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BUISNESS & MARKETS columbian.com » Business » Local Business  

Battle grounds: Four coffee shop owners share how they compete with Starbucks


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STEVEN LANE/The Columbian<p>
Chelsea Unger pulls a shot of espresso at River Maiden Artisan Coffee on Devine Road. Store owner Melissa Layman said she’s part of the third wave of coffee house operators who are focused on the economic and agricultural impacts of coffee.

STEVEN LANE/The Columbian

Chelsea Unger pulls a shot of espresso at River Maiden Artisan Coffee on Devine Road. Store owner Melissa Layman said she’s part of the third wave of coffee house operators who are focused on the economic and agricultural impacts of coffee.


STEVEN LANE/The Columbian<p>
Java House, at the corner of Evergreen Boulevard and Columbia Street in downtown Vancouver, opened 16 years ago at a time when consumers knew little about gourmet coffee. The business continues to thrive, even after a Starbucks opened a few blocks to the south.

STEVEN LANE/The Columbian

Java House, at the corner of Evergreen Boulevard and Columbia Street in downtown Vancouver, opened 16 years ago at a time when consumers knew little about gourmet coffee. The business continues to thrive, even after a Starbucks opened a few blocks to the south.

Sunday, March 09, 2008
By JONATHON NELSON, Columbian staff writer

Starbucks has become so ubiquitous that the Seattle-based company’s name is now interchangeable with the word coffee.

Think about it. You hear people say things like let’s go get a Starbucks as much as let’s go get a cup of coffee. That’s dominating your market, and Starbucks is one of the best.

Consider that last fall, Starbucks operated more than 6,700 stores in the United States. The average store rings up $1 million a year in sales.

Compare that to the 15,500 coffee houses in the entire country. The average outlet does $550,000 in annual sales, according to the Specialty Coffee Association of America. Starbucks’ sales likely skew that average figure.

SCAA data show 57 percent of the U.S. coffee houses are independently owned by people that operate one to three units. Microchains, which are four to nine units, take up 3 percent of the market and the rest, which is primarily Starbucks, holds a 40 percent share.

Consumer savvy

So how do independents compete against Starbucks? To some extent they have Starbucks to thank. Taylor Clark, a Portland resident who wrote “Starbucked: A Double Tall Tale of Caffeine, Commerce and Culture,” said Starbucks taught people about good coffee. The independents also benefit from Starbucks’ marketing power.

We talked to four independent coffee shop owners in Vancouver to hear how they deal with the big green mermaid. We found that their coffee prices are comparable to Starbucks and operating costs slightly higher.

Clark’s research revealed, and the Columbian’s anecdotal reporting confirmed, that successful coffee shops develop a loyal customer base that prefer s the independent coffee maker’s brew over Starbucks’. They maintain a narrow focus and don’t try to imitate Starbucks in look or products. They benefit from a segment of consumers who will drink anything but Starbucks. And, perhaps most importantly, coffee has become a part of daily life for so many people.

BREWED AWAKENINGS

Take away the 27 Starbucks outlets in Clark County and the next biggest chain is locally owned Brewed Awakenings with three stores in Vancouver, one in Portland and 60 employees. Todd Gunderson started the business about 20 years ago after he sold a convenience store and was looking for a new business venture. The answer was an abandoned photo mart shack near Portland International Airport that he converted to a drive-through coffee shack.

His knowledge of coffee amounted to this — most of what he drank came from the convenience store and he wanted to sell high quality coffee, the kind he wanted to drink. That was essentially the start and end of his research and business plan.

“There wasn’t much (information) out there,” he said. So he learned by trial and error. Gunderson kept the drive-thru design of the photo mart and incorporated that into each new outlet in Orchards, Fisher’s Landing and Hazel Dell. He initially bought his beans from Boyds then switched to Seattle roaster Torrefazione Italia and about seven years ago started roasting his own. Gunderson said the decision to handle the roasting was a difficult and expensive one that took a couple of years to perfect. The payoff is that Gunderson gets a fresher product that tastes exactly the way he wants.

Eleven years ago, Gunderson started baking pastries at the Fisher’s Landing store to supply the goods to all of his outlets.

Gunderson said in the early years he worked on a shoestring budget and logged long hours, but was able to eke out a profit from the beginning. Gunderson wouldn’t release specific annual sales figures, but said the business recorded strong growth until a few years ago when it slowed to its current pace.

“It’s doable,” Gunderson said of operating in Starbucks’ shadow. “You have to know what you’re doing.”

SAVONA HOUSE

The only option Debbie­ ­Parshall had for coffee during her college days was the brown water served at all-night diners. She wanted something more — better coffee and atmosphere.

But 17 years ago people advised against Parshall’s dream of opening a coffee house that sold robust brew and a little food, offered late night music and maybe poetry readings. Parshall was told the business wouldn’t last a year.

So she went into banking. A lunch four years ago rekindled Parshall’s dream when a friend mentioned that a coffee shop on Columbia River Drive was for sale. Parshall raced to the store after lunch and made the winning offer a day later.

Sitting at table with the late-winter sun streaming through windows that look toward the Columbia River, Parshall said the business is exactly as she envisioned years ago. It sits on a corner surrounded by condominiums, restaurants, a hotel and popular walking path. She serves a little food and some ice cream and lets local artists display their paintings. But the focus at Savona House, which is named after an Italian coastal town, is clearly the coffee.

Parshall has no business loans and only a mortgage on the building after buying it in October 2006 for $325,000. Parshall declined to discuss specific sales figures, but said she’s been in the black for 3.5 years, much quicker than she expected. She attributes that to maintaining her focus. That’s why she sells one soup rather than two or three and a few sandwich wraps and salads instead of a wider offering.

“Not every person through that door is going to find what they want and I’m OK with that,” Parshall said. “If we tried to carry everything and do everything we wouldn’t have a vision or sustainable and viable business. We’d fall under the overhead costs.”

Parshall believes her business has benefited from Starbucks’ presence by bringing coffee to the forefront of American culture. But she doesn’t worry about the company, saying it has evolved into something like McDonalds where you get the same experience regardless of where the store is located.

She worries more about a new development nearby that is being anchored by a Fred Meyer store. Parshall said the retail center could threaten her business if it includes an independent coffee shop, deli or ice cream vendor that gives customers a unique experience.

JAVA HOUSE

The first customers to Java House got quite a jolt when they tasted the coffee.

“Strong,” they said.

“That’s the way it’s supposed to be,” said Lonnie Chandler, who along with his wife, Cora, opened the downtown coffee shop in 1991.

Back then there was only one Starbucks in the area and it was in Portland. Coffee, to most people, meant a cup of weak flavored brown water. Sales the first year totaled $67,000 as the Chandlers were as much educators as retailers, teaching a growing clientele about real coffee.

Sales doubled the next year and continued to grow as the Chandlers catered to mostly business customers in the banks and offices surrounding the shop at the corner of

Evergreen Boulevard and Columbia Street. The business focused on personal attention to customers and buying beans that are grown in small batches.

The test of the company’s strength came in 2000 when Starbucks opened a store two blocks away in Heritage Place.

“We always worried whenever anybody came in,” Cora Chandler said.

Lonnie Chandler said they kept focused on selling small batch coffee and didn’t try to imitate Starbucks. Java House sales continued to rise.

In the spring of 2001, they opened a second store in east Vancouver. A few months later Brewed Awakenings opened a store nearby.

Sales dropped that September following the terrorist attacks in New York. The second store sucked thousands of dollars away from the original and in 2003 the couple closed the east Vancouver location.

The business righted itself, but Lonnie Chandler said they don’t do anywhere near the $550,000 in annual sales the Specialty Coffee Association of America cites as the average sales figure for gourmet coffee shops.

He said while Starbucks focuses on margins, for their business it’s more about sales per hour for Java House.

RIVER MAIDEN ARTISAN COFFEE

Melissa Layman intended to open one coffee shop in 2005. She ended up opening two — one along Devine Road near her house and the second downtown at the indoor Vancouver Farmers Market.

The downtown location was just across Esther Short Park from Starbucks and Layman quickly discovered what it was like to challenge the industry giant. Shortly after opening,

Starbucks employees toting portable coffee dispensers on their backs walked into the market and started handing out free coffee, she said.

Layman responded by offering to trade out a customer’s Starbucks coffee for a free cup of the Stumptown Coffee she serves.

The kerfuffle boosted River Maiden’s profile and, along with the location, helped sales quickly increase.

Layman came into the coffee business at what she calls the third wave. The first came in the 1950s with instant coffee. Starbucks lead the second wave, introducing the public to espresso, lattes and gourmet coffee. Layman is part of the third, where stores like hers feature coffee grown from small farms and everyone involved in the process is conscious of the economic and agricultural impacts of coffee.

River Maiden was actually an afterthought. Layman originally rented the Devine spot, which is tucked inside a strip mall across the street from McLoughlin Middle and Marshall Elementary schools, to sell her custom made jewelry. She decided to add coffee, contacted Stumptown and switched the business’ emphasis. She took $75,000 from her home equity to open the two stores. Sales at the Farmers Market store outpaced Devine, which Layman concedes is a destination.

Then the market closed last fall. It was a blow. She lost the seed money as well as her financial cushion. The new school year boosted business at the Devine store, generating enough sales to cover costs.

Still, she has the equipment from the Farmers Market outlet and continues to look for another downtown spot.



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