Diedrich Coffee Inc. (Nasdaq:DDRX), one of the largest retailers in the U.S. specialty coffee market, announced yesterday that it is reducing its estimate of the restructuring charge it will record in its third fiscal quarter, which ends on March 7, 2001.

At the time of its second quarter earnings announcement, Diedrich Coffee indicated that it would take a charge of approximately $1.8 million to $2 million during its third fiscal quarter. This charge represented estimated costs associated with the relocation of the administrative support center for its Gloria Jean’s division to the company’s home office in Irvine, severance expenses resulting from the elimination of a number of administrative positions and the closure of certain underperforming company operated locations during the next 12 months.

The company now estimates that it will only be necessary to record a charge of approximately $700,000 to $900,000 in connection with these actions. The relocation of the Gloria Jean’s support center and position eliminations are now completed and the estimated costs of these actions remain essentially unchanged. The number of company operated units previously identified for closure, however, has been reduced based upon recent favorable trends in operating performance in a number of these locations.

About Diedrich Coffee

Diedrich Coffee Inc. is one of the nation’s largest retailers in the specialty coffee market with annual system-wide revenues in excess of $150 million through 381 retail locations in 37 states and 10 foreign countries. The company’s primary brands are Diedrich Coffee brand coffeehouses and Gloria Jean’s Coffees, the nation’s leading chain of mall-based coffee stores.

With headquarters in Irvine, Diedrich Coffee specializes in sourcing and roasting the world’s highest quality specialty coffees and offering them to customers through its coffeehouses and mall stores and via wholesale, mail order and its Web site. For more information about Diedrich Coffee, call 800/354-5282, or visit the company’s Web site at www.diedrich.com.

Forward-Looking Statements

Statements in this news release that relate to future plans, financial results or projections, events or performance are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and fall under the safe harbor. Actual results and financial position could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including but not limited to, the successful management of Diedrich Coffee’s growth strategy, impact of competition, the availability of working capital and other risks and uncertainties described in detail under “Risk Factors and Trends Affecting Diedrich Coffee and its Business” in the company’s annual report on form 10-K for the fiscal year ended June 28, 2000.