Bluegrass coffee shop wars: Starbucks versus the independents


“I wrote this article in a coffee shop. With technology changing the way people work, individuals have become more mobile and coffee shops have emerged as places to meet, check e-mail, work or maybe even just to kill time between appointments. There has been tremendous growth in this foodservice segment over the years and that growth continues apace. Additionally, specialty coffee is an affordable luxury, and one that can be enjoyed daily. According to the Specialty Coffee Association of America:

1. Of the United States adult population, 53 percent drink coffee daily, which is the highest level in twenty years.

2. On a per capita basis, coffee drinkers average 3.3 cups per day.

3. Specialty coffee sales are driven by frequency, which implies a high repeat business intent.

Additionally, the National Coffee Association has reported that coffee consumption has increased significantly among the 18-24 age group and has also increased among the 25-29 age group. This creates enormous opportunity to capture brand loyalty early.

Locally, the greater Lexington area has seen a tremendous influx of the Starbucks chain. The growth of the chain in this market came after they saw demonstrated success at their Chevy Chase location at the site of the old Cosmos. In addition, the sandwich/specialty bread chains Panera Bread and Cosi have done well here and have strong morning day- part businesses. Strong brands like these offer stiff competition to local independent coffee shops with their brand strength, advertising dollars and national purchasing power. In this article, we’ll explore some ways the independent coffee shops “fight back.”

Starbucks and Dunkin Donuts are the two big players on a national and international level, and each is in a serious growth mode. These chains do target a slightly different demographic, but there is overlap as well. Additionally, many fast food chains have or are planning to implement coffee quality upgrade programs.

I frequent many of the local coffee shops in the area and have noticed that the ones that survive and perhaps thrive do so because they are a “coffee shop plus,” which means they bring an added dimension to their business that generates extra traffic and increased frequency. One of these is offering free wireless Internet access, which has become almost standard. Another approach is the serving of “fair trade” coffee and organic coffee. However, many of them do other unique things, with the “plus” dimension being tangible or intangible.

One of my personal favorites is Third Street Stuff Cafè. This coffee shop is located behind the Third Street Stuff retail store, which creates a synergy through each business creating extra traffic for the other. The place also differentiates itself with a wonderful and attentive owner, Pat Gerhard, who has decorated the place in a fun arts centric and eclectic fashion.

A newcomer on the regional coffee shop scene is The Hub in downtown Danville. This coffee shop is located in a building that has been redeveloped. As part of the redevelopment project, Centre College relocated their bookstore to the same building, and the two businesses are connected, with customers being able to walk from one to the other.

One of the more innovative and unique ways a coffee shop has differentiated itself is Dink’s Cafè, located at Turfland Mall. The front of the operation is a fairly traditional coffee shop, but in the rear of the coffee area is a huge place where locals (mostly teens) can gather and participate in LAN gaming.

On High Street is Common Grounds, which displays the work of local artists and has its own low-key, Bohemian-like personality. It also has different rooms and a wide array of furniture for different groups and moods.

Coffee Times is a great place to stop and has a retail element to it as well. The Honey Bean Coffee shop in Tates Creek Centre sells coffee by the pound and will feature an occasional performing artist too.

All of these shops offer independent alternatives to chains like Starbucks, which is becoming ubiquitous on an almost McDonalds-like level. However, there seems to be a segment of consumers who want an alternative. An extreme example of this is the existence of the Web site www.ihatestarbucks.com. Another interesting site is www.starbucksgossip.com. It was reported recently in the Wall Street Journal that Starbucks Chairman Howard Shultz recently issued a memo to company executives that the chain may be straying from its roots and succumbing to “commoditization.” This will be important to watch. Additionally, in most Starbucks there is a nominal charge for wireless Internet access, which is an irritant to some consumers.

Personally, I frequent the independents and Starbucks and enjoy both. If you are looking for coffee shop locations in Lexington or other towns, a useful Web site is www.delocator.net. Another indirect approach to finding coffee shops is to search for Wi-Fi hotspots with sites like www.wifinder.com. If you just want to learn about coffee, check out www.coffeeresearch.org.

In closing, I think the Starbucks and Dunkin Donuts are here to stay and so are the wonderful independents with their unique personalities and their own version of “plus.” This results in variety and great consumer choice.

Mark Sievers, a former restaurant executive with Yorkshire Global Restaurants and YUM! Brands, owns the business brokerage and consulting company The Sievers Company LLC. He can be reached at thesieversco@aol.com.

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