Coffee n' doughnuts: a love affair. (Cup Service).

Decades before the white chocolate latte there was the cup of coffee. Rather, it was a "cup of joe," "java,"--basic stuff. A Lot of it was made at home and the rest was served in restaurants, coffee shops and, of course, doughnut houses. Many of the first doughnut shops were family-run bakeries

that sold doughnuts and offered customers a cup of coffee and a table or two. As the pace of American life increased during the years shortly before and after World War II, more and more Americans found that a doughnut and a cup of coffee came to define breakfast. From there, it didn't take an Alan Greenspan (who was too young then, anyway) to figure that if one doughnut shop could make money, then a hundred of them could make a lot more.

Maybe because a doughnut is to coffee what a nice slice of Stilton cheese is to a good glass of port, doughnut shops came to stake their reputation as much on their coffee as they did on their doughnuts. Managers realized that their customers, for the most part, were buying both products and they'd be, well, nuts not to differentiate their coffee as well as their doughnuts. And they did. Doughnut shops are known today, through all the hoopla of the specialty coffee revolution, for serving a better than average, and almost always fresh, cup of light roasted coffee.

Now, of course, doughnut shops have had to fight back against the latte/scone pummeling they've been receiving over the past 10 years or so. They've had to offer a few more types of coffee drinks and tinker with an espresso machine here and there. They have seen their sales suffer and had to watch one location after another go to a high rent coffee house rather than to a more modestly budgeted doughnut shop.

There's a chance, though, that coffee houses may be the ones on the ropes in the next round, however. It's just possible, with the stock market continuing to adjust downward, that the long feared yet much anticipated latte backlash will finally sweep the nation. Just as North Americans are now slowly figuring out that their gas guzzling SUVs (this writer's included) may not be the most prudent vehicle in which to be driving during an era of questionable oil supply, they may also wonder why they are taking that SUV to a coffee house where a latte and scone will cost them close to six bucks when they could spend a third of that on a plain old cup of brewed coffee and a glazed or jelly doughnut (or two). Yeah, well, the brewed coffee and doughnut aren't quite as hip but who's to say they won't be retro by next spring. Years later, it may become apparent that the white chocolate Latte was, in fact, the Ford Excursion of coffee drinks.

Another factor weighing in favor of a return to a basic cup of coffee is that it would mean a greater focus on brewed coffee and, therefore, a greater emphasis on coffee itself rather that milk and ancillary flavorings. It might even mean that coffee houses and doughnut chains would not only have to buy fairly decent coffee and roast it well but brew it fresh and maybe (cross your fingers) at a strength approximating the brewing standards in force during the middle of the 20th century (i.e. 4 ounces of coffee by weight to a half gallon of water).

If any doughnut chain has a chance of out-hipping the coffee houses it's Krispy Kreme. While being careful to cater to their core clientele and not pander to yuppies, Krispy Kreme has certainly attracted its share of SUV-driving latte sippers as it has expanded into newer markets. Now, they are reassessing their coffee program and revitalizing it.

According to Stan Parker, senior vice president of marketing at Krispy Kreme Doughnuts, Inc. their reason for developing new coffee roasts was more about living up to their own standards of quality, than about competitive positioning. Up until a couple of months ago, Krispy Kreme only offered a house blend and a decaf at their stores, but just recently they've expanded their coffee-offerings, which involved building a state-of-the-art coffee roasting facility in Winston-Salem, North Carolina.

Parker explained, "What we were starting with was not any type of positioning against competitors or anything like that. What we were realty starting with was our customer who comes in for coffee and is not having the type of experience we wanted him to have. So it went back to really trying to do coffee the way we do doughnuts."

"We're 65 years old and we've been making doughnuts and coffee for a long time," Parker said. "We know our customers love the doughnuts. They tell us in so many different ways. We get letters and about 10,000 e-mails a month. Many of those e-mails are testimonials and sort of heartfelt expressions of love of the doughnuts. You would just be amazed."

"We do some surveys and get feedback. We've always gotten very, very high scores on the quality of the doughnuts. The coffee was just O.K., our previous coffee. And we knew that when someone came in and had an experience in the store, we wanted the coffee experience to be just as good as the doughnut experience. A lot of things have been going on in the coffee category in the last 10 years or so. I think people have become more discerning about coffee and a little more knowledgeable. Their expectations have gone up."

To meet those expectations, two years ago, Krispy Kreme began a journey to provide their customers with better coffee and more choices. Parked recalled, "We went around the country talking to a lot of potential partners--national brands, roasters, regional roasters. And in our quest we found a small microroaster in Chicago called Digital Java. And what we found there was some people who had the passion and knowledge for coffee that we had about doughnuts. And so, long story short, we bought the company and they moved to Winston-Salem where we built a state-of-the-art micro-roasting coffee factory. D.J. McKee was the owner of Digital Java and he now heads up our beverage program. He came down and all his folks came down."

Krispy Kreme makes their doughnut mix and all of the equipment the doughnuts are made on. "There's a lot of attention to quality and freshness, so we took that same approach in coffee," Parker explained. "So we built this state-of-the-art roasting factory right next to our mix plant. Each Krispy Kreme store gets a shipment at least once a week of mix, so now they get a shipment of freshly roasted coffee beans."

"As we built the factory we began to work on developing our roasts, our blends. We did a lot of consumer sensory tests. There's a lot of different coffees out there and not to oversimplify, but people fall into one of four categories generally--light, medium, dark or decaf. Through talking to consumers and doing sensory testing we developed four new roasts. We wanted to give them names that really describe taste, so we have--Smooth, Rich, Bold and Robust Decaf."

Parker continued, "The way we're creating these, it's a micro-roasting approach in that the beans are roasted first and then we blend. Our commitment is to not brew anyone any coffee in our stores with beans that are more than 28 days old. We won't ship it to the store if it's more than 12 days, which has an incredible impact on taste."

Parker noted, "We use beans that are among the top 50/0 quality in the world and we roast in this method that I just described and we ship it fresh to the stores and we talked to consumers about all that. And they said, 'Yeah you know, that's fine, but if you just tell us you're doing coffee the way you do doughnuts, that's all we need to know: So it was a validation of how we approached it."

In some stores, they are also testing an expanded beverage program that includes espresso drinks and frozen blended drinks.

Preparing to open up their first store outside of North America, in Sydney, Australia (in March 2003), Parker said the company is really focused on expanding into new markets or filling existing markets and continuing their quality. "We are just trying to focus on what we do. It's a little unusual, we're 65 years old and yet we only have about 245 stores in 37 states and it's sort of like a start-up."

While great tasting coffee has always been a priority at Tim Hortons, Canada's largest coffee and fresh baked goods chain, it's not a large part of their current competitive positioning, mostly due to the fact that the company is 38 years old and they have developed a very loyal group of customers who are well aware they can get a great cup of coffee at Hortons. "The chain is built on coffee," said Greg Skinner, corporate communications representative at Tim Hortons. "It's been kind of the cornerstone of the chain. Our customers are very loyal, they come in two, three times a day."

So when it comes to keeping up with other quick serve chains, Tim Hortons focuses on expanding their lunch menu. "We have other baked goods, sandwich, bagels, soups," Skinner said. "So we're just not coffee, doughnuts. We've expanded the menu in the last 15 years to expand into the lunch market. So really we've become more, almost like a restaurant."

Tim Hortons has recently expanded into the U.S. market, though, and this is where positioning their coffee becomes a little more important. They want to make Americans aware of the great coffee that their Canadian counterparts have been drinking for years. The U.S. commercials introduce the chain and focus on the coffee and talk about how a fresh pot of coffee is brewed every 20 minutes.

In addition to opening up four new locations in Rochester, New York in September, Tim Hortons also opened a coffee roasting plant in Henrrietta, New York which will supply coffee to all U.S. Tim Hortons stores. Other U.S. locations are mainly in the Buffalo, NY; Columbus, Ohio; and Detroit, Michigan areas.

"Our expertise in coffee over the 38 years we have operated can now be translated into the actual roasting process with this state-of-the-art facility," said Paul House, president & c.o.o. of the coffee and baked goods chain.

The roasters at the new facility will also be creating a blend for Wendy's International, Inc., which purchased Tim Hortons in 1995. "It was a good acquisition, a good business decision," Skinner said of the roasting plant.

The Tim Hortons special blend of coffee has been closely guarded from the beginnings of the chain, and, according to Skinner, is subject to stringent quality assurance measures by a team of coffee experts located at the Tim Hortons head office in Oakville, Ontario.

"We do extensive testing and cupping of our coffee to ensure the highest quality standards are met, and now our people can extend that quality right into the roasting process here in Rochester," said House. "We start with the best possible Arabica beans from various countries of the world to create our special blend, and can follow those beans right through the roasting and packaging processes."

The premium blend coffee, made from 100% Arabica beans, is available in decaf and regular. Customers can also purchase cans of coffee to make the brew at home.

"We have an 'always fresh promise,"' explained Skinner. "If we brew a pot of coffee and it's not sold in 20 minutes, we throw it out. So you're always getting a fresh cup. The blend was created back in the 1960s and the flavor profile is very popular. It's kind of become a Canadian icon."

Skinner continued, "The coffee has always been there so in the last ten years, we've expanded the menu through baked goods sandwiches and soups. The coffee hasn't changed and customers always like it, we've just added the other food products to the menu. We've never changed the coffee, but now we've branched off from that. Like in 1996 we introduced bagels and now we sell one out of every two bagels in the country."

Perhaps the sleeping giant in the doughnut/coffee wars will prove to be Dunkin Donuts, USA, a company that is perhaps just as well known for its coffee as it is for its doughnuts. The company, based in Randolph, Massachusetts, has 5,000 combined locations in the U.S. and 35 countries around the world, and when Bill Rosenberg (who passed away recently) founded Dunkin' Donuts in 1950, he believed that he could provide a better tasting, richer cup of coffee that people would pay 10 cents a cup for, instead of 5 cents, which was the standard price during that time. Since then, Dunkin' Donuts has continued their philosophy of providing only the best coffee to customers. According to Dunkin' Donuts, the chain has since become the largest retailer of coffee, serving over 2 million cups of coffee per day. Recent TV spots that have a man sipping up a small amount of spilled coffee on his desk with a straw, reinforce the image of the rabid Dunkin' Donuts coffee drinker.

Ed Valle, director of beverages, Dunkin' Donuts commented on the popularity of their coffee. "Since opening its doors in 1950, Dunkin' Donuts has been known for its great coffee," he said. "In fact, in fiscal year 2001, coffee attributed to 1/2 of Dunkin' Donuts' overall sales. Dunkin' Donuts has always offered customers premium quality at a value price."

Valle continued, "Over the past few years, we have increased our coffee drink offerings to include Dunkaccino, a creamy mocha drink, and Vanilla Chai, a creamy combination of tea, vanilla, honey and spices. Dunkin' Donuts also offers the Coolatta, a frosty frozen beverage, as well as Iced Coffee. Dunkin' Donuts has always offered customers a wide variety of coffee beverages to choose from."

Doughnut shops are not at risk of becoming the coffee purists savior. They aren't emphasizing their coffee programs out of nostalgia or an aesthetic appreciation for the stuff. Rather, they see it as an opportunity to attract new customers and win back old ones. Indeed, as doughnut shops, coffee houses and even burger chains increasingly encroach on each others menu territories, they will all use coffee to attract what customers they can, to the extent coffee can do it. Even the coffee house, however, is under no obligation to push a drink that is less popular than, say, their chai cappuccino. The recent emphasis on coffee at the continents leading doughnut shops is a golden opportunity for the coffee industry. It's one that should be encouraged. The more consumers know about coffee, its great taste and the value that a simple and well-brewed cup of the stuff represents, the more they will seek it out wherever they can find it.

Timothy J. Castle is the president of Castle Communications, a company specializing in marketing and public relations for the coffee and tea industries. He is also the co-author (with Joan Nielsen) of The Great Coffee Rook, published by Ten Speed Press, and the author of The Perfect Cup (Perseus Books). He may be reached at: (310) 479-7370 or via E-mail at: qahwah@aol.com