Dark Roast Java launches with an exciting new coffeehouse concept in a receptive and steadily growing market segment—the specialty coffee retail business.
Despite economic downturns in recent years the specialty coffee business has been a bright spot. While literally hundreds of businesses in many categories are facing poor sales, negative balance sheets and even bankruptcy, coffee chains continue to show strong growth.
It's clear that America's love for good coffee continues during good times and bad.
Pleasantville: The Perfect Launch Market
By launching Dark Roast Java in the Pleasantville market we maximize our potential for success due to several factors:
Dark Roast Java is located at what is arguably one of the best locations for a coffeehouse in Pleasantville—in the heart of the tourist and business district, adjacent to fine dining and shopping, next to the historic Egyptian Theatre and just steps from the busiest intersection in town.
Dark Roast Java Coffee has all the ingredients necessary for immediate success.
Dark Roast Java's customer base in Pleasantville is comprised of five target groups.
These groups are all potentially strong customer segments. The benefit of this mix of customers is that it helps maintain consistent business throughout the year. For example, while tourism is strong all year long in Pleasantville, it peaks during the summer months. Conversely, the student population is not as strong during the summer as it is from September through June of each year.
The other customer segments (local residents, local business and pass-through traffic on US 66) provide a consistent foundation all year long.
Also, by appealing to several market segments, Dark Roast Java does not become overly dependent on any single consumer group. For example, several local coffeehouses with primarily student customers do poorly during the non-school months. They must also market themselves anew each year to the incoming students. Dark Roast Java will avoid these peaks and valleys in business with a mix of customers.
Sources: Department of Transforation, State University, Pleasantville Chamber of Commerce.
Overall, our strategy is to maintain a constantly high customer count by leveraging our appeal to five groups of potential customers.
Local Residents. Approximately 200,000 people live within five miles of our Dark Roast Java location. The most affluent of these live even closer, within three miles. It is a short 5 minute drive to Dark Roast Java for most of our potential local customers. Excellent public parking is available within 100 yards.
Local customers form the loyal core of our business. We will reach out to them through local marketing, involvement in the Chamber of Commerce, support of local charitable organizations and sponsorship of events and youth sports teams.
Tourists. Pleasantville has excellent year-round tourist activity. About 5 million people will visit the area during the next year. While hotels are virtually sold out during the summer months, tourism all year is exceptionally strong. This is due in large part to the temperate climate, weekend or day-trip visitors from the greater Ontopolis area and an unusually large number of special events (e.g. film festivals, concerts, art shows) scheduled throughout the year.
With a troubled economy and fears of terrorism, more people are opting for the relatively inexpensive, easy and safe short trip to Pleasantville for recreation. And, according to the Chamber of Commerce, 90% of all tourists visiting Pleasantville will pass by the Dark Roast Java location.
We will target these potential customers with ads in local tourism guides.
Local businesses. Many local businesses, both private and government, are within two blocks of Dark Roast Java. Lucre Galerie, the prime shopping center of Pleasantville, is one block away. The county courthouse is two blocks away. Dark Roast Java is in the heart of the shopping and dining area.
Because much of the employee parking is out of the immediate area with shuttle service to downtown, most people stay near their place of employment during breakfast, lunch and for after-work relaxing. A significant number of these local business people find Dark Roast Java an inviting and convenient destination.
We also offer coffee service to local restaurants, night spots and businesses. Coffee service brings in additional revenue and promotes Dark Roast Java among employees at these businesses.
We will also reach business customers through Chamber of Commerce activities and by personally visiting the shops and businesses to distribute discount coupons and menus.
Students. The area has more than 30,000 students in several schools, including nearby City College and State University. Students, most of whom are under the drinking age, have few places they can go to meet their friends. Coffeehouses have proven to be very popular with students—even high school students—as an "in" place to go that's also affordable.
To reach students we offer special student discount cards, pass out free coffee coupons at student events and offer entertainment on weekends.
Students represent an excellent customer segment for several reasons:
- Students bring an energy and youth to the coffeehouse
- By attracting students we generate excellent word-of-mouth
- Students represent a large base of potential part-time employees
- Often under the drinking age, students need an affordable place to hang out with their friends
Travelers on US 66. The Dept of Transportation estimates that there will be 35 million auto trips through Pleasantville this year, a number that is increasing every year. US 66 is one of two major freeways in the state and the one favored by travelers who want to take a bit more time and make a few stops during their trip. It's also a major commuter route to the cities to the south in Sunshine County.
Our primary method of reaching this target customer group will be our participation as a AAA member, offering a 20% discount on all coffee and tea drinks when AAA members show their membership card.
We also conduct PR activities in media outside the local market to expose the Dark Roast Java name to a wider state and national audience.
Source: Dept of Transportation, Pleasantville Chamber of Commerce, US Census Bureau.
The specialty retail coffee business as we know it today began in 1982 after Howard Schultz purchased the Starbucks name and began the expansion of the modern Starbucks chain. Prior to his transformation of the business, Starbucks sold only whole bean coffee.
Coffeehouses in America have existed since the 1600's, and the coffeehouse concept is more than 400 years old. In the United States, even as recently as the 1970's, coffeehouses have been primarily independent businesses, typically with an eclectic Bohemian style.
Cafe Trieste in San Francisco is typical. It was once a gathering place for "Beats" and "Hippies." Poetry readings were held weekly. It still retains much of its original flavor. Many of these independent coffeehouses continue to enjoy a loyal following.
Starbucks' success has encouraged others to enter this potentially lucrative business. Today there are more than 13,000 coffeehouses in the U.S. However, compared with Italy, which has 200,000 espresso bars and coffeehouses, there is still much room for growth. The Specialty Coffee Retailers Association believes the market has not approached maturity and, as yet, no coffee chain has differentiated itself significantly from the others.
While overall coffee sales have not grown significantly in recent years, the specialty coffeehouse segment is growing steadily at a healthy pace every year. The low food cost of coffee drinks, relatively modest investment capital requirements, and low overhead, lead to high profit margins in the coffeehouse industry.
There are 108 million coffee drinkers in the United States, according to the National Coffee Association's report "2000 Coffee Drinking Trends." 77% of coffee drinkers consume coffee daily. Coffee drinkers spend an average of $164.71 on coffee annually, and drink an average 3.1 cups daily. It's easy to see why coffee is second only to oil as the largest commodity in the world.
Twenty-five years ago, almost nobody consumed espresso or espresso-based drinks in the United States. Now they account, for more than half of all specialty coffee consumed. Obviously, America's coffee-drinking habits are changing.
In the past five years the number of "gourmet" coffee drinkers has increased from 7 million to 27 million. In 2001 53% of all adults in the U.S. drank specialty coffee. By 2002 the percentage had grown to 62%. Year after year, the growth continues at sizeable rates.
Starbucks, once known for quality and customer service, has recently come under attack by customers and business commentators for becoming too big. Their size (6,300 stores worldwide) is the reason why Starbucks is now often called the "McDonald's" of coffee chains. If Starbucks' image becomes one of a "fast food" purveyor of coffee, it leaves the market open for a smaller, more nimble competitor like Dark Roast Java, where quality and service are paramount.
As the graph below showing Year 2000 per capita coffee consumption illustrates, the United States is not presently one of the stronger markets for coffee drinking. It's easy to see there is significant room for growth in consumption. The coffeehouse chains of America are leading this growth.
Coffee drinking per capita by country.
"Until everybody can walk to a coffeehouse and get a properly prepared espresso drink, we're not even approaching market saturation."
-- Mike Ferguson, Marketing & Communications Director
Specialty Coffee Association, Long Beach. 2002.
Leaders in the specialty coffee chain category in the United States include:
Starbucks (6,300 stores). Started the specialty coffee chain phenomena in America in 1982. 99% are company owned. Revenues exceeded $6 billion in 2002. Average store gross revenue is $805,000. Now in 30 countries. Same store sales increased by 10% in 2002.
Caribou Coffee (260 stores). Second largest all company-owned chain. Founded in 1992 in Minneapolis.
Tully's (103 stores). The third largest company-owned chain. Another Seattle-born company. The only coffeehouse chain that has not experienced excellent growth every year; business.com cites poor management as as the reason. New management seems to leading a turnaround.
Coffee Bean & Tea Leaf (210 stores). Oldest privately held specialty coffee retailer in the U.S. (founded 1963). 90% of stores are franchises.
Peet's (58 stores) One of the few successful IPO's in 2001. 58% of revenues come from sales of whole coffee beans. Gross profit last year was 49.5%.
Gloria Jean's (291 stores, 195 in U.S.). Only 19 stores are company owned.
Seattle's Best (150 stores). Owned by AFC, which also owns Popeye's Chicken, Church's, Cinnabon and Torrefazione Italia Coffee (21 stores). Seattle's Best is also distributed at 7,000 locations such as grocery stores and office buildings.
Diedrich Coffee Company Originally founded in 1916 when the owners inherited a coffee plantation. Headquartered in Southern California. First coffeehouse in 1982. Owns the Gloria Jean and Coffee People chain. 386 outlets total and 370 wholesale accounts. Although they serve an excellent product they have operated "below the radar."
Bucks County Coffee A Mid-Atlantic chain of 40 stores founded in 1982. Has a very good reputation.
PJ's Coffee & Tea (22 stores). This New Orleans-area chain owns four of their stores.
Java Dave's (14 stores). Mostly in the Oklahoma area, 12 are franchises and two are company owned.
Quikava (68 locations). A unit of the Massachusetts-based Chock Full O'Nuts organization. Many are kiosks. All but three are franchises.
New World Coffee (33 stores). Mostly concentrated in the New Jersey/New York area. All but three are franchises. A division of Manhattan Bagel.
Bad Ass Coffee Company (29 stores). Begun in Hawaii, this company has grown rapidly by offering a Hawaiian-grown coffee and a milder, mellower brew.
It's a Grind (86 stores). Fast-growing chain that began in Long Beach, California seven years ago. Most locations are franchises. Concentrated in Southern California and Las Vegas. Company reported $12 million in revenue in 2002. Its stores average more than $500,000 gross revenue.
Dunkin' Donuts More than 800 outlets serving a surprisingly good coffee. Many people think it's the best.
Specialty coffee chains in Canada:
Blenz (27 stores).
Second Cup (401 stores)
Tim Horton's (2,100 stores/150 in U.S.). This store is very close to being a Dunkin' Donuts style operation where baked goods are the primary products.
Although the specialty coffee industry is successful and expanding rapidly, there is still much room for growth—especially in niche market segments, according to The Specialty Coffee Association of America. Market maturity is not expected to be reached until at least 2019.
Sources: Business.com, Yahoo Business, Dun & Bradstreet, Hoover's Business Data, Starbucks Corporation, Specialty Coffee Association, National Coffee Association. 2002.
Surprisingly, the leading coffeehouse chain, Starbucks, has only mediocre stores in the Pleasantville area (eight locations). Its highest volume store (1,150 customers daily) is at an excellent location on 'A' Street, the main thoroughfare in town, but the store is unattractive, small and lacks outside seating.
The other high-volume Starbucks is located at the end of a shopping mall in Mount Hill and averages 952 customers daily. It is not a particularly attractive store, although it does have a sizeable lounge area and some outside seating.
Other Starbucks locations in the Pleasantville area are even less memorable, with small facilities and mediocre locations. Photos of some of these locations are shown in the appendix.
Coffee Bean also has an excellent location directly across the street from Starbucks on 'A' Street in downtown Pleasantville. This busy coffeehouse is very small. A counter inside and a couple of tables outside are the only areas for customers to sit down. A second Coffee Bean opened in 2002 on the northern end of 'A' Street, about three miles from downtown. Another location in Mount Hill is scheduled to open in Summer 2004.
Other competitors include three independent coffeehouses. Paradiseo is located on State Street in a good location. They serve good coffee but have a limited menu and a very "funky" decor. It is a big hangout for the "Goth" and "punk" crowd. A second Paradiseo is located in Shorewood. New managers are trying to improve the store but without success so far.
Another independent is Grounds for Action, located in a residential neighborhood but on a busy street in what was once a gas station. This coffeehouse is also very "collegiate" in its decor, and a favored haunt of the law school students, but manages to average more than 250 customers per day. They have a second location in Springfield.
Ambrosia Kaffe is primarily a student hangout located about three blocks off First Avenue in the northern end of the business district. Its business is modest. The business has undergone changes in management during recent years.
Both Barnes & Noble and Borders Books have integrated cafes that serves espresso drinks into their store plans. Both of these are within two blocks of the Dark Roast Java site.
The Barnes & Noble coffee cafe is very small, located in the rear of the store, and not very busy despite serving Starbucks coffee.
The Borders Books cafe is larger, about 1,000 square feet, and does a good business. They are in a good location, adjacent to the same major parking garage as Dark Roast Java and they also draw from book shoppers and drop-ins from 'A' Street. The quality of their coffee and pastries does not compare with ours, and the service can often be quite slow.
The Pleasantville Roastery is a bean roaster and coffeehouse with brick walls and a "San Francisco" style. The coffee is roasted on site. They do much of their business by mail order. They suffer from a very poor location in a difficult to find (or even see) shopping mall off lower 'C' Street. A second, small outlet opened in 2003 in Lucre Galerie. Despite their poor location, this is probably the most formidable competitor in town. They make a quality cup of coffee and have a loyal following.
Competition is dominated by the presence of Starbucks, fast becoming the "McDonalds" of the specialty coffee industry. Other major chains are Caribou Coffee, Peet's Coffee & Tea, Coffee Bean & Tea Leaf, Seattle's Best, Gloria Jeans and Diedrich Coffee. All of these chains are considered "clones" of Starbucks. Few vary much from what is perceived as a proven formula for success.
FACT: The coffeehouse business has grown every year since 1982.
FACT: Not a single coffeehouse chain has failed during the past 20 years.
Despite major economic recessions, terrorist attacks and two wars over the past two decades, the specialty coffee industry has grown every year. One industry observer said, "When times are good the coffeehouse industry is great. And when times are bad the coffeehouse industry is great." America's love for good coffee is stronger than ever and increasing in size faster than any other industry.
Lifestyle factors converge to make the coffee industry strong at all times. The stimulant effect of coffee is an important reason why many hard-working, fast-paced Americans consider a stop at their local coffeehouse a necessary part of their day. Conversely, coffeehouses provide a calm, inviting environment for people to socialize, relax or catch up on work.
Young people under the legal drinking age are one of the fastest-growing segments of the coffee drinking market. Coffeehouses provide them with a much-needed place to meet with their friends.
Entertainment on weekend nights draws a young group of enthusiastic customers. The surge in interest in coffee drinking among young people assures a diverse, receptive, sophisticated customer base now and in the future.
Older adults also enjoy the fact that for the relatively modest price of a cup of coffee and snack, they can meet with their friends, relax or work. Instead of going to a bar and paying for an alcoholic drink or a restaurant where a meal usually comes with a hefty price tag, the coffeehouse is an intimate yet inexpensive venue.
Quality is deteriorating even as the industry is growing.
Coffeehouses need to produce a quality product to back up the perceived "little luxury" image. Currently, most of the largest chains are bowing to the pressures of growth and are cutting corners on quality by introducing fully automatic espresso machines, mass bean buying and other efficiency measures.
Coffee drinking is now an all-day activity.
Once concentrated in the early morning hours or mid-afternoon, in recent years coffee drinking has become an all-day activity. Even late at night, many coffeehouses are packed with patrons. It's not unusual for a well located coffeehouse to exceed a daily average of 900 customers.
Customer guest check averages are rising.
As pastries, chocolates, tea, pre-packaged sandwiches, snacks, juice drinks and gift items are added to the menu, the average customer expenditure has risen. Many popular coffeehouses report averages in the $4 - $6 range. Dark Roast Java expects that guest checks will average about $4.50.