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Starbucks Acquires Clover Manufacturer, Should Have Seen It Coming

March 27th, 2008 by Mark Harris

Starbucks announced last week they are acquiring ‘The Coffee Equipment Co’, manufacturer of the Clover brewing machine. See Seattle PI article “Starbucks deal ‘dream come true’ for manufacture of coffee maker“.

We’ve been talking about the Clover brewing machine quite a bit lately. See “Starbucks Tests the Clover in Several Stores” for more detailed information about the Clover brewing system.

Starbucks has been testing the Clover in several stores for the last few months. So, pending a successful outcome of the limited Clover testing, it only makes good business sense that Starbucks would acquire the manufacturer. Evidently, the test phase indicated good results.

Starbucks CEO, Howard Schultz, said they plan to put the Clover machine into all but the smallest stores. The machine is not inexpensive, a single unit sells for around $11,000. Let’s see, Starbucks has about 7100 stores in the US, and over 15,000 stores world wide. Let’s be conservative and say that they will put a Clover in 5,000 stores. Without acquiring the company, let’s say Starbucks were able to negotiate a significant volume discount and purchase the machine for $5000 per unit. That’s a $25 million purchase order right there.

The initial investment raised to launch ‘The Coffee Equipment Co” in 2004 was around $1 million. The small 11 person operation publishes that they have sold the machine to between 200 and 300 independent coffee houses in the US and Canada. Some stores have purchased two machines, so let’s again be conservative and speculate that the company has sold about 1,000 machines to date. At the current price of $11,000/unit, that would be about $11 million in sales over the last 5 years.

Hey, my numbers could be way off, but any way you cut it, the Starbucks purchase order alone would easily exceed the annual revenue of the company by a wide margin. And most companies acquired in a transaction like this are valued at some multiple of annual revenue or gross sales.

The other consideration for a volume order this size is the necessary financing that ‘The Coffee Equipment Co’ would have to secure just to scale up the manufacturing capacity. So, it only makes sense that Starbucks has acquired the company.

And good for Zander Nosler who co-founded ‘The Coffee Equipment Co’. I’m sure a very nice pop for him and the others with equity positions, as well as the private shareholders.

I’ve had the opportunity to try a cup off the Clover at four or five different independent coffee houses. The brewing system definitely produces a good result in the cup. Not necessarily dramatically better than what you might be able to achieve with a proper French press extraction, but consistently good results.

The real benefit with the Clover, in my opinion, is the ability to dial in the right parameters to achieve the same consistent result time after time for each custom brewed cup of coffee. And do this in a busy commercial environment where waiting for a 5 to 6 minute brew cycle with a French press or drip brew bar would be too inefficient. The Clover can typically complete a predictable full extraction custom brew in less than 90 seconds.

The acquisition, while probably a good thing for Starbucks, may be a disappointment for other coffee aficionados and independent coffee houses. The independent specialty coffee retailers, the initial target for the Clover machine, have been successful in differentiating a premium offering by offering coffee brewed with a Clover. And at a fairly hefty investment for the small store at $11,000 per unit. From what I can tell, the Clover has been a successful drawing card.

I’m sure these independent store owners would like to maintain this edge, and that will probably change somewhat once the Clover is brewing coffee at most of the Starbucks stores.

For Schultz, he would like to shift the edge and distinction to Starbucks, so he bought the company. However, although consistent with an ongoing initiative to upgrade the coffee experience at Starbucks, I’m not sure the Clover makes complete sense. The real distinction of brewing with the Clover is the ability to consistently bring out the full flavor and subtle taste characteristics from premium coffee beans, especially the interesting single origins such as a Sumatra Mandheling or an Ethiopian Harrar.

I just don’t see Starbucks in this end of the specialty market, at least not presently. But maybe that’s where Starbucks is headed? Today, I’m not convinced that the typical Starbucks customer who comes in for a cup of drip is interested in more than the one or two batch brew offerings that Starbucks prepares.

Hey, but then I don’t run the company either.

The good news, for interested coffee enthusiasts out there that have been waiting to see what the Clover is all about, your chance seems to be coming soon at a local Starbucks near you!

Posted in Starbucks | 33 Comments

Naturally Decaffeinated Coffee Species is a Remarkable Discovery

March 26th, 2008 by Mark Harris

I ran across this interesting post on “The Coffee Shop” today about the benefits of using decaffeinated coffee. I learned something new that I wasn’t aware of … scientists have discovered a “naturally decaffeinated” species of coffee plant growing in Brazil. An amazing discovery.

For many coffee lovers, the stimulant effects of caffeine are intolerable. The only viable solution, other than avoiding coffee entirely, is decaffeinated coffee. Fortunately, there are many excellent varieties of premium coffees available in decaffeinated form. For the most part, the decaf versions are quite good, and taste very similar to their caffeinated counterparts.

However, a bit bothersome to some folks, the decaffeination process involves various chemical processes that generate concern. I get questions from readers all the time concerning the safety of decaffeinated coffee. Again, the good news is the current commercial decaffeination methods are quite safe, and are approved by the Food and Drug Administration (FDA). To be accurate, the Swiss Water method does not actually expose the coffee beans to any chemicals, and is the only decaf process that is certified organic.

Nonetheless, a species of coffee that actually produces naturally decaffeinated coffee beans is remarkable, and will likely open up new markets for coffee lovers and consumers looking for a natural decaf solution.

Scientists in Brazil made this discovery in 2004, so this may not be immediately ground breaking news. See this article Natural Decaf Coffee Discovered by Brazilian Scientists. The article points out that the discovery is a species of “Coffea Arabica“, the most widely grown coffee around the world, which significantly raises the possibility for cross breeding the decaf characteristics of the newly discovered coffee plant.

Posted in Coffee Banter | 1 Comment

Joe Momma’s Coffee – Avila Beach, California

March 15th, 2008 by Mark Harris

Last weekend, we took the drive up from Southern California to Napa and Sonoma in Northern California for Russian River Wine Barrel tasting – wine tasting futures. So what does this have to do with coffee?

Well, we followed Highway 101 all the way up. Not quite the spectacular scenery as Pacific Coast Highway 1, but a beautiful drive this time of year. And along the way, we took the time to stop at a few coffee houses. Hey, I love the wine, but a few stops at a couple of great coffee houses was the highpoint of the weekend for me.

As part of our ongoing series to spotlight the emerging and growing specialty coffee culture, what a great opportunity to start in our own backyard with some of the finest specialty coffee houses and coffee roasteries that California has to offer.

This road trip was also an opportunity to track down a few coffee houses brewing with the Clover. We’ve been talking about this the past few weeks and have been looking forward to sampling some great coffee brew and finding out first hand what the Clover can do.

With the coffee culture preeminence so clearly defined in the Pacific Northwest, and the epicurean preference for fine food and fine wine in California, you might expect a more established California coffee culture, with artisan roasters and truly wonderful coffee houses abounding everywhere.

Not quite the case, but we’re getting better. Northern California has led the charge ahead of Southern California, but we’re starting to see the emergence of more interesting specialty coffee houses and boutique roasters springing up in Southern California as well. Which means one thing. The consumer interest and demand for great coffee is growing. And that’s what we like to see at the Gourmet Coffee Zone!

Back to the road trip, our first stop, Joe Momma’s Coffee in Avila Beach, CA.

Joe Momma's Coffee - Avila Beach, CA

Joe Momma’s Coffee
310 Front Street
Avila Beach, CA 93424
(805) 627-1500

Avila Beach is a beautiful beach side community tucked in between Pismo Beach and San Luis Obispo. And the community is lucky to have a great coffee house like Joe Momma’s Coffee.

We arrived around 10:30 am Friday morning, and enjoyed a very pleasant visit and some great coffee. The store was comfortably busy, with several contented locals relaxing on the sidewalk seating out front, sipping coffee while enjoying the ocean breeze and view of the bay. Plenty of comfortable and inviting space up on the second level with a few more happy coffee customers either visiting with friends or working away at their computers.

I’m sure it’s not unusual at all to find students from Cal Poly State University, only a few miles up the road in San Luis Obispo, find their way down to Avila Beach and book some time at this appealing coffee house.

Joe Momma’s Coffee opened for business about ten months ago, mid summer 2007. They embrace direct trade (a notch above fair trade) and include a selection of organic coffees and teas on the menu. Also affiliated with the business is an organic spa and a natural clothing store.

Their motto is “Honest Coffee * Worthy Views”. Smart and to the point, it is about great coffee, with a sensible commitment to environmentally and socially conscious values. Great coffee is about passion. And these folks have the passion.

In a more literal sense, the “worthy views” may also apply to the spectacular ocean view out the front window of the store.

Joe Momma's Coffee - view of the ocean bay out the window

How’s that for a serene and relaxing view while you enjoy a fine cup of fresh roasted coffee, or a superbly crafted latte?

We met Jonathan Withers, barista and store manager. Jonathan was gracious enough to spend some time with us in between tending to the customers’ drink orders. Jonathan, along with a great team of folks give this place a very friendly vibe. They love coffee, they know coffee, and they’re eager to provide a great coffee experience for the customer.

Serving single origins and blends from two great specialty roasters, Intelligentsia and Ritual, this is serious coffee. Intelligentsia follows a simple philosophy, “buy, roast and serve the finest coffees available”. Intelligentsia selects and roasts stellar coffee with a respectable commitment to the farmers. As mentioned, it’s obvious that Joe Momma’s Coffee shares this same feeling.

Joe Mommas Coffee
A view of the menu and the pastry counter as you step into the store. The store has a clean, stylish feel and the decor speaks with a compliment of pleasing bold colors (just like the coffee).

I was anxious to sample my first coffee brew from a Clover. But first, a shot of espresso to get warmed up. Black Cat, of course. Intelligentsia’s signature espresso blend.

Jonathan pulled a shot at the La Marzocco FB/80, prominently featured right up front. I enjoy an espresso bar setup where you can watch and engage with the barista.

Joe Momma's Coffee - La Marzocco

And a respectable shot of Black Cat espresso indeed. Nice, full syrupy body, hints of caramel, fruit tones, with a lingering dark chocolate finish. Intelligentsia Black Cat is always a favorite of mine.

Next, a few cups off the Clover brewing system. See this previous Clover writeup for more details and background.

Joe Momma's Coffee - Clover Brewing System

I went with two Intelligentsia single origins, a Kenya Kangocho lot, and the Guatemala El Cuervo.

The Kenya starts with a more intense aroma, with hints of lemon citrus and floral tones, and a sweetness throughout.

The Guatemala El Cuervo is produced from coffee grown in the HueHuetenango region of northwestern Guatemala, known for rich soil and ideal coffee growing conditions. This is the classic bourbon cultivar (pronounced bore-bone) common in various growing regions of Central America. Nice balanced acidity with a brightness, fruit traces of apples and berries, creamy mouthfeel, sweet with a chocolate finish.

The results in the cup for both coffees were superb coming off the Clover.

There’s an optimal extraction that you’re after to bring out the full qualities of the coffee in the cup. Under extracted, and you have a weaker cup, that doesn’t reach the full potential of flavor, body, and aroma, including the more subtle characteristics that may be present. Over extracted, and you start to introduce flavor defects including the bitters that tend to eclipse the best and most pleasing aspects of the flavor profile.

The variables to hit the optimum extraction window are water temperature, fineness/coarseness of the grind, ratio of ground coffee to water, and brewing or steep time. You can work with all of these parameters using a simple coffee press. But with a French press, it’s not easy to precisely control water temperature, and you can easily under or over extract missing the optimum steep time. And a coffee press usually takes about four minutes to brew, not to mention the cleanup to contend with afterwards.

Think of the Clover as a very expensive automated French press that enables precise and repeatable control of the four variables – water temperature, grind, coffee/water ratio, and brew time. The Clover is faster than a French press, and typical settings can produce a finished cup in under 90 seconds. The objective is to quickly and precisely brew a single custom cup, hitting the optimum extraction window each and every time.

As Jonathan explained to me, the Clover doesn’t arrive at the optimal settings automatically. Lot’s of testing and trial and error is necessary in order to arrive at the preferred settings that deliver the results you’re after. It’s a fair amount of work to line up a full set of parameters for the various coffees that a store may want to brew. Even with the Clover, you’re relying on the skill and tasting experience of the barista to arrive at the optimal results.

And just for comparison, Jonathan let me sample a defect cup where the brew time was taken a mere 4 seconds past the preferred extraction threshold. The cup was detectably bitter. Only 4 seconds too long. Surprising, actually.

Wrapping up, we had to try a latte. If you’re a latte fan, they don’t come any better than this. The organic milk really does taste better, with a special rich feel and flavor. And a proper drink is not complete without the latte art on the top. Nicely done!

If you’re in the area, make it a point to stop by Joe Momma’s Coffee for a visit. It’s a perfect stopping point midway between Los Angeles and San Francisco if you’re making the drive along the 101. If you’re a local, you are fortunate to have this special coffee house nearby.

Next time we head up north, we’ll most definitely be paying another visit.

Next installment, a review of Lulu’s At The Octagon in Santa Cruz, California.

Posted in Coffee Houses | 8 Comments

The Pacific Northwest – Coffee Culture Central

March 7th, 2008 by Mark Harris

You may not see it start. And you may not notice as it catches on and momentum builds. But at some point, when a cultural movement or a trend takes hold and seems to abound everywhere, you may ask how this came to be. Where did this change or shift in our life style come from, where did it get its start. And how is it defined?

Our modern coffee culture in the US is such a phenomenon. How is it that so many of us have replaced the simple cup of coffee brewed in our own kitchens every morning for a daily ritual of $5 lattes and other assorted fancy espresso drinks. And we’re perfectly willing to shift and adjust our daily routines and morning commutes to incorporate these coffee drinks into our lifestyle. Somehow, we seem to have redefined coffee and how we integrate it into our daily lives.

If you’re wondering where this modern coffee culture in the US comes from, how it all got started, the answer is the Pacific Northwest, coffee culture central. Between Seattle and Portland, and surrounding cities and towns, the hundreds of distinctive coffee houses and specialty rosteries come together to form a most remarkable and passionate coffee culture phenomenon.

Most are aware that several large and famous retail coffee chains originate from the region including Starbucks, Seattle’s Best Coffee and Tully’s Coffee. And to be fair, these companies have been important drivers behind the expansive coffee culture emergence throughout the US, exporting some of the indigenous and innovative coffee goodness that abounds in the Pacific Northwest.

Well I hate to break the news, but Starbucks doesn’t really define this remarkable coffee culture, at least not today. Starbucks certainly has its roots well founded in the Seattle coffee tradition, but those more influential beginnings go back almost thirty years. See “Starbucks History – A Tale of Innovation in the Coffee Industry“. Today, Starbucks has, by necessity, transformed into much more of a fast-food coffee drink specialist, running an impressive scaled-up operation with over 7,100 stores in the US and over 15,000 stores world wide.

The coffee culture that I’m referring to lives and breathes among the many independent specialty coffee houses and expert premium coffee roasteries that abound in the region. And more important, the passionate and creative coffee artisans behind these coffee establishments that push the envelope and define this dynamic and vibrant coffee culture that continues to evolve. And most important, the enthusiastic coffee customers that frequent these establishments and bring an unmistakable exciting energy to the table.

The best way I know to gain a better feel and understanding of “coffee culture central” is to take a look at some of the influential coffee roasteries and coffee houses that really stand out. And talk about some of the creative individuals that drive and contribute behind the scenes.

Over a series of articles and posts, I’m going to talk about some of the popular coffee houses and specialty roasters that help define coffee culture in the Pacific Northwest. It should be a lot of fun.

So stay tuned. And while your here, why don’t you go ahead and subscribe to the Gourmet Coffee Zone – Daily Blog so you can be sure not to miss out on the upcoming installments.

Posted in Coffee Culture | 8 Comments

Coffee Culture Fading in the Pacific Northwest?

March 5th, 2008 by Mark Harris

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!

Posted in Coffee Culture | 1 Comment

Starbucks Store Closing Was the Big Headline This Week

March 1st, 2008 by Mark Harris

Well, it’s behind us now. Tuesday, Feb 26th, Starbucks closed all 7,100 US stores for three hours, from 5:30pm to 8:30pm to conduct a company wide unprecedented employee refresh training session.

Howard Schultz, the company’s CEO, requested that approximately 135,000 employees participate in this refresher course to reinforce the standards on how Starbucks creates the drinks, including such tasks as pulling proper espresso shots, steaming milk, and bringing all the elements together.

This week’s retraining has been part of an overall initiative to raise the bar at Starbucks, and get back to the core business. In addition to the barista training Tuesday evening, the improvements have also included software upgrades and reprogramming of the Verismo automatic espresso machines, elimination of the hot breakfast sandwiches which have been criticized for overpowering the coffee aroma in the morning, and the introduction of free WiFi internet access (well, sort of free – available to Starbucks debit card holders for the first two hours per day).

Of course, closing down the stores for three hours has been criticized as more of a publicity stunt than a sincere attempt at a quality uplift. Well, perhaps a combination of both, but a pretty expensive publicity stunt if you ask me.

And the media has certainly had a heyday with this one. Did anyone miss the story plastered all over the press, the internet, the television, and the radio? The Starbucks store closings may have actually briefly eclipsed Britney Spears for just a moment. OK, sorry, that’s an exaggeration.

Competitors didn’t let this one sneak by either. Dunkin’ Doughnuts seized the opportunity offering a small latte, cappuccino or espresso drink for 99 cents from 1 pm. to 10pm Tuesday. The Dunkin’ Doughnuts official statement stated that this promotion, available only on the day that the Starbucks stores were closed for the three hour training, was to celebrate a top spot award in a brand loyalty competition. Right. And this wasn’t a Dunkin’ Doughnuts publicity stunt?

Nonetheless, whether it was the Dunkin’ Doughnuts relief for Starbucks refugees or not, it looks like die-hard fans survived without their Starbucks fix Tuesday evening. And shareholders can relax. It seems that store receipts for Tuesday were at about the daily average, so customers must have heard the news in time to stop in early enough and grab their drinks before the doors closed.

After all is said and done, did the training help? Well, I haven’t been back in yet to sample the drinks, but Starbucks employees talking about it over at Starbucks Gossip seem to be positive about the training. Employees are making comments that they’re happy and proud to be taking appropriate measures to improve the drink experience for the customers.

To be expected, someone did post a comment that they went into a Starbucks on Wednesday after the training, and some barista got the drink all wrong. Oh well, life’s tough. Apparently, Starbucks didn’t get a 100% result from re-training 135,000 employees the night before.

For good or bad, with all of the publicity surrounding the training session, the spotlight shines pretty brightly on Starbucks at the moment. I can only imagine the baristas and employees behind the counter having to force a smile as they hear for the millionth time from the next obnoxious and unoriginal customer that just has to ask “so are you trained now”?

Bottom line, in my book, good for Starbucks. They are making the effort, and for the most part, it seems that the employees are behind the company. I expect some good to come as a result of these initiatives.

Posted in Starbucks | 40 Comments

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