Beantown
Coffee Wars:
Foreign powers and local yokels battle it out for your Java
dollah, (er dollar)
December
1999
You wouldn't think selling
a cup of coffee for $1.50 would amount to big business. But
a beverage blitzkreig is underway in Boston, with local shops
and consumers under siege from large domestic and foreign coffee
powerhouses seeking to broaden their distribution channels,
and "brew" up more sales.
On
any given corner in Boston's financial district your average
cup-a-joe sippin' fool is bombarded with choices-Starbucks,
Bewleys (Rebecca's), Dunkin' Donuts and Au Bon Pain, not to
mention smaller players such as Bruegger's Bagels and Souper
Salads. Since Americans consume more than 300 million cups
of hot coffee on an average winter day, it's no wonder blustery
Boston is being fought over in the biggest beverage battle
since the Boston Tea Party!
Irish
Invasion
You'd
think the last people on earth to make a push for a share
of the coffee market in Boston would be the tea-loving Irish.
But, alas lad-you'd be wrong. The boys at the Campbell Bewley
Group across the Atlantic in Dublin are very serious about
making their Bewley's brand as well known a name in Beantown
as it is back in their native Eire.
The
Campbell Bewley group, which sells coffee under the brand
name of Bewley's, is the largest coffee retailer in Ireland
and the U.K. Bewley's made its push into the Boston market
in January of 1998 when it purchased the local Rebecca's eateries,
a small chain of 15 shops doing approximately $17 million
in sales.
While
you would think the main reason a company would acquire a
luncheon eatery would be to sell sandwiches, Bewley's was
more interested in using Rebecca's as its beachhead for building
the Bewley's coffee business in America. Take a close look-most
Rebecca's stores are lined with shelves loaded with Bewley's
coffees and teas.
Just
as the Beatles saw America as the big Rock and Roll Music
"pond", Bewley's sees America as a giant coffee
frontier. According to Michael McAdam, the managing director
for Bewley's U.S. operations, the U.S. offers a much larger
market, and not just because of size. "In the Ireland
and the U.K., tea is the dominant beverage. The ratio of coffee
to tea drinkers is 50/50. Here in the U.S. it's 90/10,"
McAdam explains.
From
Dublin to London, Bewley's is serious business. The privately-held
firm does almost $300 million in sales annually, and controls
69% of the coffee servings in restaurants, pubs and cafes.
According to McAdam, Bewley's is ubiquitous in Ireland: "Asking
people back home if they know Bewley's is like asking if they
know Guinness. Bewley's has the 2nd highest brand awareness
in Ireland after Guinness."
And
to show just how serious these folks are, they conducted taste-testing
market research before introducing a Bewley's java blend just
for Boston. According to McAdam, Bewley's went after a taste
appealing to the medium palette, "Some people call Starbucks
'Charbucks' because of its bitter taste. Then there's Dunkin'
Donuts, which is watery. We wanted to be right in the middle."
According
to McAdam, the blind taste-tests his firm conducted revealed
that Boston coffee drinkers prefer the Bewley's blend. "Our
coffee is strong, smooth and full-flavored. It's different
because it's an African Arabica bean-a mix of Rwandan, Kenyan
and West African," McAdam notes.
But
those African coffee beans don't come straight to Boston.
Bewley's special "Hub blend" is roasted in Dublin,
and shipped over every two months.
As
long as Bewley's doesn't create a special tax for its coffee,
they probably won't have to worry about frustrated Bostonians
dressing up as Indians and boarding their ship.
What
happened to Au Bon Pain?
Remember
that Au Bon Pain at the corner of High and Federal? It's no
longer there. Remember that publicly traded company with the
NASDAQ symbol ABPCA? Why, it's no longer there either.
Don't
fret. Au Bon Pain, the coffee seller and eatery with the name
that everyone pronounces differently, is alive and well. It
simply has different owners and a new market focus.
Founded
in 1981 by Louis Kane and Ron Shaich, Au Bon Pain made an
early 1990's foray into ubiquity, putting Au Bon Pains, large
and small, on virtually every street corner in downtown Boston.
However, sluggish sales at some stores, as well as diverging
interests among management, prompted a sale of the chain to
BRS, Inc., a New York based investment group which also owns
the California Pizza Kitchen.
Meanwhile,
co-founder Ron Shaich, more beholden with bread than coffee,
left the company to run St. Louis Bread, a chain of bakery/cafes.
Originally an Au Bon Pain concept store, Saint Louis Bread
was renamed Panera Bread (NASDAQ - PNRA) and is run by Shaich
from-of all places-St. Louis, Missouri. Louis Kane is still
the Chairman of South Boston headquartered Au Bon Pain.
While
owners have changed, Au Bon Pain's main coffee bean is still
grown in Costa Rica at the "La Minita Hacienda"
plantation. Au Bon Pain currently operates 50 stores in the
Boston metro area, and 200 more throughout the country as
well as internationally.
Roasters,
however, have changed. Going back 10 years ago, Au Bon Pain's
coffee was roasted by the Coffee Connection until the chain
was sold to Starbucks. Au Bon Pain then switched to California
based Peet's, who happily roasted for a few years. But, then
Peet's decided they wanted to compete with Au Bon Pain in
the Boston market (see Tale of Two Coffees), so Au Bon Pain
dropped Peet's (like a bad cup of joe), and now has their
coffee roasted in Texas by Distant Lands, Inc.
According
to Sila Cansever, VP of Sales Growth and Customer Experience
at Au Bon Pain, all the changes in roasters hasn't impacted
coffee quality. "We still source a very high quality
coffee. We've been buying from the same plantations for 10
years and the bean is roasted to our specifications."
Coffee
King
People
may complain about new Starbucks stores popping up all over
Greater Boston, but Seattle, WA based Starbucks (NASDAQ -
SBUX) is actually dwarfed in the number of Boston metro stores
by the Quincy, MA original: Dunkin' Donuts. Starbucks, curiously
the only coffee shop where a "Tall" is actually
a small serving, has 70 stores throughout Massachusetts. Dunkin'
Donuts, however, has more than 100 stores in Greater Boston
alone.
Dunkin'
Donuts, which was founded in 1950 and sold in 1990 to Allied
Domeq (OTC - ALDCY), has over 3,500 locations in the United
States. London based Allied Domecq is a consumer gorilla.
The $7 billion company is the world's #2 distiller with brands
such as Beefeater, Ballantine's, Courvoisier and Kahlua. Allied
Domecq's retail operations include Baskin-Robbins, Dunkin'
Donuts and Togo's Eateries.
Dunkin'
Donuts Coffee Facts
(courtesy
of Dunkin' Donuts)
Dunkin'
Donuts serves 650 million cups of coffee per year, or approximately
1.8 million cups a day.
On
a typical day, Dunkin' Donuts serves as many cups of coffee
as the Wall Street Journal sells newspapers.
It
is estimated that since the first cup was sold in 1950, Dunkin'
Donuts has sold over 20 billion cups of coffee.
Tale
of Two Coffees
If
you're still drinking Maxwell House instant coffee (made from
mild-mannered robusta beans), you've missed out on a thirty-year
"gourmet" coffee trend. In 1966, Alfred Peet, a
Dutch coffee-phile, founded in Berkeley, CA one of the first
U.S. coffee shops retailing fine, dark-roasted arabica beans
from all over the world. San Francisco Bay area native Jerry
Baldwin was a frequent Peet's customer, who after moving to
Seattle, opened his own coffee shop named Starbucks.
An
enterprising New Yorker named Howard Schulz, stumbled across
Starbucks in 1981, and was immediately romanced by the strong
coffee. Leaving his native New York, Schulz moved to Seattle
to work for Starbucks. Schulz soon developed the idea of turning
the mostly whole-bean selling Starbucks into a national chain
of Italian like espresso bars, selling coffees by the cup.
Jerry
Baldwin thought that was a bad idea for Starbucks, so Schulz
went out and started his own espresso chain Il Giornale. Baldwin
meanwhile purchased Peet's coffee in 1984, operating the companies
separately. Then, in another curious twist of fate, Baldwin
decided to sell the six-store Starbucks chain in 1987 and
run Peet's exclusively. Schulz jumped at the opportunity to
purchase Starbucks, dropped the Il Giornale name, and built
Starbucks into a 2,100 store, $1.3 billion dollar company.
Jerry
Baldwin apparently has finally realized that a national chain
of high-quality coffee shops isn't such a bad idea after all,
and has expanded Peet's Coffees and Teas to 49 stores. Two recently
opened in Brookline and Lexington, MA, and two more are slated
for Harvard Square and Newton Centre. 
(source
Pour Your Heart Out, Howard Schulz)
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