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Profile: two volume movers in supermarket distribution.

Rush to work, rush to the supermarket, and rush home. The weekend may slow down enough to allow a jaunt to a favorite cafe to sit and linger over a cup of coffee, but during the work week, that type of enjoyable activity is a maybe at best.

Given the "rush" mindset of most people, where are all these gourmet coffee drinkers getting their beans? Sandwiched in between work and home, a critical locale for everyday existence is the supermarket and through this channel, high volume amounts of gourmet coffee are moved daily.

Gourmet coffee has been available in supermarkets for almost two decades. According to the SCAA's market study, "Avenue For Growth: A 20-Year Review of the U.S. Specialty Coffee Market," gourmet coffee began expanding onto the shelves of supermarkets in affluent neighborhoods in the early 1970's. At that time, the amount of shelf space devoted to gourmet coffee was very small, but the generous margins brought in the same revenue that a larger selection of "regular" coffee would. By generating large profits in a small location, gourmet coffee found a home on supermarket shelves. In this earlier time, before high tech packaging insured freshness, just because a gourmet coffee was available, didn't mean that it was any good. Most of the coffees were prepackaged in tintie, glassine-lined paper bags and has a limited shelf life. Let's face facts, most of the time it was stale. That was then and this is now, and gourmet coffees in supermarkets now are entirely different than they were then.

Gourmet poundage through supermarket distribution channels has grown since it first ventured into this area in the 1970's. Now, gourmet sales in supermarkets represents the bulk of all gourmet coffee sold. Conservative industry studies put overall gourmet coffee sales at 50% through supermarkets and some go as high as 70% but regardless of what studies are used, one absolute fact cannot be questioned, supermarkets move a lot of gourmet coffee.

Are gourmet coffees sold in supermarkets really "gourmet" or are they really premium coffees that happen to be 100% Arabica? Even if the coffee can be considered gourmet, can it really be fresh? Even if the coffee is fresh, is it offered in variety? Millstone Coffee, Inc., and Gourmet Coffees of America, Inc., two of the largest movers of gourmet coffees through supermarkets, would argue that their large varieties of gourmet coffees are among the finest and freshest available regardless of distribution channel.

Millstone's president and founder is Phil Johnson and in 1981, when he began Millstone Coffee, Inc. in Everett, Washington, whole bean gourmet coffee represented only me percent of the total coffee market. Johnson's strategy was to roast and distribute fresh, whole bean, gourmet coffee to supermarkets, provide a quality product, locate the product in a convenient setting, and price the product at a value to the customer.

The strategy paid off and the company expanded nationally in 1987 and now distributes 70 varieties of beans in 44 states. Millstone has roasting plants in Everett, Washington, and Henderson, Kentucky and operates its own fleet of truck, which deliver fresh-roasted coffee to supermarkets across the country from additional distribution centers nationwide. According to company information, in 1991, annual sales for the company topped $40 million, have grown 30 to 80% every year since 1981, and show no signs of leveling off. Millstone is the No. 1 selling supermarket whole bean coffee in the U.S., and the No. 1 selling coffee in all categories in the Pacific Northwest.

C-J Nielson, Millstone's director of marketing, says that a critical component to their success is a DSD distribution system (Direct Store Delivery). A more common term for this type of distribution is the route system.

Millstone employees deliver fresh roasted coffee, merchandises the products, and straightens stocks, making sure bulk bean dispensers are maintained. Coffee freshness can be determined by checking for its delivery date via a handheld computer.

Although Millstone surveys a market to determine the product mix in a given location; a according to Nielsen, "There is no science to the palate. Taste (in coffee) is regional and can be different even within the same neighborhood." Millstone's DSD employee's commission is tied into the store's volume and it is their responsibility to monitor the quality and freshness and adjust the product mix accordingly from 70 selections.

Although Nielsen says that flavored coffees are big sellers in some areas, she sees movement toward an appreciation of traditional gourmets. To this end, Millstone has just introduced Estate Selections, a line of four varietals from some of the finest Central and South American coffee estates, and exclusive to Millstone.

In addition to bulk dispensers, Millstone has whole bean coffee available in 12 ounce valve bags and ground coffee in 1.75 ounce "Coffee Pot" singles. Where volume does not warrant bulk dispensers, the valve bags allow a variety of products in a small amount of space.

Millstone recommends that stores places their gourmet coffee area in the that this close proximity to the cheaper commercial brands effects the consumer's purchase decision, gourmet coffee drinkers appreciate taste and this becomes more important than cost.' The company does believe that sampling helps stimulate sales and this too is handled by Millstone employee. Over 400 people work part-time for Millstone, sampling the products in-store.

A company that Millstone will be battling with for market share in 1993 is Gourmet Coffees of America (GCA), headquartered in Boca Raton, Florida. GCA was formed in December, 1992, with the merger of Dennis and Sam Boyer's Brothers Gourmet Coffees of Denver, Colorado and Michael Chu's Specialty Coffee Holdings of Bow, New Hampshire, which had purchased Nicholas Coffee Co. in 1990 and Elkin Coffee Co. in 1991.

GCA hit the ground running in January 1993 with three manufacturing, sales, and distribution facilities located in Denver, Bow, and Pittsburg, Pennsylvania, representing four brands and including 130 varieties of gourmet coffee. It also represented an enormous chunk amount of presence in the industry. Talk about a new player on the field!

To achieve this goal had been a company objective for Micheal Chu, chairman of the board of GCA, since 1988 when he first developed his strategy of building the leading gourmet coffee roaster in the U.S. According to Dennis Boyer, president and ceo of GCA, since Gourmet Coffees of America was formed in December, 1992, it has become the "largest purveyor of gourmet coffees in America within grocery store chains, particularly whole bean." One of GCA's three supermarket brands, Brothers, Nicholas, and Elkin's Cafe Du Jour, is sold in more than 6,500 locations nationwide. (GCA's fourth brand, Fairwinds, offers specialty coffee products to the specialty store trade).

A key to the company's success is that, according to company information, it offers retailers the opportunity to create a "gourmet shop within a grocery store" by developing coffee programs which range form whole bean coffee bins to latte by the cup served at full-service espresso carts.

Although its sheer size makes GCA a major gourmet player, it is not a position that they take for granted. Boyer is not content to rely on industry experts who say gourmet coffee's sales growth has not yet leveled off, "We are pursuing the market now while the momentum is there although all indications are that sales will not level off anytime soon."

Asked if the sales of traditional, dark-roasted, flavored, and decaffeinated gourmet coffee vary regionally, Boyer replied "Yes and No. Yes, there are regional differences, but No, not in a way to drastically change the product mix." Dark roasted coffees may predominate a product mix more in the northwest and San Francisco areas than in other areas of the country. According to Boyer, within the flavored category, Amaretto and Irish Cream sells better in the East, and Swiss Mocha Almond, Hazelnut, and French Vanilla sell better in the West.

GCA's products are available in whole bean and ground. Whole bean coffee is packaged in 8 oz and 12 oz nitrogen flushed polyfirm bags. Bulk coffees for whole bean dispensers is packaged and sold in 5 pound bags. Ground coffee is available in 12, 13, and 26 oz. cans, 1.75 and 2 oz one pot trial size and Singlebrew[TM] coffee bags.

According to Boyer, "Freshness is quaranteed because the company follows a JIT manufacturing and inventory system." The JIT system (Just In Time) readies product for the stories just in time before they run out, a system of route people and food brokers distribute the product to the stores quickly, and valve bags keep the products fresh. But the most important component in products freshness is profiling the store before the product goes in so they know what the consumers will buy.

Although most of the company's volume is generated by whole bean sales, Boyer says that their preground, canned coffee has been very successful, especially flavored. Top sellers in that category are (1) Hazelnut, (2) Swiss Mocha Almond, (3) French Vanilla, (4) Irish Cream, and (5) Cappuccino.

GCA has a varied gourmet coffee product line from single serve to canned but Boyer feels that whole bean gourmet coffee in a bin is a "basic part of the industry that I don't see changing." He goes on to add that from bulk dispensers, people can control their selection of coffee. Like a wine grower who selects the best grapes for the wine, coffee connoisseurs can select and blend the coffees that appeal to their palate.

Gourmet coffee areas conveniently located within a supermarket, offering selection of fresh, high quality, gourmet coffees at a price that is a value to the customer. Cafes adjacent to the gourmet coffee area offering a sample of the retail gourmet coffee products, as well as a menu of espresso drinks, brewed coffees, and cold coffee refreshers - a coffee lovers dream, fast becoming a reality in the 1990's.
COPYRIGHT 1993 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Grounds for Discussion
Author:Sturdivant, Shea
Publication:Tea & Coffee Trade Journal
Article Type:Column
Date:May 1, 1993
Previous Article:In search of the 21st Century: brewer.
Next Article:Where there's smoke, there's fire.

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