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Super market for specialty coffee.

Super market for specialty coffee

No one who's been in the coffee business during the past decade needs to be reminded of the tremendous success that specialty coffee roasters and retailers have enjoyed. Their astronomical growth in recent years, especially in metropolitan areas on both coasts, has been well documented in the annals of the trade. The Coffee Development Group estimates that there are approximately 10,000 specialty coffee stores in the U.S., and that this number is growing at a rapid pace each year. One gourmet trade publication recently announced that sales of whole bean coffee continue to climb about 30 percent annually, while consumption of regular, preground coffee continues to decline.

So what's the catch? Well, in fact there is no catch, but there is one important new statistic that may have dramatic implications for this specialty segment of the trade as it plans for the 90's and beyond. As one gourmet trade journal put it, 60 percent of all whole bean specialty coffee bought in the U.S. is purchased in supermarkets. It is also interesting to note that spokespersons for these companies were in many cases reluctant to discuss their operations or plans for the future regarding whole bean coffee. This statistic may have particular significance for those geographic markets in the U.S. that have been less receptive, shall we say, to the small retailer of whole bean coffees. Without a doubt, this is a relatively undeveloped area at the moment and yet one that shows great potential. As one interviewee commented, "We've got an edge. Why give it away?"

Take the example of America's Coffee Cup, a chain of whole bean coffee outlets that has opened up counters inside 10 Ralph's supermarkets in San Diego, Orange and Los Angeles Counties within the past 18 months. America's Cup coffees are roasted elsewhere and brought to the participating Ralph's locations where they are displayed in bins. Though they currently have no plans to increase the number of these outlets, Terry Peets, director of merchandising at Ralph's, says America's Coffee Cup has "established a niche and a following." Yet he maintains that the success of America's Coffee Cup at Ralph's depends on several factors, most importantly the demography of an area, and that the sales of whole bean coffees in certain supermarkets by no means signals the beginning of the end for canned coffee.

Don Francisco gourmet whole bean coffees, from F. Gavina & Sons based in Vernon, Calif., have been sold in supermarkets throughout Southern California since 1984. They have established themselves in supermarkets from San Diego, to San Luis Obispo, to as far East as Las Vegas. Leonor Gavina-Valls, director of marketing, estimates that sales of Don Francisco coffees have increased between 15 and 25 percent annually per store. F. Gavina & Sons supports its presence in supermarkets with in-store sampling and/or coupons, depending on the location.

Ms. Gavina-Valls points out that five of the more than 20 varieties of their Don Francisco gourmet coffees make up almost 80 percent of their total sales in supermarkets. F. Gavina & Sons currently sells gourmet coffees in valve packaging in Hughes, Gelsons, Lucky's, Stater Brothers, Alpha Beta, Mayfair, and several independent supermarkets. She believes that the largest coffee companies will follow the lead of the specialty coffee industry, as Yuban has done with its introduction of valve-packaged whole bean coffee. However, she does not believe they can compete with the likes of Don Francisco gourmet coffee or other specialty coffees in terms of freshness and quality. We agree. Yuban and the other big coffee companies can mimick the specialty trade by selling whole bean coffees in similar packaging, but that is unlikely to change the fact that such big companies will always find it much more difficult to get freshly roasted, high quality beans to market.

In addition to America's Coffee Cup and Don Francisco, there is still further evidence to suggest that supermarket gourmet coffee is fast becoming just that, a "super market" for the specialty coffee trade. We can look at the unprecedented growth of one company that has focused on this particular venue exclusively, Millstone Coffee based in Everett, Washington, as a barometer for the segment's potential. What we find is that the supermarket is indeed becoming one of the most hotly contested arenas in the trade for the 90's.

Begun in 1981 by Phil Johnson, president of Millstone, the company has seen growth of between 40 and 60 percent every year. Since that time, Millstone has acquired several other very lucrative feathers in its cap. First of all, it now sells more coffee in the Northwest than any other brand. This claim is supported by data collected directly from supermarket scanners. According to Johnson, Millstone is also "one of the very few regional roasters attempting national distribution." From C.J. Jordon, advertising director for Millstone, we learned that the company now sells its coffees in supermarkets in 30 states of the Union. As she put it, "Its geographic distribution would look something like a thick band running diagonally across the country from Washington State down to Miami, Florida." They currently have a presence in 3,000 supermarkets nationwide, with an average of 14 varieties of coffee in each location that retail for an average of $5.99 per pound. Their coffees are presented in bulk, self-serve bins.

With statistics like these, one may wonder what separates Millstone from the "big players" such as Maxwell House, Folgers, Yuban etc? Although they have been tremendously successful, Johnson notes that they are still quite small in comparison to the likes of the big coffee companies. And, of course, marketing strategies are quite different. Johnson contends that while they now service markets across the country, they have not forgotten what made them successful in the first place: freshness, quality, small batch roasting. These factors are essential to their product as well as their marketing strategies, though he declined to be more specific regarding those strategies.

Millstone presently roasts all its coffee in Everett, Washington, and then transports that coffee in Millstone's own fleet of long-haul semi's to their eight major regional centers or branch offices. They provide each location with "D.S.D." or direct store delivery service using Millstone route trucks anywhere from one to four times a week depending on the volume of coffee sold. We have learned, however, that they plan to open another roasting plant somewhere in the Midwest in 1990 so as to better serve their far-flung markets. That location, we are told, has not yet been finalized.

Though they have plans to penetrate new markets, Johnson also declined to name those markets. Until now, Millstone has left its home in the Northwest only to venture into markets in which the whole bean coffee market is less developed. This seems to have been both blessing and curse. Competition has perhaps been less fierce in the specialty coffee segment, but then so has consumer demand. Clearly, they have shyed away from California and the Northeast. Though they would not comment on the direction of their future geographic expansion, we suspect that they will not be able to resist these well-developed specialty coffee markets for long.

Together with Ralph's America's Coffee Cup, Vons' introduction of its own line of whole bean coffee under the house of "Royal Request" this past November gives some sense of the dynamism of the market for gourmet coffee in supermarket chains throughout Southern California. Vickie Sanders, spokesperson for Vons, noted that there has also been a tremendous increase in the shelf space alotted to whole bean coffee in the past few years.

Royal Request 100% whole bean Arabica coffees are produced by Sark's exclusively for Vons. The line currently retails for over $6 per 12 oz. resealable bag. Each bag lists a date by which the coffee should be consumed. Coffees roasted in October '89 and available in Vons stores by November '89 showed expiration dates of July 1990. Royal Request coffee, available in the regular Vons markets, complements the existing Coffee Corner whole bean outlets that offer gourmet coffees in Vons' upscale Pavillon markets.

How has the consumer responded to Royal Request? "For a relatively new product, without a brand name, the coffees have been very, very popular," says Sanders.

What coffees can one expect to see on supermarket shelves in California, the Northwest, and in towns and cities in parts due East? Look for continued growth and innovation in the whole bean category along the entire West Coast and increasingly in other areas across the country. Especially in these less developed markets for specialty coffee, we expect to see the supermarket become one of the leading venues for sales of specialty coffee.
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Title Annotation:specialty coffees purchased at supermarkets
Author:Castle, Timothy
Publication:Tea & Coffee Trade Journal
Date:Jan 1, 1990
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