Thursday, July 26, 2007

Coffee houses cash in on Starbucks' arrival in neighbourhood

26 Jul, 2007, 0256 hrs IST, AGENCIES

NEW YORK: The possible addition of another Starbucks near one of Manthri Srinath’s three independent coffee shops in Santa Cruz, California, is cause for celebration. “When Starbucks opens up next to us, we get more business,” said Srinath, 41.

Starbucks has more than 7,800 company-operated stores worldwide. While some independent coffee shops have been driven out of business by Starbucks’ expansion, independents have hit on a recipe for thriving in the shadow of the world’s largest coffee chain.

The independents have found a niche by touting their coffee as superior and by establishing themselves as a third place between home and work, where sippers can groove on presentations by local artists, enjoy free wireless internet access or take classes on improving their own espresso-making skills.

“Independent coffee-houses have a lot more room to create a neighbourhood experience,” said David Morris, senior research analyst with Mintel, a London-based consumer research firm. “They can cater to the demographic within a three-block radius, and people respond well to that.”

Consumers in the US are spending more than ever on drinking coffee outside of their homes. For the first time since the 1980s, more people now drink coffee daily than carbonated beverages, the National Coffee Association says. As a result, while all small businesses have plodded along at a 3% growth rate since 2000, according to the US Small Business Administration, independent coffee-houses have almost doubled their numbers, keeping pace with Starbucks.

Nationally, the number of US coffee-houses, including chains, rose to 23,900 last year from 12,600 in 2000, according to the Specialty Coffee Association of America in Long Beach, California. Starbucks stores increased to 5,700 last year from 2,200 in 2000.

Starbucks, which serves 4 million customers a week and is raising US prices an average of 9 cents a cup on July 31, doesn’t expect a saturated market anytime soon. “There’s plenty of room to grow in the specialty coffee market,” said Starbucks spokesman Brandon Borrman.

The company’s long-term goal is to reach 40,000 locations worldwide, including smaller counters in airports and bookstores, Borrman said. Still, the moves by the independents aren’t going unnoticed at the Seattle-based company.

Starbucks chairman Howard Schultz sent an internal memo in February to senior executives, which was later leaked to the media, lamenting some changes the company has made over the years, such as pre-packaging beans instead of scooping them from bins at the store and switching to push-button espresso machines.

“One of the results has been stores that no longer have the soul of the past and reflect a chain of stores versus the warm feeling of a neighbourhood store,” Schultz wrote. “Some people even call our stores sterile.” Borrman said the company strives to balance corporate directives with regional changes. “We want there to be a consistency for Starbucks around the world, but we also want our cafes to be part of their communities,” he said. “Starbucks created legions of folks interested in coffee as an epicurean experience, and then abandoned them for the greener pastures of Pomegranate Banana Frappuccinos,” said Srinath, the cafe owner in Santa Clara. “The rest of us are now playing in their old playground.”

Srinath has purchased a Marzocco Mistral, an espresso machine handmade in Florence, for his Lulu Carpenter’s Cafe. The beans are roasted on site, he said. He plans to open two more locations in the next two years.

Though Caffe Luxxe in Santa Monica, California, is bookended by two Starbucks on its block, owner Mark Wain, 34, is celebrating its first anniversary and expects to add another location next year. He attributes his success to an artisan approach.

“It takes four to six months to get a barista fully trained,” Wain said. “I want someone to be able to feel the grind between their fingers and realise if it’s too coarse for espresso.” Rob Stephens, 38, president of the Hopedale, Massachusetts-based consulting company Coffee Solutions, calls the cafe-Starbucks relationship ‘symbiotic.’

“Starbucks gets people to think ‘a good cup of coffee is something I should expect,’ and then the independent cafe wows them,” he said. One way they do that is by hosting local events and providing free wireless internet access, something Starbucks charges for.

Another advantage is that independents can buy small amounts of coffee. That provides a quality edge, they say, by letting them shop farm by farm. Many successful independents use so-called super-gourmet beans, costlier coffee that Starbucks sells only in its Black Apron Exclusives brand.

Roasters such as Acton, Massachusetts-based Terroir Coffee Company and Chicago-based Intelligentsia Coffee work directly with specific farmers to produce specialty beans.

Intelligentsia, which has three retail locations in Chicago, offers classes for wannabe cafe owners, for $700 a person, that give overviews on the proper way to taste and brew coffee, how to train employees, marketing and customer service.

“Clearly people are looking for produce that is different and more pleasurable,” said George Howell, 62, owner of Terroir Coffee. “What’s happening with coffee parallels what you see in the rest of the food world right now, especially with wine and cheese.