Independents’ love-hate affair with Starbucks

Cafes find ways to compete by focusing on what giant can’t or won’t do
updated 9:51 a.m. PT, Sun., July. 27, 2008

In July 2004, Kinley Pon was throwing his annual block party at his El Paso, Texas, coffee shop, Kinley's House, on the same day that a Starbucks across the street was having its grand opening. Pon, 51, says he had planned the party for months — a day-long event with musicians, belly dancers, and local law enforcement intended both to promote his business and to raise awareness about drunk driving. Pon was surprised when an employee from the new Starbucks store walked across the street and started passing out Starbucks promotional cards to customers — on Pon's own patio.

A spokesperson for Starbucks couldn't cite a specific policy regarding the distribution of promotions on a competitor's premises. "They did it for a week," says Pon. "But I allowed it to occur, because my reasoning was that they were going to pass them out anyways."

There's a love-hate relationship between Starbucks and the thousands of independent coffee shop owners in the U.S. For years, the Seattle-based chain has brought coffee drinking into the mainstream and revitalized the business of java, yet its ubiquity has also made survival more difficult for mom-and-pop coffee houses.

In 2007, there were roughly 26,300 coffee cafés, kiosks, and carts across the U.S., and about 60 percent of those were independent, according to Mike Ferguson, the marketing communications director at the Specialty Coffee Association of America. On July 1, Starbucks announced it would be shuttering 600 locations. On July 17, it listed the names and locations of the 600 specific stores it was planning to close of its roughly 11,000 U.S. stores. The closures prompted the question: What have independent coffee shops been doing to compete with the $9.4 billion company, the largest coffee retailer in the world?

Many cafes have survived by serving coffee differently from Starbucks. Skip DuCharme, who has run his 27-employee Lakota Coffee Co. in Missouri since 1992, says that the store's most popular drink is a latte served in a signature large green bowl that requires two hands to hold. A Starbucks opened down the street from DuCharme's place in January 2006, and since then, DuCharme says, his tactics have helped his business create a more at-home atmosphere than his competitor's.

"In Starbucks, everything is based on 'to-go,'" he says. "We give [our customers] real latte mugs."

Other stores give customers free refills on coffee — a strategy Starbucks tested in select stores in January. "A free cup of coffee goes a long way," says Theresa Tocio, co-owner of Tocio's Sunburst Café in Naples, Fla., that offers customers unlimited refills for the $1.50 they pay for a 12-ounce coffee.

When a Starbucks opened inside a Target next to her shop, Tocio and her husband offered free coffees to Target employees on break, since she says the workers weren't offered Starbucks discounts.

"The independents that are successful are really serving a different type of product," says Andrew Hetzel, a coffee industry consultant. "They have their own unique style and brand."

For some, that means selling food or drinks that Starbucks doesn't have. Many stores that begin as coffee-and-pastry shops evolve into full-scale food cafés, giving customers more choice than chains can offer. At Jammin' Java, a coffee house based in Fayetteville, Ark., customers can buy everything from breakfast burritos to turkey sandwiches along with their coffee.

"I started to see that I was doing almost as much business at lunch as I was doing coffee in the morning," says owner Brandon Karn, who launched the store in 2002. Since a Starbucks opened nearby several years ago, Karn has also expanded the menu to include beer and wine.

"That has taken off real well," he says.

Having a nimble management team enables cafés to implement changes more quickly than bureaucratic corporations, says Jean Bernstein, owner of Albuquerque-based Flying Star Café and Satellite Coffee, which started up in 1998.

"We keep changing things to constantly offer something fun and unique," says Bernstein, who first started competing against Starbucks when one opened near the Flying Star in 1996. She says she picked up on several of Starbucks' shortcomings ("their tea drinks were weak") and responded by offering blended concoctions to complement her store's coffee drinks. One is a homemade lemonade mixed with ginger, and another is a blend of herbal teas, cranberry juice, and mint.

Independent coffee shop owners say that Starbucks has gradually drifted away from the high-quality coffee that first made it successful, focusing instead on swank marketing campaigns or coffee drinks blended with milk or caramel.

"They've basically become a sugar-and-dairy company," says Arne Holt, owner of Caffe Calabria in San Diego. Says coffee consultant Hetzel: "Starbucks decisions aren't coffee decisions, they are big public-business decisions."

That's why many entrepreneurs can differentiate their coffee shops by paying meticulous detail to the coffee itself. Holt, for instance, grinds coffee beans at different settings, based on the amount of moisture in the air, since water passes through the grounds differently when the humdity is higher. Starbucks and other big chains rarely change the grinding settings on their automatic espresso machines, he says. "It's like McDonald's," he says. "It's not the best hamburger, but it's consistent."

The roughly 11,000 Starbucks stores across the country get their beans from the company's three major U.S. roasting facilities—in Nevada, Washington, and Pennsylvania. Smaller roasters can deliver a fresher cup of coffee, says Gina Nasson, who owns the Farfalle Italian Market in Concord, Mass., with her husband.

Nasson's café gets its beans from a roastery about 11 miles away, she says. "When we order coffee, we don't order tons."

Smaller coffee stores also work to create loyal customer bases by emphasizing local ties. Karen Anderson, whose husband's family was among the first English settlers in Concord centuries ago, says their Main Street's Market & Café resonates with the town's historic atmosphere.

"If you sit here and have a cup of coffee," she says, "you'll hear guys in their 80s and 90s just reminiscing." Red brick walls, pickle barrels, and 1930s-era photographs give the store a different feel from the surrounding Dunkin' Donuts and Starbucks stores.

Mary Allen Lindemann and her husband, who run Coffee by Design in Portland, Me., sponsor local arts organizations and offer a grant each year to a Maine artist (last year's grant was $2,800). It has given the store a unique following among local artists.

The bottom line? The relationship between boutique coffee shops and Starbucks has helped bolster the overall coffee market and cultivate unique ways to serve customers. For local coffee shops, many of which are worried that a Starbucks slowdown could curtail overall coffee spending, competing against Starbucks simply means taking an approach that Starbucks hasn't.

"Focus on making your product, your brand, and your experience as good as it can possibly be," says consultant Andrew Hetzel. "You can't look to what Starbucks is doing as your barometer."

This article was originally published on MSNBC's website.
URL: http://www.msnbc.msn.com/id/25835910

Good to the last drop

What makes a perfect pot of joe? Is Fair Trade really fair? "God in a Cup" author Michaele Weissman talks about the history, and our continuing love affair, with that divine drink -- coffee.

By Monica Bhide
for Salon.com

Jun. 30, 2008 | Journalist Michaele Weissman says she had her first real cup of coffee in 2005; everything before that was "hot water and Ritalin." The revelation came in the form of a double-shot 12-ounce cappuccino with whole milk made with specialty coffee purveyor Counter Culture's Toscano espresso blend. It was a concoction she remembers as tasting "as luxurious as cashmere, bringing mouth memories of caramel, chocolate and hazelnut." Baristas call this epiphany a "Godshot moment."

Now a self-described coffee obsessive, Weissman spent a year visiting coffee plantations around the world in search of "the perfect cup of coffee" and documented this enviable journey in a new book, "God in a Cup." Her book comes at a time when coffee is, well, hotter than ever. 2007 saw $12 billion in sales for specialty coffee -- defined by the Specialty Coffee Association of America as "the highest-quality green coffee beans roasted to their greatest flavor potential by true craftspeople and then properly brewed to well-established standards." Recent studies have shown that high coffee consumption may actually lower the risk of heart disease, and America's consumption of specialty coffee just keeps climbing. According to the 2008 National Coffee Drinking Trends Study, 17 percent of the adult population consumed a daily gourmet beverage in 2008, compared with 14 percent in 2007.

But what makes a cup of specialty coffee worth $5, or $8, or in the case of Hacienda La Esmeralda Special, the crown jewel of the coffee world, worth more than $130 a pound? Salon spoke with Weissman in Vienna, Va., inside -- where else? -- a coffee shop.

You say that while coffee is one of the most popular drinks it is also one of the most misunderstood or little understood beverages. How so?

Probably a billion people around the world drink coffee every day, and yes, for the most part, they know little about the contents of their cup. Coffee is damned confusing -- growing it is complicated, processing it is even more so. Coffee politics and economics are contentious and off-putting. And until the last dozen or so years, coffee markets were completely controlled by traders who had little interest in transparency.

Then there is the culinary aspect. Coffee has had few champions in the culinary world. Unlike wine, a beverage to which coffee is often compared, the professional culinary elite and foodies in general have paid little attention to coffee. If you don't believe me, check out the coffee at most high-end restaurants.

Maybe this lack of attention to coffee has something to do with coffee's relative newness. People have been growing grapes and making wine for thousands of years, but the coffee bean has been exploited commercially much more briefly -- coffee didn't arrive in Europe until the 1600s. Coffee doesn't really have a place in the culinary pantheon, but I strongly believe that is beginning to change. At least I hope so.

When did you get interested in coffee?

In 2005-2006, I had this sense that the post-Starbucks generation was demanding and drinking better coffee at work, so I did a piece for the Washington Post on the upscaling of office coffee. That's when I first heard the term "specialty coffee," and that's when I learned that the specialty sector of the coffee business generated a ton of money, was growing fast, and that it was run by a bunch of geeky young guys whose passion for coffee reminded me of Steve Jobs' devotion to computing.

So what exactly is specialty coffee?

Coffee grows in about 50 different countries strung along the equator. Before being sold, coffee is graded by professionals. Most of the coffee in the world is sold on the commodities market, the so-called C market.

Specialty Coffee is, however, not sold on the C market. It is sold by quality-oriented exporters to quality-oriented importers for prices that vary but are generally above the C market price.

Professional coffee tasters -- they're called cuppers -- grade coffee on a scale of 1 to 100. To be considered specialty, coffee needs to earn a cupping score of 80 or above. The best specialty coffees have cupping scores above 84 or 85.

But you were talking about the young coffee guys.

That's right. When I started reporting on coffee, one of the first things I noticed was that the high end of the specialty business was being driven forward by a bunch of young entrepreneurs and coffee buyers who had this amazing passion for coffee. Most of them were guys -- although there are a lot of terrific women in specialty coffee -- and they infuse the specialty business with an ethos that is brainy, smartassed and testosterone-charged.

In your book, you describe them as being part of the "third wave" of coffee. Can you explain this wave theory?

Well, this whole wave thing in specialty coffee is controversial, but here's the gist of it:

A bunch of very talented young guys who commonly refer to themselves as the third wave entered the specialty coffee industry in the 1990s at a moment when travel was cheap and technology was transforming communications. Being young and adventurous, they decided the way to buy coffee was to get their butts off the bar stools at the Intercontinental Hotel in Bogotá or Guatemala City, travel 10 hours over miserable roads up into the mountains to the farms and cooperatives where coffee is grown, meet coffee farmers and buy directly from them or their representatives. These travels were transformative for the specialty industry and for the coffee guys themselves.

The third-wave coffee guys, happily unfettered by degrees from Wharton, decided the only way to ensure that farmers earned a decent living was to change the way the specialty business is run. Instead of buying low and selling high, they decided the specialty coffee business had to run on a model that said: Buy high and sell high. These guys -- and many older people and women who operate at the high end of the specialty business -- are totally committed to increasing what quality-oriented coffee farmers earn. The only way to do this, they say, is to pay more and charge more.

What about the first wave and the second wave?

I am going to make this short. The first wave were post-War War II people who industrialized coffee, bringing us low-quality coffee in a can. Folgers. Maxwell House.

Beginning in the late 1960s and early 1970s, the second wave reacted against factory-made coffee and reintroduced ideas about locally roasted, high-quality coffee available in small shops. Interestingly, Starbucks started as a second-wave company, and then grew into a megalith. Starbucks created the market that enabled the third-wave guys to thrive. Now, however, Starbucks is copying third-wave marketing strategies, selling itself as a farmer-driven company.

You chose three specialty coffee entrepreneurs, Counter Culture's Peter Giuliano, Intelligentsia's Geoff Watts and Stumptown's Duane Sorenson, to be your guides for the book. Why these three?

After the story on office coffee, I wrote a piece on young coffee entrepreneurs and their impact on the specialty coffee industry for the New York Times. All the experts I interviewed named Peter, Geoff and Duane as the most talented, or among the most talented, young specialty guys in the industry, and the coffees they roasted topped all the "best coffee" lists, so I called them up.

One thing led to another, and I wound up traveling with Peter Giuliano and Geoff Watts to Nicaragua on yet another coffee story for the New York Times. Peter and Geoff's passion for, knowledge of and eloquence about coffee blew me away. Duane is a more elusive person than Peter or Geoff. I didn't travel with him, but I did spend close to a week visiting Stumptown in Portland, [Ore.].

What about Fair Trade? Does Fair Trade really help the small coffee grower, or is it just a marketing gimmick?

The answer is yes and no, or no and yes, or jeez, can we talk about something else?

What do you mean?

Fair Trade is probably the most contentious subject in the world of specialty coffee. Not because its goals are disputed but because the debate has been ugly and those who question how the Fair Trade program operates have been accused by Fair Trade advocates of Bhopal-style corporate crimes against humanity.

The irony is that, as a social justice program, Fair Trade ain't that great. To participate in Fair Trade programs, coffee farmers and coffee roasters both pay pretty significant fees. For example, TransFair USA, the American Fair Trade organization, collects a licensing fee of around 10 cents a pound for every Fair Trade coffee sold by participating roasters here in the United States. On the other end of the production chain, coffee-growing cooperatives pay between $2,000 and $4,000 a year to be certified Fair Trade by FLO, the international Fair Trade group.

In exchange for these fees, FLO guarantees coffee cooperatives a minimum price for their green or unroasted coffee of $1.21 a pound -- $1.41 if the coffee is certified organic. These minimums have not increased in 10 years, although they will inch up next year. Cooperatives also received a "social premium" of 10 cents a pound to invest in a community project such as building a school or medical clinic. In addition to setting payment standards, Fair Trade also certifies that living and health standards on coffee farms meet certain minimal standards. The Fair Trade designation does not address issues of coffee quality.

For much of 2008, commodities prices have been rising and the C-market price for coffee has surpassed the Fair Trade minimum. Bubbles have a way of popping, however, and coffee prices have a way of crashing precipitously, causing tremendous suffering. In the book I quote Rick Peyser, director of social advocacy for Green Mountain Coffee in Vermont. Rick sits on the FLO board and he says you have to think of Fair Trade as a kind of insurance policy for farmers that protects them when coffee prices plummet as they periodically do.

And the truth of the matter? Well, as I say, when it comes to Fair Trade the answer is yes, no and maybe.

So what steps do consumers take to help ensure that the coffee growers are compensated fairly?

I agree with Michael Pollan, who came to the conclusion at the end of "The Omnivore's Dilemma" that the thing to do is buy local. And, I would add, buy delicious -- meaning that high quality which takes an effort to achieve should be rewarded.

Coffee, of course, doesn't grow locally. More and more, however, it is roasted locally. So if you want to make sure that you are buying coffee that rewards farmers fairly, I would say get to know your local roasters. And you don't have to pay a fortune, by the way. In fact, you can purchase a great pound of coffee from which you can brew 30 or 40 mugs of coffee for, say, $13 or $14 a pound. Skip Starbucks for three days and you can afford to buy some of the world's best coffee. Compare that to a bottle of wine that two people polish off in an evening!

McDonald's has started to try to compete with Starbucks and other coffeehouses by offering premium coffee. Since they're so big, does McDonald's help or hurt coffee's image and specialty coffeehouses in general?

To the degree that specialty coffee is a high-end culinary product, McDonald's is more or less irrelevant. I can't imagine a consumer being split between buying coffee at a high-end cafe selling Stumptown's or Intelligentsia's or Counter Culture's coffee and McDonald's.

Who might be hurt by McDonald's foray into what I would call "alleged specialty coffee" is Starbucks. You'll notice, however, that Starbucks is working very hard these days to regain its reputation as the purveyor of super-high-quality coffee.

So why is a coffee like Hacienda La Esmeralda Special worth $130 or more a pound? What is it that makes it so expensive?

Coffee fans have paid crazy prices for Panama's sex queen of a coffee because there is an extremely limited supply.

Esmeralda, which is a very floral, very fruity, very clean bright aromatic coffee, was cultivated on Hacienda La Esmeralda in Boquete, Panama. It was discovered by Daniel Peterson on his family's farm. Esmeralda tastes nothing like other Panamanian coffees, nothing like other Central American coffees, and coffee cuppers flipped over it when it was entered in the Best of Panama competition.

It turns out that this Esmeralda coffee comes from a collection of coffee seeds gathered by a British diplomat in Ethiopia in the 1930s. Virtually all the other coffee grown in Panama and elsewhere in Latin America derives from two varieties of coffee, Bourbon and Typica, that were stolen from Yemen 500 years ago. Esmeralda comes from an entirely different genetic branch of the Arabica coffee species.

The story goes on from there but suffice it to say: The specialty coffee world went Esmeralda crazy. In the last few years Panamanian farmers have been ripping out other trees and planting Geisha trees all over the place. Will it taste like Peterson's Esmeralda? Will it drive demand for more and more Esmeralda? Or will the Esmeralda craze die out? Coffee trees take five years to produce their first crop, so we'll know in the next few years.

One other interesting note: Coffee guys have been trying to locate the forest in Ethiopia where that diplomat first stumbled on Esmeralda. So far, no luck at all.

What makes the perfect cup of coffee?

Perfection in coffee, like perfection in art, is sought, but it can never be achieved.

Philosophy aside, what makes the difference in coffee? Is it the bean? The roast? The brew?

It all matters. The genetic qualities of the bean. The agronomic skill of the farmer. The climate. The processing of the bean, which is multi-stepped and fraught. The way the bean is transported. The roasting. The grinding. The brewing. Each step either enhances the bean's potential or degrades it.

Think about wine grapes or olives that are pressed to make oil. You can begin with the most exquisite cultivars, but these products, fine wine, fine olive oil, only reach their potential when each step leading toward consumption is consummated skillfully and in a timely fashion. Same with coffee.

Only coffee is even more vulnerable to human error, because of the assaults to nature that occur when consumers take their newly purchased specialty beans home.

What is the best home coffee-brewing device: percolator, French press or just basic Mr. Coffee?

Percolator -- never.

Mr. Coffee -- throw it out immediately. Most standard automated coffee pots don't heat the water hot enough or consistently enough. The water needs to be around 205 degrees F. as it pours over the grounds. Otherwise the grounds will be over-extracted and bitter or under-extracted and tasteless.

French press -- this plunger system makes very nice coffee but requires a certain deftness of hand and it produces slightly gritty coffee that some people like and others don't.

I prefer old-fashioned, inexpensive drip pots that use brown paper filters, such as the Chemex where you pour nearly boiling water over freshly ground coffee.

Oh, and always use filtered water.

The most important piece of home equipment: A burr grinder. Those little blade grinders most people use basically beat the crap out of the coffee. Not good.

What is it about the smell of coffee that makes it so intoxicating even to people who may not or don't like the taste?

Coffee has more aromatics than any other foodstuff. It's the aromatics people find so enticing -- cuppers actually are able to detect thousands of different aromas in coffees. No. 2, by the way, on the aromatics list is red wine.

Do you see a fourth wave emerging?

I have a hunch that the fourth wave will emerge where coffee is grown, as a new generation of young farmers who are bilingual and can speak English, guys like Daniel Peterson of Esmeralda fame, start to alter how they do business. A lot of these young growers have visited the U.S. and have seen how dynamic the specialty market is here and are eager to bring change to their end of the coffee chain.

How do you make your morning coffee?

Actually, my husband, the physicist, makes my coffee in the morning. He's much more of a fussbudget than I am when it comes to technological accuracy. He uses a one cup ceramic cone into which he fits a one cup brown paper filter filled with freshly ground coffee. The ceramic cone fits on top of a mug. You pour the water over the grounds and voila, a lovely cup of coffee.

-- By Monica Bhide

originally posted on salon.com june 30, 2008
http://www.salon.com/mwt/food/eat_drink/2008/06/30/coffee/print.html

US Coffee Giant Starbucks to Close 600 US Stores

By VOA News
02 July 2008

U.S.-based coffee chain Starbucks has announced plans to close 600 stores in the United States in the next year due to the weak U.S. economy.

The Seattle, Washington-based coffee seller announced the move on Tuesday during a conference call with reporters. The company says about 12,000 employees, or seven percent of its global workforce, will lose their jobs because of the closures.

It says it will open fewer than 200 stores in 2009.

Starbucks' Chief Financial Officer, Peter Bocian, said many of the stores being closed were located near other Starbucks stores. Because of the company's aggressive expansion practice, it is not uncommon in the United States to see two of the shops within blocks of or even across the street from each other.

The company also has been expanding worldwide, operating in 45 countries.

Coffee could help beat MS: study

WASHINGTON (AFP) — A strong cup of coffee may do more than just wake you up in the mornings. It could also help you stave off multiple sclerosis (MS), according to a new study.

Scientists in Oklahoma found that mice which had been immunized to develop an MS-like condition appeared to be protected from the disease by drinking the equivalent of six to eight cups of coffee a day.

"This is an exciting and unexpected finding, and I think it could be important for the study of MS and other diseases," said Linda Thompson, from the Oklahoma Medical Research Foundation who worked in collaboration with Cornell University and Finland's University of Turku.

Caffeine prevented adenosine, one of the four building blocks in DNA, from mixing with its receptor in mice.

Adenosine is common molecule in humans and plays a large role in helping to control the biochemical processes for sleep and suppressing arousal.

When the molecule is blocked from binding with its receptor, the body's infection-fighting white cells cannot reach the central nervous system and trigger the reactions which lead to experimental autoimmune encephalomyelitis, or EAE, the animal form of MS.

The findings could have important implications for other auto-immune diseases such as lupus and rheumatoid arthritis, in which the body's own defense systems turn against itself.

But Thompson, co-author of the study in the Proceedings of the National Academy of Sciences, warned there was a lot more work to be done in fighting multiple sclerosis, a debilitating and progressive disease in humans.

"A mouse is not a human being, so we can't be sure caffeine will have the same effect on people prone to develop MS without much more testing," she said.

Further retrospective studies to track the caffeine intake of patients with MS and its effects might be the next major step.

"If you found a correlation between caffeine intake and reduced MS symptoms, that would point to further studies in humans," Thompson said.

Some 2.5 million people worldwide are thought to suffer from MS, a disorder of the central nervous system which leads to loss of muscle coordination.