Big Shakeout Brewing For Coffee Bars Starbucks, Other Large Players Trigger Round Of Consolidation
The explosion of coffee bars has been christened the “coffee wars.” And now the first casualties are trickling in.
As large well-financed companies such as Seattle-based Starbucks Coffee Co. have rolled into local markets, selling everything from traditional lattes to new-fangled frappuccinos with streamlined efficiency and lots of capital, some of the first players in the gourmet coffee market are beginning to lose their footing.
For example, Washington, D.C.-based Ferrara, which opened in 1992 and once had seven locations, sold its four remaining outlets July 28.
Brothers Gourmet Coffees Inc. of Boca Raton, Fla., announced in June that it was putting its retail divisions up for sale. That means that Gloria Jean’s, its shopping mall-oriented coffee stores, as well as its Brothers Gourmet espresso bars, with five locations in the Washington area, will end up under someone else’s umbrella.
Even ice cream giant Baskin-Robbins USA Co. has decided officially to pull the plug on its Caffe Classico coffee cafes. Most Caffe Classico outlets have already closed.
The Specialty Coffee Association of America optimistically predicts that the number of coffee bars will grow from 2,750 last year to 10,000 in 1999. But many executives and analysts say the market is too fragmented and is ripe for consolidation.
That doesn’t mean wholesale failures are around the corner - indeed, many chains are still expanding - but it does hint at who will ultimately survive the battle of the brew.
“People need to make the decision: Do they want to become a major national player or are they content to stay a small niche player?” said Robert Leineger, a beverage analyst with Gabelli & Co., a Rye, N.Y.-based brokerage.
Stephen Dolan, director of operations for Hannibal’s Coffee Co., which is buying Ferrara in Washington, agrees that a shakeout among coffee bars is beginning. Hannibal’s, founded only last June, will have 13 stores after its acquisition.
“Name recognition is the most important factor” in determining success, Dolan said. To establish name recognition, a company needs numerous locations, he said.
On the West Coast, where the coffee-bar scene is more mature, tiny operators have been innovative in staking out their territory.
In Los Angeles, for example, a small coffeehouse called CyberJava lets customers browse the Internet while sipping their cappuccino.
Benson Fischer, president of the Fischer Organization, a retail brokerage, said Washington’s coffee bars also need to think about changing, perhaps by looking beyond coffee. “I just don’t think that the stores are making money,” he said. “In the long run, the coffee operators will not be able to survive unless they expand their menu.”