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Thursday, September 19, 2019  Spokane, Washington  Est. May 19, 1883
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News >  Spokane

It’s a bold but not bitter business: Spokane coffee economy buzzing with high share of shops, roasteries

When Sean Edwards found out his favorite coffee shop was on the verge of closing, he decided to take action.

Edwards and his father, Ray, were frequent patrons of Revel 77, where they occasionally held meetings for their marketing and consulting business. So instead of letting the coffee shop on East 57th Avenue close, they bought it from Mike and Deb Nelson in September.

To distinguish Revel 77 from the 150-plus coffee shops, drive-thrus and coffee bars seemingly everywhere a person turns in Spokane, Edwards aims for the purist. He offers higher-end coffee carefully chosen from select local roasters and brewed with expertise. He’s not targeting customers searching for a cup on the go as part of a pay-and-run breakfast.

It seems there’s room for everyone: The U.S. coffee market is a $40 billion industry, and Spokane is spending more than its share, right along with Seattle, the birthplace of coffee empire Starbucks.

Washington is among four states with the highest concentrations of coffee shops in the U.S. The state boasts 4.6 percent of the nation’s coffee shops, even though it has just 2.2 percent of the country’s population. Only California, New York and Texas – each of which contains far more people – have more coffee shops.

This intense concentration of coffeehouses and spendy drinks is especially addictive to the young.

A Money Matters study released this month shows that about half of millennials acknowledge spending more money on coffee drinks than they do on retirement savings.

The same study found the average American spends about $1,100 on coffee each year.

With so much money flowing into coffee, especially in the Northwest, it’s no surprise the local market continues to show growth potential.

“More and more people discover specialty coffee and they come back,” Edwards said.

Finding the local coffee niche

Most of Spokane’s 150 coffee shops are concentrated in downtown, West Central, North Central and Browne’s Addition neighborhoods, according to data from market research firm ReferenceUSA.

In the early 1990s, people could open a drive-thru coffee stand on a corner and make a living. In an increasingly crowded and complicated marketplace, however, proprietors have to find honed and innovative models capable of providing coffee that keeps consumers excited about the industry, said Thomas Hammer, who started his popular company in 1993.

“Coffee-shop-wise, there will always be shops that will open up. But for shops today, it’s difficult to compete with Starbucks or Dutch Bros.,” Hammer said. “But it can be done.”

There are about 13 roasters in the Spokane metro area, according to permits obtained from Spokane County.

Ten years ago, there were seven roasters in Spokane.

Thomas Hammer got his start in the coffee business working for 4 Seasons Coffee Co. – the first roaster in Spokane – and subsequently opened his own business.

“We’ve been able to locally build and create a really solid business model,” Hammer said. “We can be the best alternate choice if you are a Starbucks customer.”

Coffee consistency and branding helped make Starbucks ubiquitous in the coffee business. The Spokane market has more than 30 Starbucks shops. It’s a similar story across the country, where the company employs more than a quarter of a million people.

Thomas Hammer Coffee Roasters has since expanded to 18 coffee shops and provides its roast to hotels and grocery stores as well as its own retail stores.

“I think the more people that want to try their hand at (roasting), we’ll welcome them to the industry,” Hammer said. “It is great that people have a choice what to buy.”

Bobby Enslow opened Indaba Coffee Roasters in West Central Spokane after completing outreach work on a trip to South Africa, chatting with his pastor and meeting with community leaders.

“At the time, (West Central) was one of the poorest neighborhoods in the city,” he said.

Enslow – with startup capital of $10,000 – partnered with nonprofit Spokane Urban Ministries to open Indaba. The nonprofit was a business incubator for Enslow by allowing a reduction on rent to set the groundwork for the business.

Enslow said Indaba is structured as a family business with components that give back to the community, by offering second chances to individuals who have been out of the job market or by providing meals for someone in need through each purchased bag of coffee.

“Even the little things have the opportunity to change people’s lives,” he said. “It’s more than just a space.”

When the Kendall Yards development came in, the neighborhood changed and credit union STCU featured Enslow in a commercial that elevated Indaba’s visibility.

“There was just enough right variables for the coffee shop to stay, live and grow,” Enslow said. “The mantra for Indaba is love people, love coffee. I really want (our business model) to care about people from farmers to surrounding communities.”

Enslow looked at Seattle coffee shops and Portland-based Stumptown Coffee to see what they accomplished, and he incorporated those insights into Indaba. He began roasting coffee beans in 2014 and opened a second coffee shop in 2015.

Spokane a

‘test market’

The coffee industry has experienced three waves, according to the National Coffee Association: a first wave, in which consumers gained greater access to coffee; a second wave, which was a period of growth for coffeehouses and saw the introduction of lattes and cappuccinos to consumers; and a third wave, in which attention shifted to coffee’s origins, the quality of beans and the purity of coffee through artisan production methods.

Enslow said a new wave of coffee has arrived, one that incorporates hospitality and craftsmanship to make the beverage a culinary experience.

“In the new wave, you have to get away with both,” Enslow said.

The shift toward specialty coffee could either be consumer- or industry-driven, Enslow said.

Spokane’s specialty coffee trends trickled over from Seattle and Portland but aren’t yet as developed as those of Europe or Australia, Enslow said.

Australian-based cafe Proud Mary opened its second establishment in Portland last year and is on the cutting edge of coffee industry trends, Enslow said.

Enslow said Spokane is “kind of a test market.” When Indaba first opened, he tried to push new trends too fast.

“I had to try to find what Spokane is ready for. It’s slow to adopt in many ways,” he said. “I can’t do something trendy that I see on Instagram and expect it to work in Spokane.”

But, he said, coffee trends that survive in Spokane tend to stick around.

Endurance:

from drive-thrus

to roasters

Aaron Rivkin and his wife, Katie, are trying something different in Spokane’s drive-thru coffee scene. The couple opened Ladder Coffee and Toast – a specialty coffee drive-thru stand – in October.

Rivkin said it was fairly easy entering Spokane’s coffee industry because Ladder is one of few drive-thru stands serving specialty coffee.

“We are specific on what we do to set ourselves apart,” Rivkin said. “Being in the specialty coffee industry brings a new standard to drive-thrus. They aren’t known for good coffee but for having that caffeine fix really quick.”

Rivkin said half of his customers return, but the shop attracts a large number of new customers through social media and word of mouth.

Rivkin relocated from Arizona, where he co-founded Kream Coffee – a small multiroaster coffee shop that includes a walk-up window. He said Spokane’s drive-thru coffee scene is progressive compared with Arizona.

“In Arizona, opening a coffee stand is trial and error,” he said. “The drive-thru scene there is definitely populated by sweet, blended drinks such as Red Bull sodas. They are not coffee-focused, but hospitality-driven sugar stops.”

People in the Northwest are receptive to coffee trends and individuals used to a burnt coffee flavor now are realizing that coffee has flavor notes, Rivkin said.

“We educate our customer base used to that quick fix that there is so much more to coffee than they realize,” he said.

Rivkin said he recently purchased a microroaster and plans to roast his own coffee.

“A lot of people venture into roasting,” he said. “It’s more cost-effective as a business long-term.”

Hammer said he’s unsure how long the third wave of coffee is sustainable because it’s limited to market size; however, coffee shops aiming to improve coffee quality, knowledge of supply and roasting techniques is a great movement in the industry.

“We’ve all embraced it, took pieces of it and brought it to our companies the best way that we can,” Hammer said. “We have a lot of great players in the industry. I think everyone has to keep improving their business model because the consumer has come to expect higher-quality coffee. We all have to do a better job.”

Spokane-based roaster Cravens Coffee Co. also was part of coffee’s second wave that occurred during the 1990s.

Simon Craven Thompson got his start in the coffee industry at Seattle’s Best Coffee, when it was an independently owned roasting company.

Thompson, along with his wife and business partner, Rebecca Templin, opened Cravens in 1993.

Cravens Coffee Co. has become one of the region’s largest coffee roasters and sells its coffee in several states, including Montana, Arizona and Colorado.

Thompson – who took his first coffee-buying trip to Costa Rica in 1991 – traveled to several countries and built relationships with coffee farmers that evolved over the years.

During the 1990s and early 2000s, a new roaster would enter the Spokane market every few years, he said.

“Now, there’s been a proliferation of roasters in the last five years,” Thompson said. “It has exploded, which makes it very interesting.”

Because Cravens was able to diversify out of the area and gain long-term, high-quality customers, it helped the company avoid local market battles, Thompson said.

“For local chains such as Wake Up Call, Dutch Bros. and Thomas Hammer – that’s a battle,” he said. “That’s something that has changed. Coffee shops are battling for real estate, market share and to be the dominant local minichain.”

Jacob’s Java – which became the first drive-thru coffee shop in Spokane when it opened in 1992 – is still thriving.

Brothers Scott and Paul Jacob saw a drive-thru coffee stand during a visit to Marysville, Washington. They thought a drive-thru stand could work in Spokane because of their own struggle to find or pay for parking to get a cup of coffee.

Paul said when they opened their first Jacob’s Java stand at Sixth Avenue and Washington Street – before Starbucks arrived in Spokane – there were naysayers, and the business wasn’t taken seriously. Their landlord even chuckled at the idea of a drive-thru.

They were busy right off the bat.

“As soon as (Starbucks) came to town our business increased,” Paul said, adding that people were looking for a friendly and affordable alternative.

Jacob’s Java expanded to six drive-thru stands and remains successful in a market full of sit-down, retail coffee chains.

“There’s always going to be that niche,” Paul said. “But our (coffee shop) caters to people that want a cup of coffee quick.”

The Jacobs brothers took a coffee roasting class at Diedrich Roasters in Sandpoint and eventually opened Gemelli Coffee Roastery.

Because they roast their own beans, it reduces overhead costs. They supply to other drive-thru stands, restaurants and grocery stores.

“One thing about roasting our own coffee is we can guarantee freshness,” Paul said. “We know when it was roasted and the consistency is so much better. It’s more of a quality control over what we do.”

Consumer confidence is a huge factor in the coffee economy, Paul said. The brothers saw business drop with rising gas prices and during the Great Recession.

“With the economy now, people are OK with spending $4 on a cup of coffee,” Paul said.

In addition to coffee shops, third-wave roasters all are battling in the local market to appeal to the progressive millennial who has a lot of options, Thompson said.

“There’s loyalty, but only to a point,” Thompson said. “That’s what keeps roasters on their toes. If you ever take a customer for granted, you are going to lose them.”

While there isn’t oversaturation in the market yet for roasters, 2018 promises to be interesting, said Thompson.

“Spokane doesn’t get the booms, but we don’t get the busts either,” he said. “It will be interesting as everybody uses the most appealing attributes to draw customers in.”

Cravens Coffee Roasters provides its roast to more than 800 wholesale accounts, Thompson said.

“I never thought of us as being one of the big veteran coffee companies. But when you look at 4 Seasons Coffee Company, they were the originators,” he said. “We’re in a very active market. At the end of the day, if you have loyal customers, you are doing something right. There’s a vast array of ways to do this. I’m going to keep trying to make it better.”

Tom Hutchinson and his wife, Leslie, founded 4 Seasons Coffee Co. – Spokane’s first specialty coffee roastery – in 1976.

Hutchinson said coffee became popular in Seattle during the 1980s and popularity spread as people traveled and learned coffee techniques from other areas.

“It just took off,” Hutchinson said. “We had a market from the day we started.”

Hutchinson said Spokane’s coffee industry compares with the rest of the U.S. “very favorably.”

“Outside of Washington, there’s nobody in the Midwest or the East Coast, besides parts of New England, that does what Spokane does,” he said. “Spokane has pretty sophisticated coffee these days. There’s a lot of small coffee roasters that are very good.”

The U.S. coffee industry is expected to grow to $42 billion by 2021, with coffee bean prices expected to rise as well, which allows coffee retailers to boost prices and increase revenue, according to IBISWorld.

Hammer agrees the coffee economy is solid and the next five years will be promising for Spokane’s coffee proprietors. He plans to open three or four additional stores this year.

“I think for most people in coffee, the future is bright and the supply chain is there for good coffee,” Hammer said.

Challenges

in the specialty coffee market

Specialty coffee shops come with their own challenge: hiring skilled baristas, Edwards said.

“I am looking for people that want to invest for a long time period, learn more about specialty coffee and want to make the coffee shop great,” Edwards said.

Because coffee has become commodified, there’s a low-barrier market entry point for people wanting to open coffee shops. But even with the saturation of coffee shops, it’s difficult for them to compete with larger, more established companies. Also, managing individual growth is another challenge, Enslow said.

“It’s natural for businesses to want to be the best in (their) industry,” Enslow said. “Even though we have two locations and are a mom-and-pop shop, the challenge is if the company gets too large for the community it supports.”

Enslow plans to open a large wholesale roastery in March and will sublease space to other businesses as well as launch an employee profit-sharing component for Indaba.

“I don’t ever see myself on top of the pyramid,” Enslow said. “That’s how I want to treat my business as we grow. And a step towards that is launching profit-sharing.”

In a competitive coffee industry, it can be difficult to find a mentor. But in Spokane, coffee shop owners tend to work together, he said.

Enslow typically will see a financial hit as revenue divides when more shops enter Spokane’s market, but when Vessel Coffee Roasters opened last year, there wasn’t much of a revenue decrease.

“It’s a sign that we’re on the tipping point of the market starting to grow … there’s synergy among those touting specialty coffee,” he said.

Enslow expects Spokane’s coffee industry to be different in a year with the opening of Roast House’s high-end coffee bar in downtown Spokane that will feature a 40-foot coffee bar.

Enslow is curious to see what big roasters will do in the market as microroasters are beginning to innovate.

“As I enter the market, I have an advantage because roasters don’t typically own a coffee shop,” he said. “There were lots of things I learned as a coffee shop owner instead of a roaster.”

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