is eye-catching. For the four weeks ended Oct. 8, sales of Starbucks coffee through food, drug and mass merchant channels were up by triple digits year-over-year, according to information from Mark Kalinowski, an analyst at Salomon Smith Barney in New York City.

Sales of whole beans, for example, jumped 145 percent compared with a year earlier. "While this incredible growth is not sustainable over the long term, this latest showing is another feather in the company's cap as it continues to exceed expectations," Kalinowski wrote in a report earlier this month. In the $18.5 billion coffee industry, the growth of coffeehouses has been dramatic: 450 in the early 1990s compared with more than 7,500 now, according to Gary Goldstein, spokesman at the National Coffee Association, a trade group based in New York City. "The 1990s were a decade of transformation. Before then, coffee was a cup of joe, regular, decaf or instant.

Now coffeehouses are a place to socialize, a relaxing place that runs counter to the fast-food concept," Goldstein said. The companies continue to see the coffeehouses with their high margins and high frequency of use as their bread and butter, but are counting on additional revenue growth from expanded distribution, including international sales, and through product extensions such as bottled drinks and candy. Starbucks, for example, has paired up with Minneapolis-based Target Corp. in an arrangement that places Starbucks coffee shops in the new supercenters Target is opening across the country. The move is a win for both Starbucks and Target, said Mike Bove, senior bakery buyer for Target Corp.

"The demographics of a Starbucks and Target customer cross," he said. Starbucks helps pull consumers in and DIVIDENDS Tennant Co. 20 cents, regular quarterly, payable 12-29-00 to shareholders of record 12-15-00. Complete Ecommerce Package s49.95mo. INCLUDES: Website, shopping cart, up to 2500 productsservices, search engine marketing.

openastore.com 612-331-1114 Gillette Children's Specially Healthcare, St. Paul, said it has received FDA approval for its CranioCap, a cranial brace for treating misshapen heads in infants. Gillette is the nation's only hospital to receive FDA approval for such a device. MGI Pharma Min-netonka, said it has entered into an asset purchase agreement with a subsidiary of Medlm-mune Inc. for Hexalen (altretamine), an oral chemotherapeutic agent used to treat ovarian cancer in patients in whom the disease persists following first-line chemotherapy.

Hexalen is approved for treating ovarian cancer in more than 20 countries in addition to the United States. Also, MGI Pharma and MethylGene Inc. of Montreal have initiated a Phase 2 trial in Canada and the United States with MG98 in squamous cell cancer of the head and neck. Online Brokerage Solutions a wholly owned subsidiary of Group Minneapolis, has reached an agreement to privately label its online brokerage platform for Anyloan. com.

Anyloan.com is a division of New Century Mortgage which is a wholly owned subsidiary of New Century Financial Corp. ISA Internationale Burnsville, said Doubletree Capital Partners Inc. of Minnesota has acquired a stake in ISA Internationale. SEC filings are being submitted. Doubletree Capital Partners Inc.

will have rights to three seats on ISA's five-person board of directors. Lafireche Murray Public Relations, Minneapolis, said it has established a public affairs practice. Maria Moeller, formerly with Honeywell's Home and Building Control division, has joined the firm to develop and lead the new practice. SpectraScience Minnetonka, said it has received notification from the U.S. Food and Drug Administration that the pre-market approval application for its Optical Biopsy system has been approved.

The approval did not mandate a clinical study, nor did it accept the name Virtual Biopsy System. QRS Diagnostic, Minneapolis, has signed an international distribution agreement with Am ex Inc. for its line of computer-based medical devices. The agreement names Amex as the exclusive QRS representative for markets outside of the United States, Canada, Mexico, Australia and New Zealand. Twenty Minnesota firms were named to Deloitte Touche's Sixth Annual Technology Fast 500 ranking.

The companies were: VIA Burnsville, ranked No. 82; RSI Systems Minneapolis, 107; Hunt Technologies Pequot Lakes, 138; Pemstar Rochester, 159; CareFacts Information Systems New Brighton, 163; Rainier Technology Minneapolis, 217; Computer Solutions Integrators Products Woodbury, 221; CIMA Labs Eden Prairie, 251; MedServe link Maple Grove, 272; Sagebrush Burnsville, 301; Urologlx Minneapolis, 308; IC Services Roseville, 313; Jasc Software Eden Prairie, 322; Diametrics Medical St. Paul, 328; Adaytum, Minneapolis, 333; St. Paul, 335; LearnlngByte International Minneapolis, 450; Artemis Alliance St. Paul, 467; eBenX Minneapolis, 493; WaveCrest Edina, 496.

retailer. New York-based Barnes Noble operates 540 stores under the Babbage's, Software Etc. and Game-Stop names. It also sells video products over the Internet. Barnes Noble won a month-long bidding war for Funco, which sells computer hardware, accessories and new and used computer games.

The losing bidder was Pennsylvania-based Electronics Boutique Holdings Corp. Former Funco CEO David Po-mije, 44, who grossed an estimated $35 million for his stock and options, left the company to focus on another business in which he is a major investor. the long-distance market in Minnesota. Federal rules bar Qwest from providing long-distance service in its 14-state local telephone service region until it can show state and federal regulators that it has local telephone competition. Qwest, which offers long-distance service in other parts of the country, has said repeatedly that it wants to do the same here.

Bryce Hallowell, a Qwest spokesman in Minneapolis, said his firm is "trying to make it easier for competitors to enter markets that formerly were exclusively served by Qwest. This is something that most likely would not have occurred under the old West regime." Qwest acquired West in June for $44 billion. Whatever Qwest's motives, Smith said the agreement is working to Eschelon's advantage. "Qwest is a lot more responsive, a lot more willing to work with us to get things done" than was West, Smith said. "It's been a noticeable change in the last few months vs.

the previous three years." Steve Alexander can be contacted at alexstartribune.com $192.5 million the settlement total to $192.5 million. Lawyers will get $20.6 million of the cash portion of the settlement. The company said it would take a $188 million charge in the fourth quarter to cover costs of the settlement The lawsuit claimed that Coca-Cola had discriminated against black salaried employees in pay, promotions and evaluations. It covers salaried black employees in the United States who worked for Coke between April 22, 1995, and June 14, 2000. The company denied the claims.

Associated Press U.S. exports ment has issued a recall for U.S.-made tortillas, although the manufacturer says there was no corn in the product. Federal regulators say there is little, if any, health risk for the corn, but it was never approved for human consumption because of questions about its potential to cause allergic reactions. The Food and Drug Administration said this week that ConAgra Inc. has pulled some of its corn meal and corn flour from the market because it may contain StarLink.

Associated Press The deal would boost Weyer-haeuser's annual revenue to more than $16 billion, and the combined company would have more than 7.6 million acres of timber land and more than 59,000 employees. Like other forest products companies, Willamette Industries, North America's third-largest maker of plywood, has been facing a rapidly changing market with foreign competition that has driven down prices as tougher environmental regulation has shrunk the timber supply. Associated Press Babbage's headquarters. "Funco is not going away," said Chris Sharbaugh of a New York City public relations firm retained by Babbage's. She declined to cite any personnel numbers.

Employees have said some operations, as expected, already have shut down and most others would be moved to Texas by early next year. Barnes Noble, the nation's largest bookseller, paid $161.5 million in cash, or $24.75 a share, to acquire the 400-store Funco earlier this year. According to Barnes Noble, the combination of Funco and Babbage's will create the world's largest video game and PC entertainment specialty stock offering because of poor market conditions, said Richard Smith, Eschelon's president and chief operating officer. The Qwest agreement means Eschelon can more profitably resell Qwest's telephone network services and avoid spending heavily to build its network operations, Smith said. As a result, Eschelon will be able to devote more of its capital to expanding its service to additional cities.

"It means I can stretch my capital further and get to profitability faster," Smith said. Privately owned Eschelon is not yet profitable, and because of the canceled IPO it has not been able to expand as rapidly as it had hoped, Smith said. Eschelon does business in 12 metro areas; had the IPO gone according to plan, it had hoped to offer service in 26 cities by year's end, he said. Eschelon has raised $70 million in venture capital and $70 million in debt this year, and is trying to raise additional private equity and debt to fund its expansion in the additional 14 markets, Smith said. Besides boosting Qwest's revenues, the deal is part of Qwest's strategy of encouraging local telephone competition so it can enter NATIONAL NEWS The centerpiece of the agreement is a seven-person task force that will be authorized to review the soft drink maker's diversity efforts and certain human resources operations.

It will include former government officials in labor and civil rights, professors, lawyers and diversity consultants. Coke also agreed to hire an ombudsman, who will investigate complaints of discrimination, harassment and retaliation and report to Coke Chairman and CEO Douglas Daft. The company agreed to provide $36 million for oversight of employment practices, bringing approved for food use prompted nationwide recalls of taco shells in September and October. The corn also was discovered in snacks and animal feed in Japan. The Agriculture Department subsequently reached agreement with Japan for screening U.S.

corn shipments. Purchasers in South Korea, another important market, have expressed concerns, too, about the biotech corn known as StarLink. When the Korean corn processors association this week solicited bids for corn, the United States was omitted from the list of eligible sellers. The Korean govern Bruce Amundson, a spokesman for Weyerhaeuser, said the company was disappointed that Willamette had decided to reject the proposal. "We remain committed to this transaction and we are exploring our options," he said.

"We are disappointed and don't understand why they don't want to sit down and talk." Weyerhaeuser, based in Federal Way, had proposed paying $48 a share, or $5.3 billion, for Portland-based Willamette. It also would assume $1.7 billon in Willamette debt. Coca-Cola to settle bias suit for ATLANTA The Coca-Cola Co. will give black workers $147 million as part of the largest racial discrimination settlement ever Thursday, and agreed to have a new watchdog panel help oversee the company's employment practices. The agreement includes a 1 1 3 million cash settlement and $43.5 million in salary adjustments during the next decade.

Plaintiff lawyers estimate that, after lawyers' fees are deducted, about 2,200 current and former employees would receive an average $40,000 depending on their length of employment. markets. It plans to have 1,500 overseas coffeehouses by 2003 in Europe, the Middle East, Asia and Latin America. In the not-too-distant future, Starbucks expects to be opening more coffeehouses outside the United States than within it, Hickok said. Although the company sees plenty of opportunity in international expansion, it doesn't come without risks.

"In the United Kingdom, for example, sales per unit are running higher than here, but so are real estate costs," Hickok said. Going forward domestically, many expect a shakeout among coffeehouses as the market matures. Major companies, such as Procter Gamble and Sara Lee, have made acquisitions to get into the gourmet coffee game. Hickok said the continued popularity of gourmet coffee is good news not only for Starbucks, but for regional players, too. "As Starbucks continues to develop it's going to make life a little tougher on the small players," he said.

"But there still is a lot of room." Ann Merrill can be contacted at amerrillstartribune.com I For more specials go to: www.nanosysl.com Biotech corn problem is hurting WASHINGTON, D.C. The government is reporting a steady drop in corn exports, evidence that the mishandling of genetically engineered grain on Midwest farms is starting to damage markets overseas, i The Agriculture Department on Thursday reported net sales of 517,700 metric tons for the week that ended Nov. 9, about half the weekly rate in October. Japan, by far the biggest customer, bought less than 150,000 tons during the week, less than half its normal amount. A variety of biotech corn not Willamette rejects Weyerhaeuser buyout offer PORTLAND, ORE.

Willamette Industries has rejected a $5.3 billion buyout offer from Weyerhaeuser which said it remained committed to reaching a deal with Willamette, its smaller forest products rival. In a letter to Weyerhaeuser Chairman and CEO Steve Rogel, Willamette's board of directors said Wednesday that after "careful and thorough review" the board "unanimously determined that the Weyerhaeuser proposal is not in the best interests of Willamette, its shareholders and oher constituencies..