Getting HOT
Small Business Profile: Owners of It’s A Grind coffee chain pick up steam with ambitious expansion plan throughout Western states
By CONOR DOUGHERTY
Staff Reporter
Few people can say a rude latte slinger inspired them to chase their dreams. But when a barista at Marty Cox’s local coffeehouse refused to give him a freebee, Cox decided he would get into the coffee business. Now he’s taking on Starbucks.
“I was in that place every day for a year and I forgot my money one time and the guy wouldn’t let me pay the next day,” said Cox. “You know what he said? ‘No money, no coffee.’ I went home that night and said, ‘That’s it.'”
Cox, now 35, dumped his job as an office supply salesman for Office Depot, and with his wife, Louise Montgomery, opened up their first It’s A Grind coffeehouse in July 1995.
Financed with $100,000 from a few credit cards and driven by a goal for down-home customer service, the Coxes had opened five stores in the Long Beach area as of 2000, each generating in excess of $500,000 per year.
The couple is getting serious about expansion, too, using franchises to pursue a rollout of stores throughout the West. “I think Marty’s idea will translate in communities other than Long Beach,” said Steve Shoeman, the company’s chief executive.
Since hiring Shoeman, a veteran of the franchising business, It’s A Grind has signed 86 franchising deals in California, Arizona, Colorado and Nevada. Another 200 franchisees could be licensed in the next two years.
“Eighty-six stores is definitely rapid for a new franchise,” said Don DeBolt, president of the International Franchise Association. “The expectation of 200 units might be hopeful.”
‘Stay local’
Hopeful might be generous, particularly in a market where one company, Starbucks, is so dominant.
“Generally speaking, the way in which you compete with established chains is you stay local,” said Matthew Patsky, a managing director with Adams, Harkness & Hill in Boston. “It is not unusual for entrepreneurs with a successful local concept to jump to the conclusion that there is national potential,” he said. “The reality is there are reasons why they are successful locally and those reasons may not hold nationally.”
Shoeman said the actual growth rate would be controlled. Of the 86 stores with license agreements, only two have opened and more are scheduled for completion in the next month. The company said it would take at least a decade before all 86 locations open.
But while most of the new stores aren’t even slated for a particular location, company revenues have jumped to a projected $12 million this year, from $4 million in 2001. That’s because It’s A Grind charges an up-front franchising fee of $25,000, plus six percent of gross revenues.
Beyond having management experience and a friendly demeanor, It’s a Grind requires that franchisees have a net worth of $250,000, $75,000 liquid. It costs about $200,000 to open a single location.
The rapid expansion is mostly due to what’s called “area development deals” blocks of stores sold with a pre-determined development schedule along with the rights to a particular geographic area. Of the 86 deals thus far, 60 were sold with area development rights.
The franchising program got an early lift last August when it sold Jerry Alesia, a founding partner of copy outlet chain Kinko’s, the right to develop 27 stores in Las Vegas over the next seven years.
“I saw it as an opportunity to get in on the ground floor of something that could be really big,” Alesia said. “And obviously coffee is a hot commodity right now.”
No sleepy market
But does the world really need another coffee chain?
“Until everybody can walk to a coffee house and get a properly prepared espresso, we’re not even approaching saturation,” said Mike Ferguson, marketing and communications director for the Specialty Coffee Association, based in Long Beach. Ferguson says that in 2001 only 14 percent of adults were drinking specialty coffee daily, up from 9 percent the year before.
“Part of the reason Starbucks opens two or three stores in an area is because they want to keep the lines down,” said Bob Phibbs, It’s A Grind’s marketing director. “We want to make sure that we give people a choice.”
Only three years ago the company teamed up with two other cafes to form the Long Beach Independent Coffee House Alliance. The group started an anti-Starbucks ad campaign whose slogan, “We wake up in Long Beach every day,” emphasized local control.
Cox said It’s A Grind is different from large coffee retailers because all the franchised houses will be locally owned. But like Starbucks, each “store must look and feel like an It’s a Grind Coffee house,” Cox said, pointing out that franchisees do not have the freedom to play around with the details.
And each store has its share of bohemian touches: paintings of music idols like Billie Holiday and Miles Davis (all outlets must play jazz) and space for chess matches and a poetry reading or two.
At one of the stores the other day, an apple cider was ordered, after which a cheery employee asked, “Did you want caramel with that?”
“No,” the customer answered.
“It comes with the drink,” said the employee. “But it seems weird so I always ask.”
PROFILE: It’s A Grind
Year Founded: 1994
Core Business: Gourmet coffee and espresso beverages.
Revenues in 2001: $4 million
Revenues in 2002: $12 million
(projected)
Employees in 2001: 75
Employees in 2002: 110 (projected)
Goal: To have 75 locations opened by 2003.
Driving Force: A passion to serve each customer the best quality coffee in an environment that feels like home.
