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Competition heating up for customers who crave upscale coffee
Convenience stores, quick-service eateries to boost their brews to compete with Starbucks' beans with a pedigree
Wednesday, June 04, 2003

To a coffee drinker, one of the best things about convenience stores and family restaurants is the endless pots ready to replenish any empty cup.

Andy Starnes/Pittsburgh Post Gazette
While on her way to work recently, Tina Salem of the South Side stopped at the CoGo's on East Carson and 24th streets for a cup of the store's World Cup House Blend.

But since Starbucks began seducing customers with lattes, cappucinos and espressos made from beans with a pedigree, there's been unrest behind the counters at convenience stores, doughnut shops and restaurants.

"People assume you can't get good food or good coffee at a convenience store," said Tammy Dunkley, advertising manager for Altoona-based Sheetz.

The operators, of course, say it isn't so. But because they aren't willing to gamble their sales results on that claim, everyone from Sheetz to CoGo's convenience stores to trendy doughnut maker Krispy Kreme and local restaurateur Eat'n Park have been sniffing beans, tasting new blends and buying fancy new pots to serve up their new, improved coffees.

"We changed the whole program," said Ray Kostrzycki, director of marketing for Upper St. Clair-based CoGo's, which earlier this year finished rolling out its World Cup coffee program to 79 stores. World Cup not only uses special beans but takes the brew off those venerable heating elements that get blamed for ruining the flavor.

These type of quick-stop stores and restaurants already do a hefty share of the morning pick-me-up trade. Eat'n Park, for example, poured 15 million cups of coffee last year, with the biggest portion -- 38 percent -- coming between 5 a.m. and 11 a.m.

But they all see competition from specialty shops growing in Western Pennsylvania, especially from the ubiquitous green-and-white Starbucks stores. The Seattle-based coffee shop credited with teaching the mass market about gourmet coffee is making its bid for dominance, growing from 11 locations locally five years ago to 28, plus one in Erie and another in State College. A few weeks ago, Starbucks also agreed to buy the Seattle's Best coffee business, which has two area locations.

If inroads by a business selling a $3 cup of coffee seems less than world-shaking, consider that coffee historically has been the second most traded commodity on the planet, trailing only oil.

For convenience stores, which according to the National Association of Convenience Stores saw profits slide 24 percent last year, coffee is big business, accounting for $3.7 billion in sales in 2002. The pertinent fact is that people drink coffee a lot more often than they fill up the gas tank, even during the summer, so if a retailer can become part of a customer's morning routine, it can count on lots of repeat visits.

When Sheetz opens a new store, it sends out coupons good for a free coffee within 30 days. "It's all about changing habits," said Dunkley. "Coffee is a habitual purchase."

Sheetz, which two years ago made the position of coffee hostess mandatory in its 280-plus stores, got even more intense this year and introduced a new coffee bean mascot to show that it has the real fresh stuff.

The convenience stores' efforts to battle the bad coffee image have even changed how long they allow a freshly brewed pot sit, putting strict time limits on to prevent delivering any bitter results.

For years, people accepted coffee made one way.

Mrs. Olsen made quite an impression with her Folger's mountain grown "It's the richest kind'' pitch. That genre of coffee is made from beans roasted, ground, packaged and then shipped to the grocery store or the retailer. The bulk of coffee sipped in the United States is still made that way.

The specialty coffee boom took a product that had become a commodity and developed a niche of coffee snobs -- people who want to know where the beans were grown and when they were roasted, want to watch the coffee being brewed and are willing to pay more for the perceived freshness.

In addition to taking more care in controlling the source of their beans, the quick-serve stores have invested in new brewing systems that usually cost more. On the other hand, profit margins tend to be higher. And the stores have found they're better off cultivating the upscale reputation than cutting their prices.

Proof that the trend is national, Krispy Kreme not long ago acquired a Chicago coffee company, Digital Java Inc., and relocated its operations to a new coffee roasting facility built at the doughnut chain's Winston-Salem, N.C., plant. Last year, the company began testing a new format with five "doughnut and coffee shops."

A National Coffee Association survey found that the percentage of coffee drinkers who'd had gourmet coffee rose from around 8 percent in 1999 to 13.5 percent in 2001. That has since slid to 12 percent this year, but the association believes that's because many younger workers drinking upscale coffee at the office lost their jobs. They still want gourmet coffee, they just don't have as much money or occasion to drink it.

The Eat'n Park organization first connected with those young coffee lovers through its Parkhurst Dining Services operation, which operates dining rooms and coffee shops inside corporate offices and on university campuses. At technology firms such as Marconi Corp., coffee became a recruitment issue. People used to getting upscale java as a job perk on the West Coast wanted the same amenities if they moved to Western Pennsylvania.

The executives created a special unit, Barista Cafe, with specially selected beans and expensive brewing machines.

Now, the restaurant group wants to see if the blends will expand its traditional audience. Eat'n Parks in Homestead, Franklin Park and Austintown, Ohio, now offer the blends in addition to the regular coffee. They're even selling it for the same price, just to see how the setup works.

"We're having a difficult time integrating it into the restaurants," admitted Brooks Broadhurst, vice president of purchasing. The two systems of making coffee use different equipment and do not sit side by side in the restaurants. Employee training differs for the two techniques, as well.

But Eat'n Park executives believe a portion of the coffee-drinking hordes will be more likely to come back once they find a specialty roast in the restaurants. The company also wants to be well-positioned for shifts in the customer base as young people start having families and find themselves waiting not for coffee, but for Smiley Cookies.

First published on June 4, 2003 at 12:00 am
Teresa Lindeman can be reached at tlindeman@post-gazette.com or 412-263-2018.