THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Monday, November 4, 1996 TAG: 9611020173
SECTION: BUSINESS WEEKLY PAGE: 10 EDITION: FINAL
SOURCE: BY DEBBIE MESSINA, STAFF WRITER
LENGTH: 158 lines
John Nickerson could be called a coffee snob. He drinks gourmet coffees. He has his own espresso and cappuccino makers at home.
And of his daily four to six cups of java, he gets three from the Starbucks Coffee cafe inside the Virginia Beach Barnes & Noble bookstore a couple of blocks from home.
Nickerson can be found at ``his'' table at varying times of day. But always late at night for a steamy cup of joe just before closing. Helps him sleep, he says.
It's coffee aficionados like Nickerson whom the Starbucks Coffee Co. is targeting with its first free-standing retail outlet in Hampton Roads.
The nation's premiere retailer of specialty coffees, Starbucks will make its local debut at La Promenade shopping center on Laskin Road in Virginia Beach on Dec. 7.
Another three to five stores are planned for Hampton Roads within a year, said Ladd Wiidanen, Starbucks district manager. The next locations will be in Norfolk and Chesapeake, although sites have not yet been finalized.
``Hampton Roads makes sense for us,'' Wiidanen said. ``We typically look for an area that has an educated clientele and a certain level of sophistication.''
Starbucks coffee, like other West Coast speciality brews, is richer and darker than most East Coast coffees. Starbucks buys premium beans from Africa, Indonesia and Central America and roasts them dark to extract the most flavor.
That stronger taste, however, does not appeal to everyone.
``The East Coast taste is an American roast, which is lighter,'' said Tom Brockenbrough, vice president of First Colony Coffee & Tea Co. Inc., a Norfolk-based company that operates three coffee houses in the region. Most of First Colony's beans are lightly roasted, but some varieties are dark roast.
``You either love it or you don't,'' Brockenbrough said.
Starbucks believes there are ample discriminating palettes here. Enough to charge into the area with not one, but up to six stores.
``We have every confidence the Tidewater area is ready for us,'' Wiidanen said.
It's that kind of aggressiveness that has made Starbucks one of the hottest companies nationwide. For three years running, it's made Fortune Magazine's ``America's 100 Fastest Growing Companies'' list.
Starbucks - named after the coffee-loving first mate in the novel Moby Dick - is the leading retailer, roaster and brand of speciality coffee in North America, with 4 million customers and nearly 1,000 locations. Five years ago, it had 112 stores.
The company's goal is to more than double its outlets to 2,500 by 2000, Wiidanen said.
``I believe they may be the finest growth company in America,'' said Michael T. Moe, an analyst with Montgomery Securities in San Francisco. ``They opened 375 units last year. That's more than one a day.''
Starbuck's sales have grown more than 60 percent per year since 1989. In 1995, sales topped $465 million.
``They will be a billion dollar company in revenues by the end of 1997,'' Moe predicted. ``Four years ago, their goal was to be the premiere specialty coffee bar in America. They've done that. Now their goal is to be the premiere coffee brand in the world.''
Starbucks recently expanded to Japan.
``We're in the third chapter of a 20 chapter book,'' Moe said.
Consultant Tom Pirko, of Bevmark Inc. in New York, compares Starbucks' growth strategy to that of McDonalds, the giant of fast food.
``They want to penetrate and saturate the market,'' Pirko said. ``It's there. It's in your face. They're big enough to make a declarative statement, to create an awareness factor to keep the trend going.''
But Starbucks doesn't just maintain the trend, it creates it.
Typically when Starbucks enters a new market, it doesn't siphon much business away from other coffee houses. Instead, it spurs new java junkies and expands the coffee swilling market.
``What Starbucks has proven over and over again, when they go into a market, the market expands,'' Pirko said. ``People who aren't customers of other coffee bars try Starbucks. There's an excitement.''
With the introduction of Starbucks in an area, ``the game is raised a little,'' Pirko said. ``The better operators survive and the poorer operators have problems.''
Local coffee retailers embrace Starbucks entrance here.
``They've done a nice job of creating an awareness for coffee around the country,'' said First Colony's Brockenbrough. ``They bring more people into being coffee drinkers.''
Kimberly Marshall, manager of Rumley's Coffee & Tea Co. in Virginia Beach said: ``This is good for business. I think the trend for coffee is coming to the area anyway.''
Starbucks basically re-invented coffee for a generation of non-coffee drinkers.
Coffee houses appeal particularly to yuppies and college students who have turned on to caffeine instead of alcohol. They swill caffee lattes, mochas, cappuccinos and espressos instead of beer.
``It's very chi chi to go to coffee houses and drink these specialty and sexy drinks,'' Pirko said.
Coffee consumption in the United States has been slipping for the last three decades. The percentage of Americans who regularly drink coffee dipped below 50 percent in 1995, hitting a 30-year low at 47 percent, according to the National Coffee Association.
The association says the numbers are up this year, with 49 percent who regularly drink coffee.
The increase can be attributed in part to the popularity of specialty coffee, said Robert Nelson, president of the Coffee Association in New York. For instance, he said cappuccino consumption alone rose 41 percent during the same period.
So how is Starbucks so successful in a slumping industry?
``We're drinking less coffee, but we're drinking better, more expensive coffee,'' Moe said.
Plus, Starbucks is a marketing machine, introducing other coffee products like the world's best selling coffee ice cream in partnership with Dreyer's Grand Ice Cream; and a coffee-based soda called Mazagran in cooperation with the PepsiCola Co. whose only problem was keeping the West Coast test markets supplied; and it's own trademark icy Frappuccino coffee drink.
Another secret to the company's success is the way it treats its work force of mostly part-time employees, or partners as Starbucks calls them. Any employee who works over 20 hours a week receives full health-care benefits and stock options equal to 10 percent of their annual salaries.
Industry observers wonder how long Starbucks and other specialty coffee companies can sustain their remarkable momentum. And how much is too much?
There are an estimated 5,000 coffee bars in the United States and 1,000 of them are Starbucks. Seattle alone, the birthplace of Starbucks in 1971, has 500.
Still, that's a drop in the coffee cup compared to Italy's Milan, which boasts 1,500 coffee bars.
``There are 60,000 pizza places in the U.S. and 12,000 McDonalds,'' Moe said. ``This is a concept with long legs.'' ILLUSTRATION: [Cover, Color photo] by MARTIN SMITH-RODDEN
The Virginian-Pilot
[Color Photos]
MARTIN SMITH-RODDEN
The Virginian-Pilot
CLOSE
For now, the nearest free-standing Starbucks store is near Richmond
on the Midlothian Turnpike - a bit far for Hampton Roads coffee
drinkers to trek for a regular morning cup. Richmond-area resident
Kathrine Cassada, right, carries off her drink as Shane Lymun, left,
helps another customer. In Hampton Roads, Starbucks is served at the
Barnes & Noble bookstore in Virginia Beach.
CLOSER
Soon, local coffee fans will have a Starbucks-only store in the La
Promenade shopping center on Laskin Road in Virginia Beach. Site
superintendent Bret Smith of Brown Building Corp., left, works at
the store, which will open on Dec. 7. Several others are planned for
the area within the year.
Employee Shane Lyman, right, works the counter at the Starbucks on
the Midlothian Turnpike near Richmond for the locals during a
weekday morning.
Staff photo by MARTIN SMITH-RODDEN
Starbucks boosts all coffee sales when it establishes stores in an
area. by CNB