Coffee Bean & Tea Leaf, one of many Davids in the battle against Goliath Starbucks Coffee Co. for java supremacy, is set to brew up more business.
The largest and oldest chain of coffee stores in Southern California is undertaking an $11 million expansion in California and Arizona, opening as many as 30 new locations by the end of the year.
The Los Angeles-based company has earned the reputation as a quiet but healthy competitor to Starbucks. After almost 40 years in business, the chain has grown to 139 stores, with operations in Singapore, Malaysia, Taiwan and Israel.
"What has made us successful is the understanding that the product is really the foundation to any successful company," said Melvin Elias, the company's vice president of operations. "The secret to remaining successful is to provide the best service, product and environment."
The Coffee Bean & Tea Leaf, a unit of International Coffee & Tea LLC, roasts coffee daily at its facility in Camarillo in order to deliver a fresh product to its customers, he said. The company, founded in 1963, also imports and flavors its own teas and makes its own chocolate and vanilla flavoring.
The company recently moved into Phoenix, Ariz., with two stores and San Francisco, where it opened an outlet in Pacific Heights.
"We want to take advantage of markets that have been undeserved by our brand," Elias said. "These markets include consumers with roots in Los Angeles who are familiar with the company's name and reputation."
The chain operates 68 specialty stores along the West Coast. At an estimated cost of $350,000 per new store, the company is expected to spend about $11.2 million this year to expand to 100 U.S. outlets.
"We are not here to be the largest chain of coffee stores at the expense of our product," he said. "We feel the market is large enough for all of our competitors."
Despite its size, the chain has enjoyed consistent increases in revenue. Coffee Bean & Tea Leaf generated $60 million in worldwide sales in 1999 and, while the 2000 results haven't been tabulated yet, officials of the privately held company expects revenues to come in just under $100 million.
Even though that represents a 40 percent growth in revenues, the company's size still pales in comparison with that of its main competitor. Globally, Starbucks is still on top with more than 2,100 locations.
The Seattle-based company reported net revenues of $281 million for the five-week holiday period ended Dec. 31, an increase of 24 percent from $277 million for the same period of 1999. For the first quarter ended March 31, Starbucks reported net revenues of $667 million, up from $529 million the year before.
"We see the tremendous growth of the specialty coffee store chains continuing at the expense of traditional coffee outlets in the U.S.," said Patrick Schumann, a consumer analyst with Edward Jones in St. Louis. "Those traditional coffee outlets losing market share include brands like Folgers and Maxwell House."
Elias added: "There are 161 million coffee drinkers in the United States, with more than 12,000 specialty stores to serve them. Coffee is no longer the old man's drink; it has become a part of the American culture."
Schumann said that specialty coffee stores have enjoyed recent success in Asia, while conditions in Europe have been tougher.
"The potential for growth in (Asia) could be a gold mine for these companies, if they have the products (Asians) want," he said.
Europe, on the other hand, has been a harder market to penetrate because of well established habits that include the neighborhood caf & #233;. "It's more challenging than the wide open fields of Asia," said Schumann.
Coffee Bean & Tea Leaf operates 69 stores in Asia, and plans to open additional stores throughout the region over the next two years in Hong Kong, Australia, the Philippines and South Korea.
In 1996, Victor Sassoon, a Singaporean entrepreneur, bought the Asian franchise for Coffee Bean. Elias said the stores that Sassoon opened have been so successful that in 1998 he purchased International Coffee & Tea from its founder Herbert B. Hyman for an undisclosed amount.
"We entered Asia several years ago with the idea that, if we could create a name for ourselves in Malaysia, which wasn't a developed coffee market, it meant we had a worldwide brand," said Elias.
Janet Lowder, a restaurant industry consultant with Restaurant Management Services in Palos Verdes, said chains like Coffee Bean can have an impact on the industry by offering a wide selection of products at competitive prices.
"A mom-and-pop chain definitely affects the larger chains and forces them to stay on top of their game by making sure their prices are reasonable, the quality is good and their employees are well trained," said Lowder.
To separate itself from the competition, Coffee Bean & Tea Leaf offers an ongoing training program for employees that includes education about the world of coffee and teas. Elias said the program also includes progressive measurement of how much each of the company's 3,000 employees worldwide is learning about the company's products.
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