is no longer the province of the Pacific Northwest, Alaska now has the greatest per-capita consumption of fine coffee and espresso is a popular menu item in Michigan and Nebraska. The advent of the Internet, cable television and increased travel by Americans has brought specialty coffee into the mainstream. We’re not talking about ubiquitous 5,000+ chains, but the strongly branded “indie” coffee shop, the in-store concession where gourmet is a reality. Slightly overshadowing the indie efforts are the mega fast food chains serving high-quality coffee to an audience who now expects to get a good cup of java everywhere.
What separates a successful indie coffee retailer from the vast competition? Three venerable business concepts: high quality, try-before-you-buy and great service. This triumvirate equals growth, increased profits and loyal customers.
Freshness Is Everything
Try-before-you-buy is the concept behind the upscale El Rancho Market in the Santa Ynez Valley of California. Owner Alfred Holzheu cites freshness as his store’s mission found in ground-in-the-store flour, hand-made pizzas and a plethora of savories and sweets made daily. About five years ago he first saw the Fresh Roast System automatic roasting machine at a trade show: “I instantly fell in love with it. It’s so easy, we can train our teenage employees in the coffee bar to use it in less than 10 minutes. It’s a program that offers the beverage and the bean in an easy two-step process,” he said. “We can teach employees how to roast in 10 minutes because the young employees immediately get the concept. It is similar to a video game. For the customer, this means freshly-roasted coffee, none of this yucky cardboard tasting stuff. We now have two roasters, one in the back which we use for our wholesale customers, and the one in the store for our retail customers,” Holzheu said.
The coffee department is operated by a manager and six employees who work both the roaster and the coffee bar. “There is a real synergy between the two areas of the department where each section is used to sell the other. The result is a more vigorous concept than “just a coffee bar,” Holzheu continued. “We treat coffees as seriously as we do our wine department.”
El Ranch Market always offers six to eight samples of the more than 20 varietals and 10-15 blends of coffee they sell plus decaf and organic. The best seller is the eponymous Holzheu Blend, a combination of German-blend Sumatra and Brazilian. “Flavored coffees (about 30% of our sales), are a great way to get customers into fresh roasted coffee,” he added. Customers can taste as many samples as they like for free and literally take only two steps, to pick up what they liked best, home. Right next to the coffee bar is the roaster, which is operated all day long, roasting five lbs. at a time. “The machine is flexibility personified; customers can choose the roast style, the bean of origin, blend two or more types of beans together and can also flavor the coffee,” Holzheu added. El Rancho can price the coffee competitively and, often, slightly lower than the larger chains for what is infinitely fresher coffee. The menu of 13-15 selections is priced from $10.99 to special sale promotions at $7.99. Moving briskly, minimum amounts of packaged coffees for shelf display are usually sold within three days.
Raising The Bar For Quality
Alisa Morkides, owner/founder of Brew-Haha, began in Delaware in 1993, which expanded rapidly growing from $350,000 in sales the first year to $3,000,000 in 1999 when it was named one of INC Magazine’s top 500 privately owned companies. It currently is up to sales of $5 million.
Inspired by the taste and fragrance of espresso she enjoyed, while on vacation in Italy, Morkides came home to an open opportunity in her area, which had almost zero accessibility to espresso-based drinks. Although she has inspired competitors, Brew-Haha remains Delaware’s premier specialty retailer earning Best of Delaware designation 14 years in a row in Delaware Today Magazine. “We’ve created a warm, inviting, comfortable place to visit, offer high-quality coffee made with care, and are constantly raising the bar for quality, whether it’s sourcing for better chocolates for our signature drinks or amping up the training to keep everyone on top of their game,” Morkedis said. “We want to marry the expertise of Italian coffee making with American efficiency and friendliness. We hand cup, individually grind and dose, and use more than the standard amount of coffee so the end result is a richer brew that is a testament to the culinary of coffee making.”
Service Is Critical
Each of her 13 stores and kiosks averages six to eight employees, of which three are trained baristas, including the manager and assistant manager. “If you don’t love coffee, you can’t be a barista here,” Morkides said. “We train extensively and a barista must attain a certain level of professionalism and have great people skills. We insist on a mini version of the SCAA barista training where a barista must demonstrate skills in making an espresso that meets the established industry criteria. We developed our own written test which each candidate must pass to become a Brew-Haha barista,” she added. Employees, paid above average for the area, can earn a sizeable amount of tips. “I don’t want to be a huge chain but want to expand on what we are: a boutique special coffee house that serves the high end of the market. We source only the best roasters, the best high quality beans and use semiautomatic, high-quality equipment to produce the best espresso drinks possible made in an artisan way,” she added.
Brew-Haha has two stores in Pennsylvania, one in Maryland and 10 in Delaware from 800-2,300 sq. ft. “Although expansion is still in the works, the goal is to do it carefully and slowly, perhaps one store a year,” Morkides stated.
The company has made a few adjustments. “At first we had a full newsstand with more than 300 magazine titles, but found that distracted us from our core focus: to hand make and sell fine coffees. Now, we subscribe to only a few magazines and sell only newspapers; a loss leader but a necessity that customers have come to expect.”
The store used to hand-make sandwiches but now orders from a commissary that provides freshly-made sandwiches delivered daily. This allows them to solely concentrate on brewing fine coffee drinks.
McCafe, Borders & More….
The indies are not the only retailers experiencing increased profits from high quality coffee. The most striking success among mega chains has been the coffee upgrades at McDonald’s, their additions of upscale McCafes, usually found next to the original sites, and a vivid marketing campaign to demonstrate that they’re listening to the customer’s demand for better quality coffee. McDonald's has done so well in addressing the more sophisticated palate for hot coffee drinks over the last few years that they’re now enhancing their iced coffees with plain, vanilla, and hazelnut flavors that have been a hit in every test market.
Hardly an industry pundit worth his grounds disputes the excitement of expanding the specialty coffee drinking market into mega-chains and widening the competition--and availability--for high-quality brewed coffee. When McCafes, newly added to freestanding locations in Europe, reports showed up to 11% increases in profitability.
One red flag, however, is that the increased demand for fine quality coffee beans and the price points of offering real milk creamers can lead to serious challenges in sustaining recommended mega-chain profits. What happens to quality at this critical juncture? The reality is that a 10,000-unit chain cannot sustain resources for the best coffees; there just isn’t enough “best” being grown. The usual alternative is to mix the mediocre bean with the good, pour cheaper substitutes instead of real milk, and use compromised concentrate recipes to cut labor time at the cost of quality and flavor. And yet — as long as the coffee aroma is sweet in bookstores, it will lure the buyer in the shop to take a few steps from bookshelf to café. Likewise, the addition of upscale environments, backed by genuine service and quality products, will help the fast food “twin” take a sip out of the coffee business where they can coexist with the indie—for the moment.
But when quality plunges, it spells opportunity for the indie coffee retailer. When she broadcasts her obsession for quality, pays attention to service training, and does business in a meaningful way, like learning the customer’s name, she can make her mark as distinctly as a barista makes his signature design on a latte.
The strong indie has the most to gain, and sustain. When they value quality control every step of the way and dedicate their all to the respected brand, the indie will dominate the turbulent specialty coffee playing field.
About the Author: Andrew Hetzel is the founder of Cafemakers, a specialty coffee business consultancy based in Hawaii. Cafemakers enables restaurants, hospitality businesses and coffee shops internationally to improve customer satisfaction and profitability, by serving better quality coffee. For information, access www.cafemakers.com or call (808) 443-0290.