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Originally published March 1, 2009 at 12:00 AM | Page modified March 3, 2009 at 2:02 PM

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Owners of small coffee shops take plunge during recession

A handful of espresso slingers open their doors despite the economic downturn and lack of bank loans.

Seattle Times business reporter

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Barry Faught has a good job in a bad economy, but he is trading it for the uncertainty of running his own coffee shop.

This month, Faught will leave a sales job at Verizon that pays almost six figures a year to run Soho Coffee, a Central District cafe he launched last fall.

"I've never taken big risks, so I think this is something I need to do," said Faught, 32.

He is among a handful of optimists opening local coffeehouses at the same time consumers are pulling back from their latte habits enough to seriously damage Starbucks' profits.

These coffee slingers bury their fears about economic turmoil beneath a froth of entrepreneurial zeal that has propelled startups in other hard times, including the start of Sun Microsystems in the early '80s and Sears Roebuck's launch of the insurer Allstate during the Great Depression.

They don't dwell on the troubled economy, focusing their energy instead on long hours and a love of coffee.

"If you show too much concern, you're going to freak out and not want to pursue it," said Faught, who decided to open shop last spring, before stocks plunged and economists officially declared a recession.

He found coffee shops for sale, consulted a fortune teller in Bangkok to choose one, and by late September was pulling espresso shots and steaming milk.

If Soho customer Sue Paro is any gauge, coffeehouse customers like independent shops as laid-back venues for business meetings without the cost and commitment of lunch.

"I like it because it's not a chain, and I like to support the neighborhood," said Paro, executive director of the nonprofit Washington Courage & Renewal.

Faught is already scoping out places to open a second Soho Coffee shop while equipment prices are low and lease space abundant.

His hopefulness might seem naive if it were not for similar sentiments coming from old hands like Brian Wells, who recently opened his second Seattle coffeehouse and is eyeing a third location in Columbia City.

Wells figures he conquered the economic odds two years ago, when he opened Tougo Coffee in an obscure, mostly vacant retail strip in the Central District. He has worked since 1992 for coffee shops in Seattle and Boston, saving enough to put $150,000 into opening his first coffeehouse.

People initially had to go out of their way to find Tougo, but it has become such a popular neighborhood hangout that Wells recently expanded the seating and children's play areas.

The second Tougo location, opened in December, appears similarly isolated in a wedge-shaped building between downtown Seattle and South Lake Union.

Wells is there most days, getting to know customers while he makes their coffee.

"It's the communities that help you survive," he said, looking up to see the mail carrier from his first coffeehouse dropping by the new location. "This is what it's about — building relationships."

People should not open coffeehouses to get rich, Wells said.

"There are people going into this business and thinking they're going to make a million dollars," he said. "If you do not love coffee and do not love people, do not go into this business."

Profits are important, however, as some shops have learned the hard way, said Matt Milletto, vice president of the Portland consulting firm Bellissimo Coffee InfoGroup and director of training at American Barista & Coffee School.

"Before you think about open-mic nights and the muffins you'll bake in the back and how your friends will come in, you need to understand that none of that will be possible if you're not making a profit," Milletto said.

A coffeehouse typically costs $150,000 to $500,000 to start, he said. In a successful shop, profits are 10 to 18 percent of sales, and the biggest expenses are labor and the cost of coffee, milk and other goods.

Location, location, capital

The biggest mistakes stem from undercapitalized shops and bad locations, Milletto said. "People will open their doors with their last dime and forget so many of the expenses ... that it's hard to make a good first impression."

Lately, Milletto sees fewer shops opening than usual because banks and investors have pulled back on funding. "There seems to have been a freeze on first-time business owners," he said.

In Judkins Park, André Helmstetter and his partners opened MezzaLuna Bakery and Bistro last fall without the bank loan they had expected.

"We are tight," he said. "But if it works, we'll be glad we don't have that extra bill."

Helmstetter knows how hard the coffee business can be, even in a strong economy.

He sold his former cafe to Barry Faught for less than he paid for it three years ago and says he probably never broke even there.

Rather than wait to turn a profit, Helmstetter and his partners moved to a shop with more space — formerly Casuelita's Island Soul restaurant — — where they can serve brunch and dinner. MezzaLuna cost about $20,000 to open, a shoestring in restaurant and coffeehouse terms.

Helmstetter also went back to his software job, but he lost it abruptly last fall when his employer shut down. "Now I'm cooking and making fliers and going to community meetings."

MezzaLuna might not turn a profit for a couple of years, but he said that's true of restaurants and cafes even in a strong economy. So far, the outlook is promising.

"Because our opening costs were so low, with the really great support we're getting from the community, we expect to be able to at least make a basic living wage for the three of us within the next several months," Helmstetter said.

On a recent Thursday morning, Cecilia Alvarez and Lilna Williams sat at one of more than a dozen tables, surrounded by colorful paintings of coffee cups and the words "Roast," "Drip," "Brew" and "Perk."

They opted for MezzaLuna after finding a crowd at the nearby Starbucks. "This is maybe our new meeting spot," Alvarez said. "I really like small businesses and the ambience it creates."

Gets a loan

One coffeehouse startup that got a loan is Burien Press, which Mark Kearns and Erin Williamson plan to open this spring.

Inspired by Dani Cone, who owns the Fuel Coffee chain in Seattle, the couple decided last year that the south side — where Williamson is executive director of Burien Arts — needs more coffee.

"We felt like we did our research and were somewhat financially prepared to take it on," Kearns said.

A carpenter by trade, Kearns now spends his days sawing and hammering together a space that will be Burien Press, a shop that sells Caffé Vita espresso along with newspapers and magazines from all over the world.

He declined to say how much money they are borrowing from a local credit union, but he assured, "There are still banks that are willing to finance with the right situations, for sure."

Scott Morris envisions the launch of his new coffee and tea shop in Redmond as a way to help energize the economy.

He put $12,000 into testing The Green Grind Organic Coffee & Tea Co. at a small space in Bellevue over the past several months.

He recently closed that shop and, with another $6,000, will reopen at Redmond Town Center this month.

Morris hopes to have five shops in the next few years.

"Somebody has to have the faith to say, 'We can't just hope and lay around and pray for the government to bail us out,' " Morris said. The timing is "probably not optimum for us, but we'll be rewarded down the road."

Seattle Times researcher Gene Balk contributed to this report.

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

Copyright © 2009 The Seattle Times Company

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