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."

Even though she doesn't have a full-time job right now, Delia still buys the occasional latte.

"It adds up, but it's a lesser expense than going out to dinner," she said.

To reach out to customers like Delia, Coffee Bean is introducing a "spice bar" with ground nutmeg and ginger for flavoring drinks and food. Stores will feature stands offering packaged tea. The chain will also begin serving hot and cold breakfast foods.

The "breakfast bar," which is being tested in three L.A.-area stores with a fourth coming on line in the next couple of months, features made-to-order oatmeal, fruit-and-yogurt parfaits and cold cereal.

But Coffee Bean isn't the only chain seeking new ways to appeal to its customers.

Panera Bread, a quick-casual caf & #233; chain, is beefing up its coffee and breakfast offerings with new roasts and a yogurt parfait. In January, Panera gave away free samples of its new menu items, as well as samples of its existing hot breakfast foods.

Jamba Juice, best known for its fruit smoothies, has recently added yogurt parfaits and oatmeal to its menu. And McDonald's is making inroads with its premium coffee drinks.

Elias said that he wants Coffee Bean to be known for its quality offerings, not just the latest trends.

"We've discussed buying cheaper coffee, tea and milk, but that would affect our brand," he said. "We haven't changed the quality of the product."

Local goes global

International Coffee was founded in 1963 by Herbert Hyman, selling coffee beans and tea tins at a Brentwood store. The company started selling made-to-order drinks there in the early 1980s.

In 1996, brothers Sunny and Victor Sassoon bought the franchise rights to Asia, and started opening stores in their native Singapore. Two years later, they merged their operations with Hyman's, buying him out. The Sassoons still own a large part of the company, with the rest owned by a group of investors, and Sunny Sassoon serves as executive chairman.

The company now has 720 stores in 20 countries, with 296 in the United States. All the company's Southern California locations are company owned, including the 104 in Los Angeles County. Worldwide, International Coffee owns 278 Coffee Bean stores. The rest are franchised.

Coffee Bean sells its packaged products on the company's Web site. The brand is also sold in grocery stores throughout its territory California, Nevada, Arizona and Hawaii and Target. Sixty-three Ralphs grocery stores also have Coffee Bean kiosks that offer a limited menu.

The company roasts its own beans in a facility in Camarillo and bakes it own pastries in Santa Monica.

Because of its West Coast presence, Coffee Bean's biggest competitors are other West Coast companies: Starbucks Corp., Peet's Coffee & Tea Inc. and, to a lesser extent, Diedrich Coffee Inc. all public companies.

International Coffee has contemplated going public in the past, but Elias said it hasn't needed to raise that kind of cash yet.

"It's not something we ever needed to do," he said. "We had cash from other sources and were able to execute our business plan without going public. It's a highly regulatory process we can do without. But it's something we would consider if we ever needed cash."

Elias acknowledged that things aren't going to be perking up right away.

"We're going to get by because we're large enough, we're diversified," he said. "Thank goodness for the international revenues we've had. We think we'll come out of this fine, but in the meantime, it's going to be very tight."

International Coffee & Tea LLC

Headquarters: South Robertson

Chief Executive: Melvin Elias

Year Founded: 1963

Core Business: Sales of packaged coffee and tea, and made-to-order beverages

Employees: 2,965 (down from 3,040 in 2008)

Goal: To increase sales by adding menu items

Driving Force: The desire for coffee and tea presented in a social environment

For reprint and licensing requests for this article, CLICK HERE.