Retailers develop niches in coffee marketplace

It's no secret that Americans love their coffee and retailers, in turn, love to provide it for them.

According to statistics from the Specialty Coffee Association of America, daily consumption of specialty coffee among adults has risen to 16 percent in 2004 from 9 percent in 2000. Even occasional consumption has registered growth during that same period, registering 56 percent of the adult population in 2004 vs. 53 percent in 2000, although down from a high of 62 percent in 2001.

To help consumers fuel their coffee craving, retailers have continued to add outlets. At the end of 2003, there were 17,400 operating units, covering coffee cafes, kiosks, carts and roaster/retailers, with total sales of $8.47 billion. The operating unit figure is up nearly 13 percent from the 15,400 units in existence in 2002 and up a whopping 287 percent from 1989's 585 units.

Independents still make up the lion's share of coffeehouses, with retailers in the one- to three-store range accounting for 57 percent of the market. Chains of 10 units or more make up 40 percent of the market, while four- to nine-store operators garner just 3 percent of the market by segment.

For independent retailers, the focus is often on differentiating themselves from the chain down the block or the supermarket across the street.

Increasingly, organic and fair trade coffees are becoming part of the specialty coffee mix both because of its availability and its marketability as something the competition doesn't offer.

A licensed fair trade coffee roaster, Orpha's Coffee Shop in Skillman, N.J., now features fair trade coffee as 25 percent of 30 percent of its offerings, said Owner Linda Grimsley.

Under fair trade standards, according to the Fair Trade Federation, coffee farmers are guaranteed a minimum wage for their harvest and encouraged to use organic and sustainable cultivation methods. Fair trade farmers also are provided credit and assured a minimum price per pound that is above the world price per pound.

Because fair trade coffees are tied to certain price standards, Grirnsley said the price can be an extra $1.50 per pound in the store. That can be a deterrent for some customers, she noted.

"Here people look at quality and price and then the goodwill associated with fair trade," she said.

Fair trade coffees are also on the menu at Broadway Café and Broadway Roasting Co. in Kansas City, Mo. Jon Cates, owner and roast master, said with a Starbucks right next door to his café, roasting and sourcing the best coffees is his point of differentiation.

"We always have one or two fair trade coffees on retail display," he said, as well as offering it to wholesale accounts.

In addition, he said, he buys from growers who pay fair trade prices even though they aren't fair trade certified.

Five or six of the coffees at Bob Metzger's Badger Brothers Coffee and Internet Café in Platteville, Wis., are fair trade certified and/or organic, he said. "We want a nice selection of fair trade and organic."

However, he noted, there are still parts of the world that produce great coffee that isn't fair trade certified nor organic, so an additional five or six coffee offerings fall into this category. "We want to provide a suite of coffees for our customers," he explained, which covers price as well as origin and growing style.

Still, Metzger said,"the trend is for more and more people to want fair trade, organic and rainforest alliance coffees."

He said a pamphlet that explains fair trade coffees, where they come from and how the money is used to help farmers, encourages people to give the higher-priced product a try. "We like to give them a sense of what they're buying."

Nan Goldstein, department manager for candy, coffee, tea and gifts at Eddie's of Roland Park in Baltimore offers Fairwinds organic coffee and locally roasted Baltimore Coffee & Tea's coffee, which includes a Swiss Water decaf. Goldstein said some of her coffees are fair trade, although she hasn't promoted them as such.

The growth of the decaffeinated coffee market has retailers looking at the various methods of decaffeination and settling on the one that works best for them and their customers.

"We sell quite a bit of decaf," said Gates, who noted he prefers the Swiss Water decaffeination method. "Any decaf process washes out some flavor,"he said, "but to me it's the cleanest."

Grimsley said she's also seen growth in decaf sales and offers coffee decaffeinated via the Swiss Water and CO2 processes. "I don't believe in chemicals in coffee," she said, referring to European process, which uses methylene chloride.

Metzger, who said decaf isn't a big part of his sales, said he does sell the chemically processed decaf coffee because it retains the most flavor. Regular coffee drinkers outnumber decaf drinkers 10 to 1 in his store, he added.

A big part of being a successful specialty retailer or independent coffee roaster and retailer, noted those who spoke with Gourmet News, is creating the proper environment that includes education, entertainment and value.

Goldstein of Eddie's of Roland Park brings in special coffees for holidays to generate some excitement in her department. A big seller for Valentine's Day was an 8-ounce bag of Vanilla Cherry, she said, while Irish Crème was planned for St. Patrick's Day.

"I run a coffee special every week with a different flavor,"said Goldstein, who added the coffees are then featured in the biweekly Wednesday newspaper flier.

In her 3,000-square-foot store, which has been open for two years, Grimsley said a large seating area provides room for music events and open mike nights, while the 10-kilo roaster attracts lots of questions about the 22 coffees they roast and sell in store and on the Internet.

Participating in charitable events can also create goodwill and exposure for a small retailer. Grimsley said Orpha's donated all the sales of its Sumatran coffee to UNICEF as part of the tsunami relief efforts.

She added that the tsunami didn't impact coffee growing, but has hindered the ability to ship some coffee because of damage to ports.

An email list and newsletter that explains trends in the coffee industry are also part of Orpha's educational efforts.

Metzger of Badger Brothers provides 2,500 square feet of retail space, which includes four computers with Internet access, several seating areas and a community room where groups can meet free-of-charge and doubles as bean storage.

Open for two years, Metzger said he just beginning to sell his coffee on the Internet as well as wholesale. Wholesale customers include other coffeehouses as well as four Dick's Supermarkets.

Proper preparation of coffee drinks is a sticking point with Metzger. "A lot of people use automated machines, so a lot of baristas have become button pushers," he said. The result is too many mediocre drinks, he noted.

Metzger said he spends 14 to 15 hours training his staff, covering grinding and temperature and water quality.

Unlike big city retailers that can get by on volume from a large population, in a small town,"I depend on the same clients coming back," Metzger said.

Getting customers to appreciate the nuances of coffee is the educational role that the 1,900-square-foot Broadway Café and its nearby 1,500-square-foot roasting facility play, said Gates. "Our job is to get customers to understand the differences of coffees, like the five or six different Ethiopians," he said.

"We want to push past Italian roast and French roast and get to estate coffees. And not just the estate, but the type of tree," he said. Blending is also a focus, with each coffee roasted individually, Gates said, and then blended "based on what the job of that coffee is."

Sales at Broadway's 65-seat café are primarily in drinks to go or consume on site, said Cates, while the roasting operation gains about half its sales from whole beans and the remainder from the to-go bar and limited seating area.

There is also wholesale business with 10 to 15 accounts around the city, including cafés, coffeehouses and restaurants.

Training is crucial to his operation, said Gates, noting they specialize in latte art. "Our baristas look at it as a craft."

All three retailers that spoke with Gourmet News said expansion plans are in their futures, whether it is through more wholesale business or, for Grimsley and Metzger, through additional storefronts.

Copyright United Publications, Inc. Apr 2005
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