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Alaska governor chides Safeway in clash over Starbucks

Posted: Thursday, February 07, 2002

ANCHORAGE (AP) -- Gov. Tony Knowles has stepped into a brewing coffee war.

Knowles fired off a letter and put in a phone call Wednesday to Safeway officials to protest the company's decision to switch from Alaska-roasted coffee to Starbucks coffee at some of its espresso bars in Carrs grocery stores.

''This action is a slap in the face of many Alaskans -- the Alaskans your company works to have as loyal customers. In the strongest possible terms, I urge you to reconsider your decision,'' wrote Knowles in a letter to Steven Burd, Safeway president and chief executive officer.

Starbucks has not been a major presence in Alaska and, until now, has been sold only at the Anchorage airport, a Barnes & Noble book store and at a Fred Meyer store in Fairbanks.

In December, Carrs Safeway introduced Seattle-based Starbucks in the espresso bars of its Muldoon and Eagle River stores, replacing Kaladi Bros. and Cafe del Mundo, two homegrown Anchorage businesses. The grocery chain's district manager in Anchorage, Glenn Peterson, said this week that at least five stores in Alaska -- four in Anchorage and one in Juneau -- will serve Starbucks espresso drinks and test customer reaction.

''This is retail. You're testing the water everyday,'' Peterson said earlier this week.

Any move by Carrs Safeway to replace locally made products touches a raw nerve with many Alaskans. Safeway's 1999 purchase of Carr Gottstein Foods Co., an Alaska grocery chain, was the subject of a class-action lawsuit brought by consumers who argued the takeover would give Safeway a monopoly over the state's grocery business.

The lawsuit was settled after the Alaska attorney general negotiated a consent decree that required Safeway to sell seven of its Alaska stores to viable competitors. The agreement attempted to settle potential antitrust violations.

The consent decree ultimately failed. Six of the seven stores, sold to Alaska Marketplace, faltered under the new management. Alaska Marketplace became defunct 14 months after the purchase. The seventh store operates as Natural Pantry.

At the time of Safeway's acquisition of Carrs, the national chain promised to support local vendors, said Perry Merkel, owner of Cafe del Mundo. Knowles mentioned this in his letter to Burd.

''Two years ago you personally committed to me Safeway's intention to remain a supporter of Alaska products when your company purchased Carrs,'' Knowles wrote. ''The decision to reduce the availability of Alaska products at Safeway-Carrs shelves violates, at a minimum, the spirit of the consent decree.''

The grocery chain has said it will continue to stock Cafe del Mundo and Kaladi's whole-bean coffee on its shelves.

Knowles also telephoned Safeway executives to communicate his displeasure and to remind them of their promises to buy Alaskan. The governor said they assured him Safeway would take another look at the matter and come up with a win-win situation.

But some say the coffee flap is fallout from what they see as botched negotiations by the state attorney general's office before the takeover. University of Alaska Anchorage economics professor P.J. Hill served as an expert witness for the consumers who tried to block Safeway's purchase of Carrs.

''Knowles ought to be the guy with egg on his face. He didn't oppose the merger,'' Hill said.

Steve Conn, executive director of the Alaska Public Interest Research Group, agreed.

''This is a direct result of his promotion of that merger,'' Conn said.

Knowles staunchly defended the attorney general's role in overseeing the deal and said the state did its best to protect Alaska consumers.



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