Looking to benefit from Starbucks’ tribulations, smaller specialty coffee chains are continuing to grow unit counts and sales by making their offerings more convenient and improving their value perceptions.
National and regional players such as Caribou Coffee, Coffee Bean & Tea Leaf, Coffee Beanery, Biggby Coffee and Dunn Bros. Coffee Franchising are unveiling a variety of strategies designed to lure business despite the economic downturn, including more drive-thru and nontraditional units as well as bundled offerings. Many also are scouting some of the 600 units to be vacated by Seattle-based Starbucks.
Officials at the 92-unit Dunn Bros. chain do not believe that the specialty coffee segment is starting to decline, as some have suggested, said Lindsay Vergin, spokeswoman for the Minneapolis-based company. Rather, the chain’s leaders speculate that there is an evolution toward more artisan-made coffees as bigger shops with more automation and less community involvement run into trouble.
“People are interested in locally owned and roasted coffees,” Vergin said. “We roast coffee beans in each traditional location, and all our coffee served has been roasted within the past three days.”
Eight more stores are slated to open this fall, following the openings of five stores earlier this year.
“We are focused on controlled growth and looking for franchisees that really fit our business model,” Vergin said.
For that reason, the chain is opening five fewer stores this year than last year. All but one are franchised.
Dunn Bros. plans to look into possible conversions of closed Starbucks units. Meanwhile, the company has noticed a slight shift away from the largest-size lattes and other specialty coffees in the $4.85 price range to more medium- and small-size drinks, Vergin said.
Caribou Coffee, the much larger Minneapolis-based coffee-house, ranked as the segment’s No. 2 brand with 490 locations, is expected to step up its growth pace since appointing industry veteran Michael Tattersfield chief executive earlier this month. The former Yum! Brands Inc. executive told Nation’s Restaurant News that the company is focused on “profitable growth and growing the brand, building on momentum that is already here.”
However, Caribou reported a net loss of $2.4 million for the second quarter ended June 29. That loss was an improvement from a net loss of $3.9 million in the year-earlier quarter. The chain blamed a good portion of the most recent loss on a charge of $1.3 million in closing costs related to the shuttering of six underperforming company stores.
With just 75 of its coffeehouses franchised, Caribou is embarking on a franchise push that includes its relatively new strategy of building drive-thrus in select suburban locations. Although store sizes vary, most contain common elements of a North Woods theme, complete with small fireplaces, knotty pine wall paneling, and photographs of elk, moose and backpackers. Most also provide lounge areas with “kids’ corners” and free wireless Internet connections.
Tattersfield declined to discuss specific goals, but said he accepted the CEO position because of Caribou’s “high-quality coffee, coffee-house experience, connectivity with employees and potential to be a well-differentiated brand.”
Tattersfield also said he admires Caribou’s “unique” culture.
Coffee Beanery, based in Flushing, Mich., expects to have 14 new domestic stores opened this year, including four in Walmart stores and four in airports. Currently, the chain has 91 units open in the United States and 26 internationally.
As it scouts new locations, Coffee Beanery plans to look at some of the vacated Starbucks sites as possibilities for existing franchisees, said spokesman Bob Ashley.
“Most of them are newer locations,” he said, “and some are really good locations,” especially in Michigan.
Most of the new stand-alone units have drive-thrus, a fairly new amenity for Coffee Beanery. Sales in those drive-thrus range from 30 percent to 50 percent of total sales, Ashley noted.
The chain has stepped up the bundling of items in its cafes, which offer sandwiches, soups, salads and pastries. Coffee Beanery also promotes daily specials through its new frequent-diner e-mail clubs.
Coffee Bean & Tea Leaf, which will celebrate its 45th anniversary in September, has 295 domestic units, of which 102 are franchised. The El Segundo, Calif.-based chain would not specify the number of new openings planned.
“The Coffee Bean & Tea Leaf remains committed to strategic growth in key locations,” spokes-woman Liz Murphy said in a statement. “The company does not believe in saturating the market with stores on every corner.”
Acknowledging the pending Starbucks store closings in some of the chain’s markets, Murphy reported that there are plans to introduce the Coffee Bean & Tea Leaf brand to former Starbucks’ customers.
The chain, which raised prices a year ago to cover increased dairy and labor costs, uses coupons to attract both new and existing customers and to support product launches, store openings and other regional marketing campaigns.
“We have no immediate plans to raise prices again at present,” Murphy said. “However, this could change if green coffee and other commodities’ prices continue to climb.”
Biggby, a 100-unit specialty coffee chain based in East Lansing, Mich., is on track with plans to open 22 new units this year, said president Michael McFall. Eight to 12 stores still need to be opened to reach that goal. Although revenue is up 49 percent year-to-date, same-store sales have fallen slightly, a fact that Mc-Fall blames on “cannibalization” of existing stores by newer stores opened in close proximity.
The economy also has been a factor in lagging sales, McFall said, but has not caused any change in the brand’s normal practice of not offering value pricing or discounting.
“We have no need to do that,” McFall said, adding that the average beverage order is $3.25. “Our customers are not extraordinarily price-sensitive. If they are buying a latte, they want the best one.”
He added that he expects those stores located near several closing Starbucks units to benefit from those closures.
“We should be able to win those customers over,” he said. “Our prices are competitive.”
