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Tully’s sets Starbucks obsession aside

Sat., Sept. 14, 2013

Tully’s Coffee customers will recognize the brew, but maybe not much else about the long-beleaguered company, its new owners vow.

Everything from remodels of all 48 company-owned stores to a new loyalty program and marketing push is part of their turnaround plan for the Seattle-based chain that in two decades only turned an annual profit twice, both times by selling parts of the company.

New Chairman and part-owner Michael Avenatti promises the new Tully’s will not be boring, and it has not been so far.

Actor Patrick Dempsey generated national interest as the public face of an investor group that bought Tully’s out of bankruptcy June 30, paying $9.15 million and fending off Starbucks and others who wanted Tully’s.

But in August, Dempsey sued Avenatti and left the group.

Now Avenatti and former investment banker Tod McDonald, hired by Avenatti to run the chain on a daily basis, are charting the next moves for the 103-location chain.

Their plans include:

• Spending more than $6.5 million to remodel all 48 company-owned stores, starting with shops in Bellevue, Clyde Hill and near Pike Place Market.

• Spending at least $4 million on other improvements, including marketing via popular sports, speeding up both the Wi-Fi in its cafes and the time it takes roasted coffee to reach stores and revamping the food and the loyalty program. .

Avenatti blames Tully’s former business strategy for its financial hardship.

The most fundamental example, he said, was opening stores across the street from Starbucks locations.

Dan Geiman, an analyst at McAdams Wright Ragen, said he’s always thought Tully’s needed to stop focusing on its Goliath rival.

“They’ve always kind of wanted to mimic Starbucks, but they don’t have the scale or resources to go toe to toe with Starbucks,” he said.

The chain is one of the largest privately owned and independent U.S. coffee chains. August was its most profitable month in four years, with $2.8 million in net sales, Avenatti said.

Tully’s new investors – and ostensibly those still eyeing it – were attracted to its brand, Avenatti said. In particular, people like the taste of its coffee.


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