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What depression when there's D'Espresso?

Is there or is there not a significant downturn?

The question is this: Is the current economic climate impacting the specialty coffee business? The answer is that while many in the business can use their sales figures to detect some economic hard times, the specialty coffee business is weathering another economic storm with flying colors.

When asking about the economy's effect on the specialty business, however, the response is often, "Well, we're in a counter-cyclical industry, aren't we?" The answer to that is, "No, you are not. Recession-proof maybe, counter-cyclical, no way." Any idea that those in the specialty coffee business are actually benefitting from the current hard times is mistaken. Rather, it is impressive that the business is still so strong and it's likely that in a better economic environment things would be even better.

A number of West Coast specialty coffee retailers and wholesalers were informally asked about several specific areas of their business including whole bean sales, drinks, hard goods, gift baskets for personal and business use and for wholesalers, the areas of foodservice and private label. Sales to offices, a new and growing field for many specialty roasters, were also covered.

Rich or poor, specialty coffee is a luxury that, once tasted, is hard to give up. When made at home the per cup cost is never over 50 [cents] or so, even for the most expensive beans. People never need give up their morning cup made from freshly roasted, freshly ground beans. Indeed, retailers universally reported increases in bean sales over 1990. Seasonal sales of pricier coffees are also up.

The trend in coffee drinks is up and even during the winter months, iced coffee drinks on the West Coast continue to do well. The economy will never be so bad that many people will not be able to afford a quick espresso to go or a creamy, cold iced coffee.

Sales of hard goods, the capital investment sector of home coffee brewing, is one area that has seen a downturn according to some retailers. Others, who are known either for carrying leading edge equipment or deeply discounting, continue to do well. Others report decreases of as much as 20% versus last year. Some of this effect, however, may be due to many specialty retailers de-emphasizing hard goods as they find it more difficult to compete with widely proliferating club and discount stores.

Personal purchases of gift baskets have been up this holiday season as more people opt for the convenience of mass gift giving within a defined budget. Sales to businesses however, have been significantly off as many firms on the West Coast continue to cut back or close completely.

Foodservice, according to most West Coast specialty roasters is way down for the year and somewhat behind last year during the holiday season. Other foodservice vendors report slides of 35% or more in their sales during 1991. Further, many restaurants have cut back on their quality of coffee as a means of saving money during this slow business period. (We can't see cheapening the coffee as a good way to increase business.)

Following the lead in gift giving, businesses buying good coffee to serve in the office have also been cutting back to cheaper brands or going with more traditional OCS operators. (Conversely, however, in a separate observation, there has been increasing interest on the part of many OCS businesses on the West Coast wanting to carry better specialty lines of coffee.)

So, some indication of problems, but a mere sniffle compared to the bug the rest of the economy has caught. When the economy recovers most people interviewed felt that bean and drink sales will improve even more and that hard goods, corporate gift giving and all the other weak areas would recover strongly.

The Individual Businesses

Polly's Gourmet Coffee in Long Beach, with 16 years in the trade, is probably one of the first specialty coffee stores in the Southern California area. This longevity has lent some built in recession-proofing to the store, although owner Mike Sheldrake is instituting some changes. While whole bean and drink sales have increased, hardware sales have shown significant slowing.

According to Sheldrake, a significant factor in the lack of hardware sales is the slump department store businesses find themselves in in today's market. Electric departments of large chains are having sales almost everyday and undercutting the price on name brand espresso makers and coffee machines to attract a dwindling customer base.

It has become increasingly important for the small specialty business to recognize its place in hardware and accessory retailing; pioneering new lines and new ideas. When a product becomes established it is integral as Sheldrake puts it, "not to stay too long at the dance." A fine line emerges, San Francisco Bay Area, reports that sales of beans are way up and that even hard good sales for the holiday have increased. "We carry some machines that are difficult to find elsewhere and we sell everything at very competitive prices," noted Jim Reynolds of Peet's.

Reynolds added a more philosophical analysis also, "We're in the coffee business but we're also in the service business and Peet's is known for very good service. It seems that if you take care of your customers with great service, products and prices you have a lot of protection when the economy slows."

When asked if retailers were losing business to whole bean coffees sold in grocery stores Reynolds was unperturbed, "We're selling coffee for less than it costs in the grocery store, unlike many specialty coffee retailers, so we feel we're in a strong position."

Carlo Di Ruocco, owner of Mr. Espresso in Oakland, CA has not experienced any decline in his business, either, "Of course, we find that seasonally, people are less likely to buy espresso machines over the holiday season but November was a record month for both machines and coffee. Serving espresso and cappuccino is profitable business and many restaurants who are experiencing less overall sales find they can improve their totals by placing more emphasis on their espresso business."

Mr. Espresso sells a board range of espresso equipment and other machines imported from Italy in addition to roasting and wholesaling proprietary blends. Recently, according to Di Rusocco, Mr. Espresso introduced a line of stainless steel European-style coffee bins for retail. "We think the specialty coffee business will continue to grow and we plan to be part of that growth," Di Ruocco stated.

According to David Kobos of Kobos and Company in Portland, the recession hasn't had any effect on the specialty coffee business. They have, in fact, enjoyed a terrific Christmas season, with espresso machines selling in huge quantities. (Kobos began as a cookware store and maintains that element alongside, and as a complement to specialty coffee.) Kobos reasons that specialty coffee gifts resist depression because they represent not big luxuries but little indulgences.

"It is easy to get a first rate gift for someone and only spend $10.00 to $30.00. This makes our industry well positioned for good times as well as bad." Kobos also concludes that the Northwest has not suffered as severely as its southern neighbor, California. "Portland is well-entrenched in coffee culture and both retail and wholesale sales remain spectacular."

Coffee People, winner of the defined by offering enough to make the customer happy, yet keeping the dollars invested low. Polly's is reducing hard goods, especially the high-end items, and concentrating instead on creating a unique offering for the public.

See's Coffee, in Riverside California, reports that sales for 1991 and the Christmas season specifically were very strong. Gift baskets, viewed by many customers as an alternative to giving a bottle of wine or liquor, according to owner Lydia See, are up this year.

"We're just continuing along our normal growth projections and I don't see the current economy changing that," See explained, "All areas of our business are strong, if we're benefitting a little from the ecomony it's because a pound of freshly roasted beans is always an inexpensive and appropriate gift." See's Coffee also operates a cafe as part of the retail operation and sales in that area are also up.

Linda Nederman-Mountanos, owner of The Coffee Critic in San Mateo and Burlingame, has found that in a recession, coffee seems to do well. Her sales provide the necessary proof; take-out business has increased over 25%, and whole bean business as well as sit-down business are continuing to experience growth.

According to Nederman-Mountanos, the resiliency of specialty coffee in a recession is due to its accessibility as a specialty item. "Our coffee and our service continues to meet the highest possible standards, yet we're not too expensive."

Testimony to that affordability is the continuing strength of their corporate (OCS) accounts, as opposed to what some in the trade are finding. While she has lost a couple of these accounts, most of her office coffee business continues and provides a significant addition to overall sales. Like Polly's, hardware sales are the only area of slowing for The Coffee Critic, a phenomenon combated by offering unique items as opposed to name brands. Mugs are always a big business, but higher end items such as Alessi French Presses also remain fast movers.

Peet's Coffee & Tea, which operates 10 stores in the Portland Cup for Portland's best coffee, is enjoying a much better holiday sales season. Last year, it seems, was the year of No Christmas. While bar traffic and hardware have increased, it is the whole bean and gift pack categories that have shown the truly significant growth. Coffee People introduced five different gift boxes this year bearing humorous names such as "Espresso Maniac" and the "Velvet Hammer Kit," filled with coffee and assorted gift items.

Owner Patty Roberts states that marketing strategies such as the gift baskets and publicity from the Portland Cup contest account for some of the continued growth, but also feels that specialty coffee is by its nature resistant to recession markets. "It is a luxury that is still affordable. With coffee, consumers can still treat themselves to something special."

Caravali Coffees, Ltd.'s Tim McCormack takes a similar view to others interviewed and feels strongly that specialty coffee is a strong sector in a weak economy.

"Most people who get to know good coffee can't go back. We're trying to keep our prices especially low because we're aware that people are feeling very conservative this season. But specialty coffee is definitely not a counter-cyclical product, we'd all be doing even better in a strong economy."

Caravali's business, based in Seattle, is in whole bean wholesale and private label and is doing very well, showing consistent increases over the last several years.

Starbucks Coffee Company, also based in Seattle, while not interviewed for this article, continues to show strong growth. Stores in the recently entered Los Angeles market are doing very well and some are scheduled for remodelling and/or expansion, it is rumored, due to unexpectedly high traffic.
COPYRIGHT 1992 Lockwood Trade Journal Co., Inc.
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:economic conditions are not affecting West Coast specialty coffee business
Author:Castle, Tim
Publication:Tea & Coffee Trade Journal
Date:Jan 1, 1992
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