Small Coffeehouses Sticking It to Starbucks.

Long Beach Proprietors Team Up Against Giant

INSIDE a popular coffee hangout, where patrons sit in overstuffed armchairs and thumb through the morning paper, three men are plotting a caffeine war.

When Mike Sheldrake opened his Polly's Gourmet Coffee shop in Long Beach's trendy Belmont Shores in 1976, a good cup of java cost 25 cents and there wasn't a competitor around for miles. But in 1994, Starbucks Corp. opened a store nine blocks away. Four years later, it opened a second store just one block away. Sheldrake nearly went out of business.

Now Marty Cox is having the same problem. Five years ago, the 34-year-old entrepreneur and his wife Louise opened their first coffeehouse, It's a Grind, in east Long Beach. They now have five stores in Long Beach and plan to open two more in Orange County. But now Starbucks, the country's No. 1 specialty coffee retailer, is planning to open five stores near his coffeehouses.

Sheldrake and Cox have banded together with a third independent Long Beach retailer, Gary Paterno of the Library Coffeehouse, to fight back against the Seattle-based coffee purveyor, whose sales last year totaled $1.6 billion.

"Starbucks has obviously recognized that we have a good market," said Cox, who is worried that the coffee giant will take a large chunk of his business and leave him with only crumbs to nibble on. "Starbucks moves into an area and because they have unlimited funds for the first three months, they try to pull a market away (from other coffeehouses) with things like double staffing and sending coupons in the mail."

The coffeehbuse owners may feel they are in a unique position, but they are no different from the hundreds of other small independent retailers across the country who have been forced to deal with behemoth chains cutting into their market share.

Wal-Mart Stores Inc., the largest retailer in the world, has been criticized for shuttering locally owned general retail stores in small towns across America. Home Depot is the devil incarnate to many small hardware stores up and down Main Street. Barnes & Noble, along with Borders Books and Music, has been accused of sending small independent bookstores to an early grave.

Yet Starbucks seems to raise the hackles of small-business owners and activists even more than these other corporate giants -- perhaps because coffeehouses tend to attract an upscale, literate, liberal clientele that Wal-Mart can't match. Whatever the reason, Starbucks has attracted an unusual degree of opposition around the country.

A company on a mission

In Chicago, for example, some residents are signing petitions urging that no more Starbucks shops be allowed to enter their neighborhoods, while windows are broken and anti-corporate graffiti is spray-painted on outlets throughout the city. Signs of a backlash are even being seen in Starbucks' home city of Seattle.

The protests aren't fazing Starbucks Corp., which already operates more than 3,200 coffee shops around the world -- 265 in the greater Los Angeles area. In fact, the company is on a mission to open hundreds more locations in the next few years.

Starbucks maintains it is not aiming to ruin small businesses. "We are looking for new communities and areas to develop, but Starbucks is not in the business of opening across the street from a local coffeehouse to put them out of business," said company spokeswoman Shauna Hendricks.

The reality is, 13 percent of the 12,000 independent coffeehouse owners in the United States will be gone in five years, according to a study by the Specialty Coffee Association. Of course, not all of them will be put out of business by Starbucks. But the three coffeehouse owners in Long Beach, who call their group the Long Beach Independent Coffee House Alliance, believe many of them will be -- and they aim to see it doesn't happen to them.

"The three of us are working together to raise the level of specialty coffee and remind our customers that they have a choice of atmospheres, as different as the neighborhoods we are located in," said Sheldrake, whose coffeehouse suffered a 10 percent monthly drop in retail sales after the first Starbucks opened in his neighborhood.

The trio of coffeehouse owners has pooled $6,000 to advertise in local weekly and daily publications. One of their first joint ads appeared in the Grunion Gazette, a weekly neighborhood paper for the Belmont Shores and Belmont Heights area of Long Beach.

"We Wake Up Long Beach Every Day," reads the ad. "Look for your Local Coffee House." The addresses and logos of the three coffeehouses are listed.

Sipping with the enemy

They are also thinking of sponsoring some kind of charity event, such as a golf tournament, and providing free coffee for community get-togethers, such as poetry readings.

Somewhat ironically, while all three coffeehouse owners say they are in direct competition with Starbucks, they say they don't compete with each other because they fill different niches.

Paterno, who opened the Library Coffeehouse in 1994 with partner Jay Stanbridge, says his place is a popular meeting spot for coffee drinkers who want to sit around in the evening and enjoy a Bohemian atmosphere. It has crystal chandeliers, an eclectic mix of tables and chairs, shelves crammed with used books, and portraits on the wall.

It's a Grind caters more to people stopping in on the way to work for a coffee or pausing in mid-morning to sit down at the wooden tables inside.

Polly's has an on-site coffee-bean roaster and an in-house bakery. Sheldrake wholesales coffee beans to local restaurants and hotels, in addition to selling coffee to individual customers.

Since 1998, he has been sharpening his marketing tools to compete with the "big green guys" down the street. He offers classes on coffee, has a newsletter he mails to more than 3,500 customers, uses coffee cups designed by local artists, has doubled his advertising budget and started a training program for his employees. Sales have increased 45 percent in two years to $1 million in 1999.

The trio hopes that with a concerted advertising campaign, consumers will wake up and smell the coffee -- at their stores, instead of at Starbucks.