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Heritage Coffee Co. & Cafe: coffee bean roaster Grady Saunders brews business expansion.

Grady Saunders of Heritage Coffee Co. & Cafe in Juneau cites two reasons he finds the coffee business rewarding: the product and the people. A native of Palo Alto, Calif., Saunders travels extensively throughout Central and South America, Asia and Africa.

In those countries, he meets with coffee bean brokers, plantation owners and farmers -- faces behind the 140,000 pounds of "green coffee," or unroasted beans, he buys for the company each year. "My vacations end up being work, but I love my work. I love coffee and everything that goes along with it: the growers in the Third World countries, the people. It's a wonderful, rewarding business in that sense," says Saunders, 40.

It is also a business that has grown dramatically since November 1974, when Saunders opened a small coffee store called Quaff's Coffees & Teas on South Franklin Street in Juneau. The business was so successful that Saunders ran out of coffee five times before Christmas.

Seven months after opening Quaff's, he began carrying ice cream, and the business -- then known as Quaff's Coffees, Teas & Ice Creams -- moved into Merchants Wharf on Juneau's waterfront. Several years later, Saunders sold the ice cream portion of the business, moved back to another South Franklin Street location and concentrated solely on coffee, opening Heritage Northwest in 1978.

Partner Irene Phillips joined the company as manager about a year later. She now serves as vice president; Saunders is president.

In 1980, the business moved again, relocating across the street to the second floor of the Emporium Mall. During those early years, Heritage purchased coffee from Starbuck's Coffee Co. of Seattle. But realizing that providing the best product to customers meant delivering the freshest product, Heritage's managers decided the company should begin roasting its own beans.

Heritage bought a German roaster in 1983 and began roasting about 6,000 pounds of coffee beans a year. The business continued growing, and a year later the roasting and wholesale portion of the business moved out of the retail store to a 2,000-square-foot warehouse at Lemon Creek, about five miles north of downtown Juneau.

In 1985, the retail store moved into its present location on the first floor of the Emporium Mall and became Heritage Coffee Co. & Cafe. Initially selling mostly frozen pastries, the cafe soon expanded into homemade soups, sandwiches, croissants, scones, cheesecakes and muffins.

Now, Heritage has grown out of its cramped Lemon Creek warehouse as well. In March, the company moved its wholesale roasting operation and corporate offices into a newly remodeled 5,000-square-foot warehouse downtown near the Federal Building. A mezzanine increases actual space in the new warehouse by an additional 1,300 square feet, and a new roaster -- which weighs a ton and cost about $30,000 -- has doubled the production capacity.

Heritage also invested $21,000 in a sophisticated exhaust system called an after-burner, which eliminates much of the smoke and odor that roasting coffee produces. "We wanted to make sure we didn't bother anybody," Saunders says. "The new space gives us lots of available work area to do product research and test new machinery and equipment we might want to sell."

Last winter Heritage opened a second establishment, called Cafe Sport, in the Juneau Racquet Club, a Mendenhall Valley health club. Now Saunders is finalizing an agreement to sell the small cafe to the health club for in-house operation.

Today, Heritage Coffee employs 31 full-time and part-time workers during winter months and up to 36 in the summer for a total annual payroll of about $400,000. Saunders mostly handles the wholesale end of the business, while Phillips is responsible for day-to-day management and retail purchasing.

The roasting operation, run separately from the cafe, produces 35 different kinds of coffee, including flavored coffees and blends from around the world.

The company also distributes La Marzocco and Astoria espresso machines, as well as Bunn coffee makers, and repairs all types of coffee makers and espresso machines. Retail gift items have been scaled back somewhat in recent years to make room for the burgeoning cafe, although Heritage still carries a selection of mugs, cards, candies and T-shirts extolling the virtues of java.

In addition to the cafe, Heritage coffee is available in grocery stores throughout Southeast Alaska and statewide by mail order. Heritage maintains strict control over grocery store inventories. Coffee is delivered fresh twice weekly to the company's display cases. Also, in a separate visit to stores, stock is checked weekly and coffee more than two weeks old is taken off the shelves.

As a separate venture, Saunders also produces a coffee calendar, marketing it throughout the United States and Europe. Heritage Coffee Productions started producing the calendar in 1989, selling 16,000 copies.

In 1991, the number of calendars sold climbed to 27,000, Saunders says. The calendar's theme, naturally, revolves around coffee -- the countries it comes from and the process it must go through from plantation to cup.

Last summer's record-breaking number of tourists in Juneau convinced Saunders that Heritage Coffee Co.'s downtown cafe needed restructuring for better customer service. This winter, Heritage created an express line for espresso drinks only, while another customer line is devoted to people wanting a full meal.

"It's basically the constant evolution of better ways to serve the customer," notes Saunders. "It was extremely busy last summer. The totally full cruise ships caught us completely off guard."

While Heritage is a popular stopping point for tourists to the Capital City, it also is a favorite among locals -- from kids with funky haircuts to executives in business suits. "Juneau rates extremely sophisticated as coffee drinkers," Saunders says. "You'd be hard pressed to find a roaster in an isolated town this size anywhere else. We took a big chance when we bought our roaster and started roasting right when they were talking about the capital move."

The popularity of specialty coffees is catching on dramatically nationwide. About 10 years ago, the specialty coffee market represented a 7 percent to 8 percent segment; today, that figure is pushing 20 percent. "As that happens, the big boys, General Foods and such, will try to get into the market. But there are not large lots of excellent coffee they can buy," says Saunders, who serves on the board of directors of the Specialty Coffee Association of America, a trade organization for about 700 small coffee companies.

He explains that given the physical limitation of quality beans available for purchase, a small roaster has an advantage over its larger counterpart. "Freshness and the quality of the bean you roast are the two most important things," Saunders says.

He also points out, "Coffee and espresso drinks are becoming the drink of the '90s. People are drinking less alcohol and there is a social aspect of getting together at a cafe."

As testament to the increasing popularity of the aromatic brew, Heritage's downtown cafe saw a 20 percent growth in revenue from 1990 to 1991. The cafe initially served frozen cakes and pies but now bakes and prepares almost everything on the menu in its own kitchen. The cafe in February started deliveries of fresh baked goods to the downtown area, although an office coffee service has been available for years.

Saunders estimates overall revenues of both wholesale and retail operations have consistently increased by about 15 percent in each of the last five years. Although business is definitely going well, Saunders says coffee houses traditionally have narrow profit margins -- understandable when one considers coffee is sold for only $1 per cup. "Everything we make virtually goes right back into the business to continually grow," he adds.

The future of Heritage Coffee Co. may include a second location, perhaps a Lower 48 roasting facility for distribution throughout the Pacific Northwest (Saunders insists roasting and shipping from Juneau is not conducive to freshness and quality), and maybe a book about Saunders' extensive travels in the pursuit of good coffee. Says Saunders, "We'll just keep looking for new opportunities to improve the quality of our product and the quality of service."
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Author:Ripley, Kate
Publication:Alaska Business Monthly
Article Type:Company Profile
Date:Apr 1, 1992
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