Not just a hill of beans
Starbucks’ success stirs up fierce competition among local outfits
Small coffee shops in B.C. are taking on the big boys and coming out ahead.
The first thing coffee entrepreneur Barney McKenzie does is introduce Norm.
Norm, it turns out, is a six-foot 16-year-old potted coffee tree with dark-green waxy leaves.
“He’s from Colombia,” McKenzie says, conversationally.
McKenzie and business partner Peter Boëda have been living and breathing coffee since Boëda started (and McKenzie soon joined) the Bean Around the World coffee shop chain 25 years ago.
They were among the earliest players in Vancouver’s specialty coffee shop industry, an industry that’s has come a long way since Starbucks staked out the city in 1991 by pointedly opening stores on two sides of the iconic Robson Street Thurlow retail intersection. In ensuing years, a small but stellar selection of local entrepreneurs have built up healthy cafes and roasting businesses, even as Starbucks’ empire has grown to 40-plus locations in Vancouver’s downtown core alone. At one time, Starbucks “were the predators,” said Vince Piccolo, who opened and sold multi barista-award-winning Caffe Artigiano before starting 49th Parallel Coffee Roasters in 2004. “They would see who was busy and would open up beside them. Over the last 10 years, it’s been other way around. (Local entrepreneurs) have been the predators. We’ve been opening up beside the Starbucks because they’ve done all the demographics.” Locally- owned JJ Bean has 17 corporately owned stores, Caffe Artigiano owns 16, Blenz is a franchise with 60 stores in B.C., and Bean Around the World has 21 mostly licensed stores, to name some of the larger local leaders.
JJ Bean owner John Neate Jr., whose grandfather started Neate’s Coffee in Vancouver in 1945, ballparks Starbucks’ Lower Mainland store-count at 400 and growing. Starbucks was unable to provide a number on short notice.
But instead of struggling, Vancouver’s specialty coffee entrepreneurs have found ways to thrive next to their powerhouse competitor’s might.
“I’m still competing for locations with them all the time,” Neate said.
Starbucks does “mass scale awesomely well, but there’s room to surf around them. We live off their long tail,” said Tarry Giannakos, whose family owns West Vancouver’s eight-yearold Crema neighbourhood café, as well as Cambie Street’s threeyear-old Revolver, a specialty coffee bar that buys from seven different roasters at a time and brews each cup individually.
Far from being swamped by Starbucks’ wake, Vancouver’s top coffee entrepreneurs ride it.
“My challenge always to my team is to get to the level of Starbucks,” Neate said. “We do a silent shopper audit at every store, every month. First we go to Starbucks, use our form and rate them. If Starbucks gets 80 per cent, then our stores have to beat that — and they do, consistently — but it wasn’t until we started using them as our benchmark.”
Attention must be paid to every detail.
“Every JJ Bean stool has a back on it because I know older people and women (like that),” Neate said. “We provide at least three types of seating in each store: lounge chair, traditional chair for realtors’ meetings, community table or stool partly because they want to look out the window and partly because they don’t want people to see they are alone. … That’s (one of the ways) we differentiate ourselves from big chains.”
Coffee shops are much easier to open than restaurants — no ovens or hood ventilation and fewer permit requirements, Revolver’s George Giannakos said — but profits are hard to come by. Dreamers won’t survive. “You get the guy that’s got a severance package and he goes ‘Coffee is 90-per-cent water, I’ll open a coffee shop,’ ” Neate said. “What’s the best way to make a million dollars in a coffee shop? Start with two million.”
Seventy per cent of coffee shops close within two years, estimates Neate, who wholesales coffee to 250 restaurants and coffee shops. Competition is fierce. “Where once there were two or three coffee shops in Ambleside’s three or four blocks, there’s about 12 now,” McKenzie said of Bean Around the World’s West Vancouver neighbourhood. “We’ve had to work harder and work smarter.”
Where once there were two or three coffee shops in Amble side’s three or four blocks, there’s about 12 now.
BARNEY MCKENZIE BEAN AROUND THE WORLD
Boëda was such an early pioneer that when he opened his first specialty coffee shop, he didn’t even think he’d be selling liquid coffee.
“I thought ‘ I’m going to be like a butcher.’ I had my small little coffee machine, my display case, my coffee roaster in the shop. My display of my beans was huge,” said Boëda, whose storied past includes leaving Quebec to become an Alberta cowboy, marrying into Vancouver’s Bentall family and finally allowing his love for coffee to overcome his passion for horses. Coffee itself is high-margin. “The costs are in your labour and your leases,” Neate said. “A good store comes away with 10 to 15 per cent of sales as their profit.”
Most neophytes blow it by designing a store “cautiously, in a way that two people can run it if it’s not busy,” Giannakos said. But here’s the problem — unless you design everything around the volume you need, “you’re going to suck when it gets really busy, and then people are not going to come back,” Giannakos said. “It’s like trying to ride a bike really slow.”
“To really make it sing, you have to have the right area,” he said. “It doesn’t have to be the most perfect location, though. It’s got to have great baking, great coffee and great service. It sounds textbook, but really, that is what it is. You don’t want people to be able to say things like ‘Their coffee is great but I wish they had some good baking.’ ”
Food margins are low compared to coffee, but food sales are “hugely important” for increasing the average bill, Blenz marketing manager Ryan Paulsen said.
Indeed, Starbucks has identified food as its Canadian priority. Starting in B.C. and Ontario in March, the store will sell branded baking made with butter versus margarine and with local ingredients whenever possible, spokeswoman Carly Suppa said.
“It will feel much more like a bakery.”
Only one in three customers buys food in Starbucks.
“This is an opportunity,” she said.
Where Starbucks goes, local competitors watch carefully.
“Starbucks started opening up at 5:30 in the morning a couple of years ago, so we opened up at 5:30,” McKenzie said of his Ambleside store.
Overall coffee consumption has increased modestly, but the place and occasion have changed, said Rick Kohn, Deloitte’s B.C. retail leader. Younger consumers, in particular, seek an experience.
“It’s about identifying a specialty component that maybe has a premium price to it,” Kohn said. “The more things become commodified, the more opportunity there is for people to find their own niches,” even if there is less opportunity to grow large chains.
George Giannakos, Tarry’s son, who likens his coffee to rare versus well-done steak, targets “people who like the finer things,” though he shudders at the ‘hipster’ designation, or what he calls “the ‘h’ word.”
Blenz’s niche is being “that brand where people can come, hang out, meet up, bring a book club, have a job interview, business meeting,” marketing manager Ryan Paulsen said.
Neate builds big stores that give customers “more room to sit and allows them to have conversations that are more private.”
Boëda and McKenzie’s approach encourages each licensee to create a custom, localized environment. Unlike franchisees, licensees pay no royalties on income and are required only to buy Bean Around the World coffee and serve it to Boëda’s standards.
Since Revolver opened three years ago, eight to 10 notable specialty coffee shops have sprung up in Vancouver, including a second 49th Parallel and two Matchsticks, George Giannakos said.
Neate believes Vancouver is close to saturation and future growth will parallel population growth.
“If there are 2,000 coffee bars in the Lower Mainland — that’s just a guess — you’re going to see 40 new coffee bars a year,” said Neate, who is opening on Cambie Street and expanding to Toronto this year with plans to open three or four shops a year.
Bean Around the World is opening a new store in White Rock. Blenz is “actively exploring” the Fraser Valley, Surrey, Langley, Abbotsford, Calgary and Edmonton, Paulsen said.
Starbucks’ Canadian plans this year include a mobile order and pay app, wireless charging stations and a small pilot of their Starbucks Evenings concept, which offers beer, wine and small plates such as olives and cheese.
Spend any time with coffee people and inevitably, the conversation will turn to the relative merits of light roast versus dark. Emotions will rise. Where 10 years ago, most customers sought a dark coffee with cream and sugar, today many seek “coffee roasted with a little bit more acidity, more sweetness, more subtle notes coming through,” said Piccolo, who showcases his coffee in two stores but whose main business is selling roasted beans wholesale to clients as far away as Los Angeles and New York.
But Boëda, who learned to roast from roasting legend Alfred Peet of San Francisco’s Peet’s Coffee and Tea, isn’t swayed by recent trends. Peet “showed me (when) you bring it to that dark roast, you’re going to get the rich, full bodied texture, the caramel and cocoa nuances that are so key to coffee,” Boëda said. “I’m sticking to my darks.”
Oh yes, coffee is a business of love.