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Recession roasting and retailing - is West Coast specialty coffee immune?

Recession roasting and retailing--Is West Coast specialty coffee immune?

West Coast specialty coffee has yet to experience its first full-fledged recession, so no one is quite sure what the current economic slowdown will bring. No doubt we'd like to think of good coffee as a staple, but will it turn out to be a luxury item to be sacrificed when times are lean?

For markets like San Diego and Portland, we can report that business is going strong. Specialty retailers in Portland confess, in fact, that the economy as a whole seems almost unaffected--even real estate hasn't been suffering like to has in many communities on the West Coast and across the country. In San Diego, there are some signs of a recession--auto sales are down, restaurants are suffering, and commercial real estate has apparently turned into a real tenant's market. But roaster/retailers in both cities report no drop-off in business whatsoever. The picture is similar in the Bay Area, but perhaps a little less rosy in Seattle and particularly in Los Angeles.

San Diego

"If this is a recession, I'll take 10 more years of it," says Bob Sinclair of San Diego's Pannikin Coffee & Tea. "Our fourth quarter of 1991 was up about 10% over 1990 looking at our business as a whole, which includes sales of whole beans and coffee accessories as well as cup sales. And we had the best January we've ever had in appliances, though coffee makers are traditionally a big first quarter item. Appliance reps certainly appreciate us small specialty retailers at a time like this, when the Bloomingdale's of the world are having a tough time paying their bills." And although the restaurant business is depressed in San Diego, Sinclair is still selling machines to foodservice either to new restaurants braving the odds, those expanding into espressos and cappuccinos, or those whose existing equipment has worn out.

Sinclair contends that the cafe/coffeehouse business is the most resistant of all, because of what he calls a "real coffeehouse phenomenon." Whereas bars and restaurants are losing customers, and in some cases going out of business altogether, coffeehouses continue to sell more coffee. Cup costs run from 5 to 12 cents a cup and retail for a few bucks, which adds up to such a healthy profit margin that Sinclair is convinced it must be better than the bar business. "In fact, if I were to do it again, I wouldn't bother getting a liquor license." He was initially reluctant to open up any new Pannikin coffeehouses this year, but has been bombarded by offers for new locations. He now expects to have two to three new Pannikin locations by the end of the year.


Dave Kobos of the Kobos Company in Portland proclaims that the recession "just hasn't arrived." They've been having a super winter. Business was up by 36% in January over last year, and February and March are up as well. "You read about the recession, but I just haven't seen it in my own business or in the businesses I deal with." Kobos, a roaster/retailer with a wholesale business, will have a total of seven stores by April of this year. West Coast specialty coffee may not be recession-proof, he ventures, but it sure seems to be "this recession-proof."

Los Angeles

In Los Angeles, roasters and retailers are confident but somewhat less than buoyant. Steve Ruiz of F. Gavina & Sons reports a strong first quarter overall, but a slight slowdown in private label roasting destined for places like office coffee services. Ruiz is more concerned about the impact on roasting of the drought and serious water rationing now being put into effect than any economic drought in the Southland.

Alan Chemtob of Cafe Au Lait, which has a significant number of clients in high-end foodservice, reports a "weeding out" in the L.A. specialty market: "Growth is not as dramatic as it was two years ago. Part of that may be due to the recession, but I think it has more to do with the fact that the pie is being divided up among more and more players. A few years ago, we worried about the guy across town --now we have to worry about three guys across the street. This is something like what happened to Seattle not too long ago. Ultimately, it will be good for business, as those with top quality and staying power prevail," and others fall by the wayside.

For Cafe Au Lait, the economic slump has meant the loss of a few clients, but they keep adding more than they are losing. In other words, consistent, steady growth. Making the strongest showing for Chemtob of late, however, is Paradise Tropical Teas, which continues to grow by "leaps and bounds."

The Bay Area

In the Bay Area, retail sales of specialty coffee are above 1990 levels, according to Jim Reynolds at Peet's Coffee & Tea. Some stores are showing at least a 10% increase, while sales at the more mature outlets are increasing but at a somewhat slower pace. Reynolds believes that the kind of person who buys specialty coffee isn't likely to be so hard hit by the current recession that they feel they have to cut back on their coffee purchases, at an average price of $6.50/lb. for 45-50 cups. "Our store out in Los Altos, for example, which is very near to Silicon Valley, did extremely well while Silicon Valley itself was said to be in a slump." Both coffee retailing and mail order in and around San Francisco, then, seem fairly recession-proof, though Reynolds also gives credit to the Bay Area's diversified economy as a whole for their continued success.


Washington State has suffered slightly, as can be seen in the residential and commercial real estate market, says Orin Smith, C.F.O. of Starbucks Coffee Company, but the effects of the recession on specialty coffee retailing have been negligible at most. Starburks' business in January was slightly off projections, but still showed substantial growth. Smith suspects this was due to the war in the Persian Gulf. The fact that sales since then are back up to their expectations indicates that this was the case.

News that Los Angeles may be hit harder than the rest of the West Coast is in no way slowing Starbucks' plans to open at least five locations in that city by the middle of the year (adding to their current total of 87 or 88). If anything, the timing may be even more advantageous while real estate is sluggish. In April, Starbucks will be opening three shops inside Vons Pavillons stores primarily in West L.A.

Joan Hackeling West Coast Reporting Staff
COPYRIGHT 1991 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:to current economic recession
Author:Hackeling, Joan
Publication:Tea & Coffee Trade Journal
Date:Apr 1, 1991
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