The coffee business needs a pick-me-up.
Sales have dropped dramatically at Starbucks, Peet's and Diedrich, and the outlook isn't good.
So International Coffee & Tea LLC, which owns and operates the Coffee Bean & Tea Leaf stores, is facing challenges. What will it do?
Slowing expansion. New emphasis on breakfast, with an expanded menu. Renegotiating leases.
But Chief Executive Melvin Elias believes the company will be able to stay hot despite a cooling environment.
"The coffee business isn't a trend," Elias said. "It's a sustainable beverage. People need it to focus, to be social. People need a place where you can spend $3 and treat yourself. It's an affordable luxury. There's a need for people to go somewhere they can feel good about themselves."
Although the company opened 100 stores worldwide last year, it also closed about 20. Same-store sales were down in the "midsingle digits" last year, he said, and profits are slim.
Coffee Bean has been able to negotiate lower rents for some of its stores. The company may have to close an additional eight to 10 stores in the United States this year if it can't get better deals with landlords.
"Rents were making it prohibitive to do business last year, and the traditional building of new stores wasn't giving the return we needed," Elias said. "We have been able to negotiate leases, and we think that's reasonable because strip malls have vacancies. And we have to have lower rents because sales are down."
Elias said Coffee Bean is focusing on improving its existing locations and will not be opening any company-owned stores in California this year. That's because most coffee drinkers just aren't ordering from barristas the way they used to.
"People are watching where they are spending money in everything," said Matt Milletto, vice president of coffee business consultancy Bellissimo Coffee InfoGroup in Portland, Ore.
Catering to customers
Instead of buying tall drips at the counter, they're purchasing packages to take home. Coffee bars will still have customers, though, so the chains have to find a way to cater to them.
"Sometimes you need to be around people," said Angie Delia, a 30-year-old freelance writer enjoying a muffin at a Coffee Bean on South Beverly Drive in Beverly Hills. "I come to Coffee Bean pretty frequently because it gets lonely working at home."
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