For the week of June 9, 1999  thru June 15, 1999  

The corporate bean comes to Ketchum

Starbucks and Tully’s coffee houses soon to open

First of a three-part series


By GREG STAHL
Express Staff Writer

u9coffeeillustration.gif (38020 bytes)Illustration by E.B. Phillips

The essential ritual of unhurried life in a small mountain town—relaxing over steaming coffee in a rustic, local coffee shop—is a cultural fixation in the Wood River Valley.

But brace yourself:

The tranquillity and unassuming character of the valley’s mom-and-pop coffee business is about to be jarred by the arrival of Big Coffee.

Two of the nation’s behemoths in the coffee business, Seattle-based Starbucks and Tully’s Coffee, soon will open their doors in Ketchum.

Will the two giants, with deep pockets and well-honed marketing skills, rob the Wood River Valley’s slow-paced lifestyle of one of its most enduring charms by driving small coffee shops out of business?

Or, will loyal followings and down-home charms of longtime coffee houses triumph?

Regardless of the eventual but uncertain impact, tremors have already begun to be felt in the area’s traditional small -businesses.

For over a month, passersby have seen steady progress on converting the ground floor of the old Lane Mercantile Building at Sun Valley Road and Main Street into a Starbucks, which is set to open in late June.

Tully’s coffee, also scheduled to open in mid-to-late June, will be in the new incarnation of the Colonnade, a few blocks east of Starbucks, on Sun Valley Road.

Beyond the possible threats Starbucks and Tully’s pose as rivals to small coffee houses, the arrival of wealthy corporate "chain" operations could foretell a future of more chains in the Wood River Valley.

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City and county laws cannot and do not block a chain store’s entrance. Some mountain communities in the West have ordinances that discourage certain types of chains from setting up shop using their usual designs. Beyond that, only customer judgments ultimately determine a company’s success or failure.

In some cases, an oblique approach is used to discouraging a chain.

The city of Ketchum enacted an ordinance that precludes a restaurant from constructing drive-through windows in the downtown—such as ones burger giant McDonald’s, often uses. The ordinance effectively denies McDonald’s entrance into the downtown market using their traditional store designs.

Another ordinance, used by the city of Hailey, specifies maximum roof sizes. It discourages chains like K Mart and Wal Mart from entering the mid-valley’s economic business arena.

But these ordinances don’t outright ban any chain store from entering the local market.

Ketchum resident, business owner and City Councilman Randy Hall is concerned about the effects Starbucks, the largest coffee retailer in the country, could have on Ketchum.

"There’s only a certain amount of business to go around, and I fear that when these places come in, it could displace small businesses and that really undermines the feel of our community," he said.

Ketchum already has several coffee shops. Java on Fourth, The Coffee Grinder, Buckin’ Bagel, and Perry’s, as examples, have provided coffee to valley residents and tourists for years.

Hall argues that these privately-owned, small businesses give the community charm and a sense of family that chain operators cannot.

Over the past decade, Java has expanded into a small chain itself, with four locations in Ketchum, Hailey, Twin Falls and Coeur D’Alene, but maintains the character of a small-town business.

Java owner Todd Rippo is not overly concerned about the two coffee chains competing for local caffeine junkies’ business. He finds comfort in Java’s "style and youthful attitude."

Java cannot compete with the chains financially, he said. However, small improvements to his stores may result from the presence of the two chains.

"Obviously, competition always makes everybody tighten their ship and put their best foot forward," Rippo said, "but Java has its own pulse. It has its own life.

"I’ve seen people make it in conjunction with a chain being there. I don’t think we’ll tumble under the broad shoulders of a corporate company."

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But Starbucks has shoulders that rival those of Atlas. It can afford to take location-specific losses without sacrificing corporate gain.

In fiscal 1998, Starbucks’ net revenues were $1.31 billion from its more than 2,000 stores across North America, the United Kingdom and Pacific Rim countries. Last month, Starbucks stock was trading at around $37 per share, near its 52-week high of $41.

Despite Starbucks’ massive size, the company’s projected local prices are consistent with Ketchum’s existing coffee market. Starbucks will charge $1.25 for a 12-ounce cup of regular coffee, the same as both Tully’s and the Coffee Grinder. Java charges five cents less for the same size.

Neither Tully’s nor Starbucks said whether they would offer drink specials upon opening their Ketchum stores. They maintain confidence in their size and beverage quality to attract customers.

"With fiscal 1998 revenues of over $1 billion…we believe we have created the kind of business that allows everyone to share in (Starbucks’) success," Starbucks chairman and CEO Howard Schultz stated in a Starbucks press package.

But Nicola Potts, owner of The Coffee Grinder on Fourth Street, doesn’t care to share in Starbuck’s success in Sun Valley. She’s in the preliminary stages of petitioning the city of Ketchum to do something, anything, to discourage corporate chains from invading the community.

"It’s something we should consider and if people are concerned, then they should petition the city council to give preference to owner-operated businesses so we don’t lose that fabric of the community connection," she said.

Potts feels it is possible to subtly word an ordinance, not to discriminate or eliminate competitiveness, but to maintain community values through a city’s economy.

Ketchum planning administrator Lisa Majdiak said such an ordinance would be difficult to form. Discrimination on any basis is not constitutional, she said.

u9coffee.jpg (13242 bytes)As for Potts’ coffee house and the uncertain future the two coffee chains have bestowed upon all local coffee vendors, Potts remains confident in her store’s ability to attract local customers.

"We’ll always keep local support," she said. "People like the local coffee houses, but all of us depend on the tourist industry. I think there will be some distraction (among tourists)."

She stressed that most Ketchum retailers and restaurateurs don’t make fortunes at what they do. They make enough money to live here, she said. The competition could hurt.

"I think its difficult to compete with a giant," she said.

Starbucks is offering a $7.35 per hour starting wage. Java can not come close to that, Hailey based Java representative Donna Quinn said.

A Starbucks ad that first appeared in the Idaho Mountain Express two weeks ago is evidence of the competition chains could pose for all local employers.

"As a Starbucks employee, if you work just 20 hours per week, your benefits would be: medical/dental/vision insurance, 401 (k), Disability and life insurance, product discounts, a free pound of coffee per week!" the ad read.

Tully’s offers an almost identical benefits package.

Potts said she finds it difficult to believe that Starbucks’ employee perks could work very well in Sun Valley because of the transient nature of workers here.

"But," she conceded, "there are benefits to working for large corporations, and I think we all know what the disbenefits (sic) are. It’s why we live here. That’s the irony."

Potts maintains that the astronomical rent Starbucks must pay to lease the Lane Mercantile Building would cause the store to lose were the shops competing head-to-head for customers. The Coffee Grinder would endure over a privately owned coffee shop at that location, she said.

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When it comes to head-to-head competition, perhaps no one knows Starbucks better than Tully’s Coffee CEO Tom O’Keefe.

O’Keefe admitted that his company is, in part, patterned after Starbucks, but said Starbucks followed Tully’s to Sun Valley.

"In terms of a global economy, we want to be across the street from them," O’Keefe said, calling via cell phone from San Francisco where his 85th store opened two weeks ago. "Our top stores are all across the street from them.

"We feel Starbucks followed us in (to Ketchum) and will be the spoiler, so to speak. (Ketchum’s) marketplace would have had a nice equilibrium if they weren’t going in there."

O’Keefe, who has spent many of the last 10 years playing and living in the Sun Valley area, said his stores can effectively complement small, privately owned businesses.

Using Java as an example, he confirmed Rippo’s assertion: "Java’s clientele is a bit younger, and so I think his business will continue to do well."

When asked if his store has ever forced a privately-owned business out of the market, he responded emphatically: "I can honestly tell you no."

He didn’t specify whether any businesses have gone under as a result of both Tully’s and Starbucks’ presence.

In contrast to Starbucks, Tully’s is privately owned, but is still a large chain. It is the third largest, privately owned coffee retailer in the country and the second largest provider in Seattle, behind Starbucks.

According to Starbucks spokesman Chris Gimble, large size and resources enable them to provide very good products. He said that Starbucks’ technology provides beans that are "extremely fresh."

Starbucks has three roasting plants: Seattle and Kent, Wash., and York, Pa. The company also has packaging technology they claim is unique to them. Starbucks says the company’s bean-transporting technology provides beans that are among the freshest found on the market.

O’Keefe said that Tully’s serves a "better cup of coffee" than what local coffee houses and Starbucks can, due to the high quality beans the company uses and the personal roasting processes they use.

"I personally polish each and every bean with a nail file," O’Keefe joked.

But his jest is not far from truth. He personally hires a roastmaster who oversees the roasting process from beginning to end and who controls the freshness standard of the coffee beans.

"We have the luxury of being able to control those things, but it doesn’t necessarily mean that our product is better (than Java’s or the Coffee Grinder’s) in the customer’s eyes," he said.

Starbucks’ Gimble, who admitted that Java’s Bowl of Soul is one of his favorite coffee drinks, said the coffee market is extremely healthy right now and provides room for expanded business.

According to statistics compiled by Tully’s, Americans drink over 5.8 billion gallons of coffee each year at an average of 3.7 cups of coffee per day.

Starbucks can help improve on those numbers locally, Gimble said.

"Starbucks presence in the Ketchum market is going to increase customers overall through education on specialty coffees," he said.

Local opinion is still skeptical.

Competition is the backbone of the country, Councilman Hall said, but a sense of community is also a backbone.

A balance is needed, and the age-old juggling act will continue.

"I’ve been here for 20 years," Hall said. "The town is changing. In some cases competition is good, but in others…I don’t know."

 

Next week: The experience of other mountain resort towns with chain stores.

 Will charm and customer loyalty triumph over big chains?

 Starbucks, Tully’s boast of better roasted beans.

 Councilman: Chains put small businesses at risk.

 Chains offer workers more perks

 

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