The decline in at-home coffee
consumption is also adversely affecting Kraft. This is a direct result of the accessibility
and scale of Starbuck’s. Kraft is a leading producer of household coffee through its
Maxwell House brand. In the second quarter of 2005 the cost of coffee as an input
increased 59% year over year, yet Kraft was forced to reduce prices for Maxwell House
Coffee by 5% in August 2005 to better compete with Starbucks. With these trends
appearing lasting, Kraft is taking steps to reduce losses from the decline in at-home
consumption by increasing sales to restaurants, schools, and other institutions as
consumers substitute away from at-home food products