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Originally published August 20, 2008 at 12:00 AM | Page modified August 20, 2008 at 2:15 PM

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Starbucks no longer gives small coffee shops the jitters

Unlike independents going up against a big retailer like Wal-Mart, other coffeehouses often thrive when Starbucks is nearby. While they respect much of what Starbucks has done — notably, opening more than 11,000 stores nationwide that bring espresso and lattes to the masses — they have learned not to fear it.

Seattle Times business reporter

Jack Kelly remembers when independent coffee shops in Seattle feared Starbucks.

In the late 1980s, "you certainly didn't want a Starbucks opening across the street," said Kelly, who co-owned Uptown Espresso back then. "We didn't realize how many coffee drinkers there were and how big this thing was going to get."

By 1994, Kelly grasped the enormity of the coffee scene and brazenly opened his first Caffe Ladro near Starbucks atop Queen Anne Hill. They continue to duke it out for customers, along with nearby Tully's Coffee and Peet's Coffee & Tea. None of the four releases single-store sales figures.

On Capitol Hill, Starbucks was not so lucky. Its store at 328 15th Ave. E. will close by the end of March, one of 616 closures nationwide as the struggling coffee-shop chain tries to boost profits.

Kelly doesn't kid himself that the 15th Avenue Caffe Ladro or nearby Victrola Coffee and Art had much to do with it.

"Starbucks stores are always the busiest," Kelly said. "A lot of people know Caffe Ladro, but it pales in comparison, even in Seattle."

That's not to say Starbucks has better coffee, he said. "They're the McDonald's of coffee in Seattle. They're convenient and everybody knows what they're going to get."

Backhanded compliment

It's a backhanded compliment paid by independent coffee-shop owners around the country. While they respect much of what Starbucks has done — notably, opening more than 11,000 stores nationwide that bring espresso and lattes to the masses — they have learned not to fear it.

These small, nimble competitors don't struggle with the high overhead costs and glaring global scrutiny that besets Starbucks. Unlike independents up against a big retailer like Wal-Mart, they often thrive when Starbucks is nearby.

Collectively, independent and small-chain coffeehouses have the largest share of coffee and doughnut sales in the U.S., with 34 percent of the market in 2006, according to a new report from the Chicago research firm Mintel. Starbucks has the next largest share at 29 percent.

"When you talk to all the detractors whose critique is that Starbucks ruined the culture of coffeehouses, you'd get the impression there were all these coffeehouses and then Starbucks came in and destroyed them," said Kim Fellner, a longtime national labor and community organizer whose book "Wrestling with Starbucks: Conscience, Capital, Cappuccino" came out last month.

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While there are some examples of Starbucks putting independents out of business, she said, "you find far more where people who look at Starbucks and say, 'They're being successful. I could be, too.' "

The popularity of Starbucks has helped spread coffeehouse culture beyond university communities and Italian neighborhoods, Fellner said.

Seattle can claim some credit, too, having birthed both Starbucks and a robust independent coffee-shop industry that continues to grow.

One of the newest is Fuel Coffee, a chain of three shops that began in 2005. The Fuel in Wallingford opened last spring and is a quarter-mile from another Starbucks slated to close.

Like Kelly, Fuel owner Dani Cone does not pretend she slew the giant.

There isn't much customer overlap between Starbucks and Fuel, she said. "People will come to us because we don't have that big corporate feel."

Even the vibe among independents varies quite a bit, said Cone, who edited a book of stories from baristas in Seattle and Portland called "Tall Skinny Bitter: Notes from the Center of Coffee Culture" that's due out next spring. "You'll find a shop where you click with it best for whatever your personal reasons are," she said.

The story is the same around the country, with coffee-shop owners forming a mostly friendly fraternity whose circle does not include Starbucks.

Sometimes the tension picks up, like a couple years ago when Starbucks opened next door to Lucy's Coffee & Tea near the University of Alabama in Birmingham.

At first, owner Lucy Bonds saw an uptick in business as people rallied to support her.

"People were mad that they would truly belly up beside me," she said.

Last month, Bonds learned the Starbucks store will close.

"It made me feel good that I could last longer than the big boys," she said.

Bonds won't miss the chain giving out free coffee on the corner — sometimes full-size drinks.

"I can't stand out there and give away free stuff," she said. "I've made it, but it's been hard. This year I paid off my original business loan from 15 years ago."

Marketing ploys

Independent coffee-shop owners roll their eyes at Starbucks' marketing, from price discounts to the way its stores post signs loudly hawking new drinks like Vivanno smoothies.

"This idea that you can have a marketing-driven business and get people in with ads or specials or gimmicks is so over in the inner city," said David Schomer, co-owner of Espresso Vivace in Seattle.

Even back in 1988 when he had just a coffee cart on Capitol Hill, Schomer thought of Starbucks as a suburban player and a place for new espresso drinkers. He sees independent shops like the three he runs as havens for people who have outgrown dark-roasted coffee with lots of milk.

"The independents are right there ready for the customer to graduate," Schomer said.

In some cities, that is just beginning to happen.

New York's coffee scene looks much like Seattle's did 15 years ago, said J.D. Merget, who owns two shops called Oslo Coffee with his wife in Brooklyn, N.Y.

Merget grew up in Seattle and drove a truck for Starbucks when he was in college almost 20 years ago.

Starbucks lost its neighborhood feel when it switched to automated espresso machines and started selling blended drinks, he said. He still visits occasionally but does not consider them competition for customers.

"Starbucks is good enough to get them addicted," Merget said, "and then you take them beyond that."

Melissa Allison: 206-464-3312 or mallison@seattletimes.com

Copyright © 2008 The Seattle Times Company

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