Vying with Starbucks: A Love-Hate Thing

(page 2 of 2)

Since a Starbucks opened nearby several years ago, Karn has also expanded the menu to include beer and wine. "That has taken off real well," he says.

Having a nimble management team enables cafés to implement changes more quickly than bureaucratic corporations, says Jean Bernstein, owner of 21-year-old Albuquerque-based Flying Star Café and Satellite Coffee, which started up in 1998. "We keep changing things to constantly offer something fun and unique," says Bernstein, who first started competing against Starbucks when one opened near the Flying Star in 1996. She says she picked up on several of Starbucks' shortcomings ("their tea drinks were weak") and responded by offering blended concoctions to complement her store's coffee drinks. One is a homemade lemonade mixed with ginger, and another is a blend of herbal teas, cranberry juice, and mint.

Change the Settings

Independent coffee shop owners say that Starbucks has gradually drifted away from the high-quality coffee that first made it successful, focusing instead on swank marketing campaigns or coffee drinks blended with milk or caramel. "They've basically become a sugar-and-dairy company," says Arne Holt, owner of Caffe Calabria in San Diego. Says coffee consultant Hetzel: "Starbucks decisions aren't coffee decisions, they are big public-business decisions." That's why many entrepreneurs can differentiate their coffee shops by paying meticulous detail to the coffee itself. Holt, for instance, grinds coffee beans at different settings, based on the amount of moisture in the air, since water passes through the grounds differently when the humdity is higher. Starbucks and other big chains rarely change the grinding settings on their automatic espresso machines, he says. "It's like McDonald's," he says. "It's not the best hamburger, but it's consistent."

The roughly 11,000 Starbucks stores across the country get their beans from the company's three major U.S. roasting facilities—in Nevada, Washington, and Pennsylvania. Smaller roasters can deliver a fresher cup of coffee, says Gina Nasson, who owns the Farfalle Italian Market in Concord, Mass., with her husband. Nasson's café gets its beans from a roastery about 11 miles away, she says. "When we order coffee, we don't order tons."

Smaller coffee stores also work to create loyal customer bases by emphasizing local ties. Karen Anderson, whose husband's family was among the first English settlers in Concord centuries ago, says their Main Street's Market & Café resonates with the town's historic atmosphere. "If you sit here and have a cup of coffee," she says, "you'll hear guys in their 80s and 90s just reminiscing." Red brick walls, pickle barrels, and 1930s-era photographs give the store a different feel from the surrounding Dunkin' Donuts and Starbucks stores. Mary Allen Lindemann and her husband, who run Coffee by Design in Portland, Me., sponsor local arts organizations and offer a grant each year to a Maine artist (last year's grant was $2,800). It has given the store a unique following among local artists.

Create a Different Experience

The bottom line? The relationship between boutique coffee shops and Starbucks has helped bolster the overall coffee market and cultivate unique ways to serve customers. For local coffee shops, many of which are worried that a Starbucks slowdown could curtail overall coffee spending, competing against Starbucks simply means taking an approach that Starbucks hasn't.

"Focus on making your product, your brand, and your experience as good as it can possibly be," says consultant Andrew Hetzel. "You can't look to what Starbucks is doing as your barometer."

For a look at sales and marketing techniques that a handful of independent coffee shops use to compete with chains such as Starbucks, flip through this slide show.

McRoskey is an intern at BusinessWeek.com.