Supermarkets Try On Coffeehouse Chic

Starbucks, the ubiquitous coffeehouse chain, has achieved a $7 billion market capitalization by selling consumers not just coffee, but "a coffee experience" in a cup. Well, growing numbers of supermarkets are starting to bring their own versions of the Starbucks experience in-house, a gamble with promising results.

Of all new stores planned in 1998, 42 percent were slated to feature a beverage bar of some kind, according to the Food Marketing Institute. And since then, a growing number of well-known supermarkets have made serious financial commitments to coffee bars, self-serve, and entire cafés.

Draeger's, a three-store independent headquartered in Menlo Park, Calif., has been milking the coffee scene at its in-store cafes since 1991, but it just made another $5,000 investment to add its first on-site roasting machine. The fee is refundable if Draeger's returns the machine. It also pays a fee to roast.

Seattle-based Larry's Markets struck the same deal with supplier Fresh Roast Systems, and has installed roasters in each of its five stores. And while Baltimore-based Metro Food Market won't give specific costs, the dimensions of its 600-, 700- and 900-square-foot café additions speak volumes. Investments in its chic Donna's Coffee Bars include paying architects to reproduce coffeehouse ambiance in-store.

Such moves are drawing so much positive industry response that even Starbucks, which sells its premium brand in supermarket aisles, is performing an about-face. Ironically, the superstar coffee chain tried out a single supermarket-based model in 1980 in Washington state, but only took up the idea again to license its famous name to in-store cafes in February 1998.

Why did the powerhouse hesitate? "We didn't do it right out of the gate because we didn't want to be seen as convenient," says Jim Alling, senior vice president of business alliances. "We wanted to establish the coffeehouse experience first before going this big."

Are the in-store cup sales worth all this fuss? Perks from the concept include increased sales from café traffic and better margins than even superpremium shelf brands have produced. Indeed, if prevailing coffeehouse wisdom works here, too, better coffee margins are the whole point of creating better coffee-drinking environs, says John Ryder, founding president and CEO of Metro Food Market. "We make 50 percent on sales of coffee in our in-store cafés and just 12 percent on sales in the aisles of the store."

Still, is a hefty initial investment in related time and staff training worthwhile, when supermarkets have so many other categories to promote? The reason coffee receives such attention, say some, is not its own contribution to sales but its potential to drive sales of everything else.

"We took a sampling across supermarket chains of the average customer buying any one of Starbucks' items like our cappuccino drinks and ice cream," says Alling. "And these are high brand-loyalty people who end up spending more than $70 per trip."

With that kind of selling power at stake, the proponents of cafés argue that adding one increases foot traffic by such customers and therefore should not be ignored as a chief way to boost incremental sales.

"That's why we have a café," says Anne Alenskis, spokeswoman for Albertson's in Boise, Idaho, where Starbucks last November licensed its name to an existing Albertson's café, the first of 200 Starbucks locations to hit various grocery stores. "With the popularity of espresso coffee drinks, it makes sense to make this another one of our destination departments just like an in-store bank, meal center, or video store."

While Albertson's is just now remodeling some of its cafés under the Starbucks brand, it has run cafés on its own for more than a year. "By the end of July, with new Starbucks locations and remodelings, we'll have over 190 coffee bars," Alenskis says.

Statistics show that where there's coffee, coffee drinkers follow. And a good 76 percent of the population has a daily coffee-drinking habit, according to the National Coffee Association, a New York-based group of 175 growers, importers and retailers. More interesting to grocers is the fact that occasional drinkers who, Alling says, spend more per cup, are rapidly on the rise: They total 64 million, according to NCA, a figure almost double the 34 million total reported less than a decade ago.

The association says a surge in the number of gourmet coffeehouses from 450 in 1991 to a whopping 7,500 last year helped coax growth in the sought-after occasional coffee drinkers. And on average, the nation's 177 million coffee drinkers are sucking down more of it—3.5 cups daily last year, compared with the average 3-cups-a-day habit in 1998.

"The appeal of coffee is expanding into areas where it complements leisure activity. You may not consider supermarkets as such an area, but when they add cafés to get shoppers to spend more time there, that's what they become," says NCA spokesman Gary Goldstein.



The Look and the Aroma

Of course, the appeal for shoppers lies in presentation. And that's where some supermarkets' feverish efforts to transplant coffeehouse atmosphere come in. As a sampling of in-store coffee bar concepts reveals, they're experimenting with ambiance fixers from ritzy fresh bean roasters to lighting and chic uniforms. Meanwhile, sizes of programs run the gamut from bars occupying just three to four square feet to eateries, dominating upwards of 900 square feet, with entrances of their own.

Metro Food's take on the concept is one of the more upscale. The 21-store chain, a Baltimore-based subsidiary of Supervalu, Inc., last October launched its first of three in-store cafés to be jointly run with Donna's Coffee Bar & Café, a local upscale chain. The mood is set by workers in trendy, black outfits and a menu of items like cappuccino and roasted vegetable sandwiches, typical of Donna's chi-chi fare.

And Metro, known as a big spender on any grand opening, didn't stop there. "Down to the lighting and the gray-and-black color scheme," Ryder says, "we've really tried to boutique it."

He is also trying to share the benefits of fatter margins with other areas of the store. For example, Metro has shifted sales of some prepared foods such as panini sandwiches, fresh bagels, and muffins from its deli to the Donna's Café. "They're sharing consumer credibility and brand equity," says Ryder, who adds that Donna's is already luring more shoppers than the in-store Pizza Huts and Taco Bells that Metro experimented with before. "They just don't bring high performance like coffee."

Draeger's, which went even grander with a two-level, 1500-square-foot café, believes its real strength lies in distilling the concept to its essence: a freshly ground coffee aroma. So, the chain acquired some last January in the form of a high-tech coffee bean roaster from Petaluma, Calif.-based Fresh Roast Systems. Unlike earlier, cost-prohibitive bean roasters, Fresh Roast's required no professional roast master or intrusive smokestack, making an expensive-smelling aroma more affordable. "This roaster was attractive, because people love the smell of grinding coffee," says Richard Draeger, vice president and bakery buyer for the family-owned stores.

And much like Metro, Draeger's wants to spread the allure of café chic storewide. From sourcing to stock, it has transformed its coffee program.

"It pays for itself, since we get a higher price per pound on the retail side. Plus, it has increased whole bean sales and definitely cut into sales for roasted, packaged coffee competitors. We're now using coffee roasted in the café to stock the shelves," Draeger says, adding that 60 percent of all whole bean sales now come from the Fresh Roast Systems machine.

Additionally, the rich scent of fresh roasting fits well with Draeger's other fresh, prepared food programs like in-store cooking lessons with celebrity chefs and dramatic wood-fired pizza ovens. "The idea of offering entertainment around food is to get people watching or experiencing anything cooking," he says. "That's the intangible benefit."

For the Fresh Roast program, Draeger's pays a roughly $2.30 roasting fee per pound roasted on orders of 35 pounds or less. Besides Larry's Markets in Seattle, Balducci's in New York City has a similar program, all aimed at enhancing their reputations as gourmet.

At the opposite end, but still benefiting from the coffee craze, is Nescafe's take on the so-called immediate cup. The company's recent product launch included a vending machine and a modular coffee bar concept that can be set up as either a staffed kiosk or a self-serve station.

Albertson's Starbucks makeovers of existing cafés may be the concept's middle of the road: Featuring conveniences such as microwaves, a coffee bar, meal centers, and seating, depending on the size of the store. "Customers have a cup of coffee while shopping," says Alenskis in a matter-of-fact tone. "Many people go to coffee shops as a destination. It's all part of our one-stop philosophy."

With so many supermarkets gambling on the concept, who'd ever guess that most coffee is still consumed at home? "My dad," answers Alenskis, with a laugh. "He still prefers to have his coffee at home." Looks like Starbucks isn't everywhere after all.