A recent article article in the Los Angeles Times, Tea revolution brewing in coffee-saturated Seattle, suggests that recent personnel shake-ups at Starbucks and Tully’s, two major coffee house chains with corporate headquarters in Seattle, might be an indication that the coffee culture in the Pacific Northwest could be shifting in a new direction.
The author sites the recent Starbucks announcement to cut 600 jobs, and the Tully’s announcement of several top executive resignations, as evidence that the retail coffee business continues to be a struggle for these companies. And follows with a segue that perhaps the hot beverage market in the Northwest might actually be shifting away from drinking coffee toward specialty tea.
There is definitely clear evidence that the specialty tea market continues to expand. In fact, this interest and enthusiasm for fine tea has been attracting a growing customer base for some time. Many of the specialty coffee houses and chains also offer gourmet tea products including Peet’s Coffee & Tea, Coffee Bean and Tea Leaf, and many independents as well.
The emergence of tea houses that exclusively offer specialty tea only, no coffee, is not surprising, given the expanding consumer interest and demand. Interesting speculation I suppose, but I think it’s a stretch to suggest that this constitutes a shift en masse from specialty coffee consumption to tea.
Rather, I think the growing demand for specialty tea is more likely cumulative on top of the consistent and sustained demand for coffee.
There’s no question that business challenges exist for Starbucks and Tulley’s. This is probably more indicative of current business cycles, the economic climate, and problems specific to the Starbucks and Tulley’s businesses, than a shift in consumer demand away from coffee over to tea.
With the number of stores at over 15,000 worldwide, and more than 7,100 stores in the US, Starbucks has a formidable shareholder obligation to sustain business growth and expansion year over year. A certain market saturation of their own stores may be a more significant barrier to sustained growth for Starbucks than a softening demand for coffee. After all, how many Starbucks stores can you pack into a single area and continue to have room for new store expansion?
In addition, Starbucks has it’s own problems with respect to product quality and customer satisfaction and the company currently has initiatives underway to improve in these areas. The quality and satisfaction problems combined with the current economic downturn have been attributed to a slight drop off of customer traffic. Nonetheless, in spite of the reduction in traffic, Q4 2007 earnings, revenue and same store sales were actually up year over year.
Problems at Tully’s is a slightly different story. There clearly seems to be a leadership challenge with seven CEO replacements in as many years. The recent resignation of Tully’s CEO John Buller, in apparent disagreement with cutbacks mandated by the chairman and the board to bolster the company’s finances, suggests continued problems for the 140 store Seattle based chain. In fact, the company has struggled to achieve any sustainable profitability for the 15 years its been in business, racking up total losses of over $88 million.
So challenges for Tulley’s aren’t new or the result of some recent shift in consumer demand for coffee. In fact, establishing and growing a larger scale retail coffee chain intending to compete head on with Starbucks is a tough proposition, and this has proven to be true for Tulley’s.
While Seattle has been the spawning ground for several impressive big brand coffee chains including Starbucks, Tully’s and Seattle’s Best Coffee, these corporate chains don’t necessarily continue to define coffee culture in Seattle today.
What truly makes the Pacific Northwest unique for coffee is the number of independent and distinctive specialty coffee roasters and coffee houses that continue to thrive and define innovative coffee culture that is indigenous to the area.
A similar phenomena to Northern California for world renown wine country, the Pacific Northwest including Portland, Seattle and surrounding cities and towns can truly lay claim as the driving force of coffee culture in North America. And this coffee phenomena remains robust and vital today.
The good news is that this coffee culture phenomena is spreading. More and more distinctive specialty roasters, and passionate coffee houses with truly talented baristas are popping up everywhere. And enthusiastic customers are seeking and tracking down these new and exciting coffee experiences, looking for the next level after Starbucks to take their coffee adventure.
Is the coffee culture fading in the Pacific Northwest. I hardly think so!