As shares hit $17 in January 2008, Schultz took back the reins as president and CEO. On February 23, 2008, Starbucks closed all outlets for over four hours to retrain baristas in proper (and more theatrical) espresso, latte, and cappuccino technique, using new semiautomated machines.
At the March shareholders’ meeting, Schultz announced that beans would be ground in-store again to bring back aroma. Starbucks also purchased the company that made the $11,000-per-machine Clover, a gizmo that purportedly brewed a superior individual cup of coffee—the regular coffee equivalent to the creation of espresso. The next month, the company introduced its lighter-roasted Pike Place blend to appeal to those who complained about burnt beans. In May, Starbucks introduced a Loyalty Card offering free refills and Wi-Fi.
The stock price fell anyway, in the midst of the worst financial crisis to hit the United States since the Great Depression, to $13 in July, the month the company announced that it was closing 600 U.S. stores and cutting 1,000 non-retail jobs. At the same time, it closed most of its Australian outlets.
In October 2008, 10,000 Starbucks employees descended on New Orleans for a pep rally and massive volunteer clean-up effort for Hurricane Katrina survivors. But the hemorrhaging continued, with the share price dipping below $8 in December 2008. In January 2009 Schultz announced that he was closing three hundred more stores, slashing 7,000 positions, and himself taking a cut in pay. The stock began a slow climb back up toward the $24 level by April 2010.
In 2009 the company introduced Starbucks VIA, an instant coffee prepared in a unique way that, the company claimed, approximated the taste of its regular coffee. Schultz clearly had his eye on the huge soluble coffee market of England and Japan, as well as competition with single-servers such as the K-Cup, Nespresso, Tassimo, or iperEspresso. In a move that appeared to admit that Starbucks was in real trouble, he opened three Seattle stores named for their street location, such as 15th Avenue Coffee and Tea. They sold wine and beer, offered live music, and were designed to look like local coffeehouses.
Despite its problems, Starbucks remained a global behemoth, with plenty of room to expand internationally. As it was cutting stores in the United States, it opened a net seven hundred new outlets overseas. It had stores in fifty countries. The familiar mermaid logo was not about to dive under the waves and disappear.
Who’s on Second?
Though there appeared to be no real specialty coffee challenger to Starbucks—Caribou was a distant second in the United States, Second Cup in Canada—there was a ready-made competitor with 31,000-plus franchises worldwide: McDonald’s. The first McCafé opened in Australia in 2003, and the hamburger fast food chain introduced its espresso drinks in the United States in 2009, opening over 14,000 stores to challenge Starbucks. The beans were sourced by Bill McAlpin’s La Minita/Distant Lands team to create a specialty all-arabica blend. The same year, Dunkin’ Donuts, which had always prided itself on its coffee, conducted blind taste tests supposedly showing that consumers preferred its coffee to Starbucks. It had over 6,000 stores, mostly in the Northeast.
Starbucks spokesmen insisted that there was little to worry about. The demographics and image of the upscale coffeehouse chain didn’t appeal to the middle-class/blue-collar McDonald’s and Dunkin’ Donuts consumers, and vice versa. If Starbucks was losing sales, it appeared to be due primarily to people cutting back on their luxuries during the recession.
In contrast to Starbucks, Vermont-based Green Mountain Coffee Roasters (GMCR), under new CEO Larry Blanford, was booming. It sold its cobranded Newman’s Own Organic coffee in New England’s McDonald’s, roasted Jane Goodall’s Gombe Reserve beans to help save African chimps, and placed its beans in ExxonMobil’s convenience stores. Most important for its bottom line, in 2006 it purchased Keurig Inc., which made single-cup brewing systems for use with K-Cup portion packs. GMCR bought the brand and wholesale operations of Seattle-based Tully’s Coffee in 2009 to give it a presence on the West Coast, then the wholesale and roasting operations of Timothy’s Coffees, based in Toronto.
GMCR stock soared in 2009 as more home consumers purchased the single-cup brewer, with one model priced below $100. The nitrogen-flushed K-Cup capsules allowed single servings of various origins and flavors of coffee, tea, or cocoa.
The Third Wave
Buyers for specialty coffee companies travel the world to source beans. They generally combine an obsession with coffee’s taste profile with an adventurous spirit and a big dose of altruism, knowing that their purchases at reasonable prices are vital to the livelihood of the people they meet. Lindsey Bolger of Green Mountain Coffee Roasters and Peet’s Shirin Moayyad are typical of the breed. “Where I source beans, there are many different languages and cultures, but if you speak the language of coffee, you can communicate on a deep core level,” Bolger told me.
Moayyad lived in Papua New Guinea for over a decade. One of the first things she did upon joining Peet’s in 2005 was to arrange for the company to donate money to construct a primary school on a New Guinea coffee estate. Since then, she has sourced coffee throughout Central America, Brazil, East Africa, Yemen, and Sumatra.
“When people go to coffee origins such as Guatemala or Nicaragua,” Moayyad said, “they are impressed with how primitive life is. But that is nothing compared to Papua New Guinea, where people often live in grass huts without electricity, with animals wandering freely in and out. These remote estates are nowhere near public schools, and the children of tribal laborers were receiving no education before this school was built.”
Then there are what writer Michaele Weissman called “third wave” coffee people in her book God in a Cup.126 She featured younger cutting-edge coffee buyers Geoff Watts of Chicago’s Intelligentsia, Duane Sorenson of Stumptown in Portland, Oregon, and Peter Giuliano of Counter Culture in Durham, North Carolina.
They are all members of the Roasters Guild, which grew out of Donald Schoenholt’s organizing a “Roastmasters Roundhouse” at the 1995 SCAA Conference. Officially incorporated in 2000, with Schoenholt as president, it was modeled after medieval craftsmen’s guilds, and it grew into a vital organization of independent roasters who, at the annual Roasters Retreat in a remarkably noncompetitive atmosphere, share their passion for small-batch roasting the finest beans.
The third wavers form a direct relationship with growers, help them improve quality, and pay top dollar for their beans. They do not usually eliminate all middlemen, however. Sustainable Harvest, in Portland, Oregon, Elan Organic, in San Diego, California, and Royal Coffee in Oakland, California, often import such beans. Led by founder and president David Griswold, Sustainable Harvest invests two-thirds of its operating income in helping farmers improve their coffee. Beginning in 2003, in order to promote transparency and communication, Sustainable Harvest brought together roasters, growers, exporters, importers, and even baristas in a producing country for an annual event called Let’s Talk Coffee.
No one could be more passionate and fanatical about coffee than George Howell, who is old enough to be the third wavers’ father. He roasts his Terroir Coffee in Acton, Massachusetts, and is constantly pushing the envelope to achieve high quality. For instance, he wants farmers to ship their green beans in airtight plastic containers instead of the traditional burlap bags that allow off tastes and smells to permeate the beans. He then deep-freezes the green beans to keep them from staling.
Cupping at Origin
In 1996, Paul Katzeff of Thanksgiving Coffee asked a group of Nicaraguan farmers, “How many of you have tasted your own coffee?” No one raised a hand. He subsequently wrote a grant proposal leading to U.S. Agency for International Development (USAID) funding for cupping labs at origin. These labs made a huge difference in getting coffee growers to understand why it is vital that they harvest selectively, process carefully, and identify particularly fine trees and growing conditions. Starbucks and illycaffé also dispatched agronomists to help growers improve their coffee and learn to taste it.
Cupping labs a
nd a host of experts, partially funded by USAID, then helped Rwanda establish a reputation for exquisite beans. In the country where Hutus tried to exterminate their Tutsi neighbors in 1994, people from the two tribes now work in harmony to grow and sell coffee.
There have been many other extraordinary outcomes from the cooperation of roasters and growers. Paul Katzeff sells Delicious Peace, coffee grown on a Ugandan cooperative consisting of Christians, Muslims, and Jews. Community Coffee of Baton Rouge, Louisiana, convinced the feuding Colombian towns of Toledo and Labateca to work together to produce a great blend high in the Andes.
In 2003 the Coffee Quality Institute (CQI), part of the Specialty Coffee Association of America (SCAA), partnered with USAID to fund programs such as Coffee Corps, sending volunteer coffee experts to origin as advisers in a kind of specialized, brief Peace Corps. CQI also trains “Q cuppers” who can certify that particular beans meet a high standard. The designation was intended to raise the bar (and the price) above the C market, though not as high as the Cup of Excellence.
Rock-Star Baristas
The dawn of the twenty-first century saw the arrival of global barista contests, beginning in Monte Carlo in 2000. Three years later the Barista Guild was formed to share knowledge and technique. By the time I attended the World Barista Championship in 2009 in Atlanta, the competition had become a spectator sport. The tension was palpable, with judges watching every move. A timer ticked down the seconds on the routine.
Hundreds seated or standing in the audience could see the action displayed on a huge video screen. With a flourish, Isabela Popiolek of Poland successfully finished one part of her routine. She was one of fifty-one contestants from countries as far-flung as Nicaragua, Finland, China, South Africa, and New Zealand.
“Give it up for Isabela’s cappuccinos!” the announcer boomed. The judges admired the rosetta adorning the coffee beverage. Then they smelled and tasted, making notes on their pads.
In fifteen minutes, each contestant had to grind specially chosen coffee beans, tamp them expertly into the portafilter, then create four espressos, four cappuccinos, and four “signature drinks,” a creative effort based on espresso, but including ingredients ranging from chocolate to seaweed in that year’s event.
At first I thought that all this hype and tension over making a coffee beverage was rather funny. Yet the more I watched and learned, the more I realized that good baristas really are skilled artists. Not only must they draw the essence of the coffee in less than half a minute, but they must pick the type of beans and grind, steam the milk to a precise texture and heat, then pour it from the proper height and with the right flow to create the latte art. The same is true for a simple espresso—does it flow evenly from both spouts? Is there a rich crema on top? And the signature drink—is it creative, mouthwatering, and unique? Does it augment rather than mask the espresso base?
Most of the contestants were twenty-something men and women. They took part in a series of competitions in their home countries to win a spot here. One finalist, Gwilym Davies from the UK, at forty-two the oldest contestant, moved with assurance into his routine. But after he tamped to prepare an espresso for his cappuccinos, he abruptly dumped the portafilter and chose to regrind and reload, losing precious seconds. Then, during his signature drink preparation, the espresso dribbled out too quickly. Again, he dumped and started over. He ran overtime by seventeen seconds.
Davies won the entire championship anyway, in large part because of his signature drink. Each judge had to pick a favorite from a category such as sweetness (cane sugar, honey, caramel, or molasses), flavor (toasted almonds, hazelnuts, milk or dark chocolate), texture/mouthfeel (milk, single cream, double cream, butter), and fruit (orange or lime zest, strawberry, cherry).
When Ernesto Illy, the grand old man of scientific espresso expertise, died in 2008, the mantle of world’s most passionate espresso engineer arguably passed to David Schomer, the self-taught Seattle owner of Espresso Vivace. When I met him in 2009, Schomer explained that he had been obsessed with finding a machine that would maintain a steady water temperature for espresso, and he finally achieved it by working with local manufacturer Mark Barnett, whose Synesso Inc. created the Cyncra machine.
“I fell in love with the smell of coffee when I was four,” Schomer explained. “I was so pissed when it didn’t taste like it smelled.” His goal was to produce an espresso that did. He wrote Espresso Coffee Professional Techniques: How to Identify and Control Each Factor to Perfect Espresso Coffee, to tell others in exquisite detail just how to do the same.
The Rape of the SCAA
In 2009 the Specialty Coffee Association of America was still reeling from what founding member Donald Schoenholt called “the rape of the SCAA.” The organization had grown into a large bureaucracy, overseen by longtime executive director Ted Lingle. On September 19, 2005, Tim Castle called Schoenholt, explaining that Lingle had just discovered that Scott Welker, the recently departed chief financial officer of the SCAA, had embezzled at least $250,000.127 Unless they could come up with that sum within ninety days, the organization would go bankrupt.
Castle and Schoenholt quickly sought donations. Some gave $100, while Tatsushi Ueshima sent $30,000 from Japan. Most donations were $2,500 or less. By October 5, the required amount had been raised from ninety-three individuals and organizations. Ted Lingle had trusted the thief and had not kept adequate tabs on the accounts. Having already planned to retire, he stepped down in 2006 to head the Coffee Quality Institute. Ric Rhinehart then served as the SCAA executive director.
The Battle over Coffee’s Soul
At the end of chapter 18, I asked whether a consolidating specialty coffee industry might lose its soul in the process of growth, profit-taking, and merger mania. Certainly the embezzlement at the SCAA would appear to indicate a troubled soul for the organization that began as a small, idealistic upstart.
In the first decade of the twenty-first century, coffee brands continued to be passed like trading cards. In 2004, for instance, the Sara Lee Corporation, frustrated by lackluster profits, sold Chock full o’ Nuts, Hills Brothers, Chase & Sanborn, and MJB to Italian coffee company Segafredo Zanetti Group for $82.5 million. Caribou Coffee, begun by newlywed Alaskans in 1990, had been sold to an Atlanta investment firm in 1998, which was later heavily financed by the First Islamic Investment Bank of Bahrain. In 2005 Caribou Coffee completed an IPO and became a publicly traded company.
In 2006 India’s Tata Coffee Limited acquired Eight O’Clock Coffee, the old A & P brand, from Gryphon Investors for $220 million. Diedrich Coffee had bought U.S. outlets for Gloria Jean’s, Coffee People, and Coffee Plantation in 1999, but its ambitious expansion faltered, and in 2006 it closed most company-owned stores, selling them to Starbucks. Green Mountain Coffee Roasters bought Keurig in 2006, then Tully’s and Timothy’s in 2009 and, as this book went to press, Green Mountain Coffee Roasters was engaged in a bidding war with Peet’s over Diedrich Coffee, which made its money primarily from selling single-serving K-cups for Green Mountain’s Keurig machines. In 2008 Procter & Gamble spun off Folgers to jam-maker J. M. Smucker Company in a $3 billion all-stock deal.
Even as the specialty coffee industry consolidated, chasing money as much as ideals, many traditional roasters such as Gillies in New York did not pursue major growth strategies, preferring to expand slowly, if at all. Smaller independent roasters kept the flame alive—indeed, the Roasters Guild newsletter was christened The Flame Keeper. Chicago-based Intelligencia, Portland-based Stumptown Coffee, and Counter Culture Coffee in North Carolina are prominent examples of smaller roasters that garnered glowing reputations for high-quality coffee. Yet their success will likely lead inexorably to expansion and another round of consolidations.
Still, small independent roasters and retail coffeehouses have continued to pop up around the world. As of 2010, the Specialty Coffee Association of America estimated that there were some 24,000 special coffee outlets in the United States (stores, carts, or kiosks
that make at least half their revenue from coffee). Many of the coffeehouses, often begun by neophytes, fold within a few years.128 But most new roasters—such as Storyville in Seattle or DoubleShot in Tulsa—have thrived, finding niche markets, taking advantage of the Internet, and stoking the fires that fed coffee’s soul—still not lost even amid the merger mania.
Techno-Coffee
Many specialty roasters program computers to duplicate a “roast profile,” seeking to reproduce a small-batch feel in large (and sometimes small) automated roasters by manipulating the burner, airflow, and drum rotation speed. Utilizing digital technology and easily understood LED screens, brewers from such companies as Bunn-O-Matic and FETCO allow operators the option of controlling water and brew cycle times with pulse brewing and pre-infusion options. In 2009 George Howell Coffee Company introduced the ExtractMoJo, a handheld unit with a software application and a digital refractometer that yields data required to adjust brewing equipment to meet standards in either filter or espresso coffee.
Meanwhile super-automatic espresso machines allow anyone to create respectable beverages simply by loading the machines with roasted coffee beans and milk. At the push of a button, the machine grinds the beans, tamps the results, pushes hot water through the fine grounds, steams the milk, and all the rest. Starbucks backed off from such total automation, but Dunkin’ Donuts and McDonald’s have embraced it.
The Flattening of the Coffee World
Economist Thomas Friedman has written compellingly that the Internet and cell phones are “flattening” the world’s playing field, allowing people to communicate and do business in Third World countries. Even the coffee world has been gradually flattening. Starbucks agronomist Peter Torrebiarte told me late in 2008 that he had just visited a coffee cooperative in Haiti, the most impoverished country in the Western Hemisphere. “I drove up a terrible road, got stuck, crossed rivers, and finally got to the coop warehouse for training, and there I found a satellite link to five flat screens and computers. I was blown away. There was one young whiz kid who set it up.”
Uncommon Grounds: The History of Coffee and How It Transformed Our World Page 43