Starbucks Prepares to Invade Toronto

Starbucks Prepares to Invade Toronto

The staff is busy and the seats are nearly full at the Starbucks Coffee outlet on Toronto's Danforth Avenue, even though the windows are still papered over and a "Help Wanted" sign is taped to the front door. On a chilly, midweek morning, the baristas - employees who serve the public - are going through a dress rehearsal for the Seattle-based company's official opening of five new Toronto-area stores on Jan. 20. And the clientele are a discriminating lot. A mother with a stroller orders a tall, no-fat cappuccino. A man with his morning paper calls for a tall latte, no-fat. And a third customer wants a large, no-fat, one-shot latte. Welcome to the world of gourmet coffee shops, a milieu in which the traditional cup of java - one size, one flavor (usually bland), served black or with cream and sugar on the side - is a thing of the past.

But for all the fancy flavors and high prices - coffee prices on the Starbucks menu range from $1.15 to $3.75 - the company's Toronto debut is a story of good, old-fashioned competition. Aggressive and rapidly growing, Starbucks is invading a large, lucrative market that is already well-served by independent and chain-owned gourmet coffee shops, including Second Cup Coffee Co. of Toronto, which has 220 Canadian stores, and Timothy's Coffees of the World, also based in Toronto, with 70 locations in Canada and the United States. With more than 700 stores, including 80 in British Columbia, and 1995 sales of $630 million, Starbucks is the largest specialty-coffee retailer in North America, and the company hopes to have 2,000 outlets by the year 2000. Still, executives at all three chains insist that the market is big enough for everyone. "Our intent is to try to expand the market," says Starbucks chairman Howard Schultz. "We will be trying to convince people, one at a time, that we have something different to offer."

What Starbucks offers, besides coffee and coffee-based drinks, is ambience and experience. Founded in Seattle in 1971, the company initially sold high-quality coffee beans from an open-air farmers market. It began to grow rapidly in the late 1980s after Schultz returned from a trip to Italy with the idea of bringing the warmth and intimacy of that country's espresso bars to the United States. That approach is evident from the decor - muted, earthy colors, high-quality wood trim and soft lighting - that characterizes many of the company's stores. "We have a passionate commitment to creating a wonderful place for people to come to," says Schultz. "People will recognize the environment in our stores."

However, the uninitiated may not recognize many of the items on the menu. Starbucks still sells cups of standard brewed coffee, but the cornerstone of its product line is espresso, the strong, intensely black, often bitter coffee that many Europeans drink from cups that look like oversized thimbles. Blended with steamed and foamed milk, it produces caffé latte; steamed milk, whipped cream and cocoa powder transform it into caffé mocha. One of the costliest items is a 16-ounce cold drink called a frappuccino, a concoction resembling a coffee milkshake, which the company has developed and patented. But as Canadian vice-president Roly Morris points out, the menu is merely a guide. "I can't even tell you the total number of products we offer because people customize their beverages," he says.

As Starbucks prepares for its Toronto invasion, executives at Second Cup and Timothy's insist they are concentrating on their own customers. Second Cup president Alton McEwen says his company, with 100 outlets in the city and total 1995 chain-wide sales of almost $81 million, is the dominant player in the Toronto market. Besides street-level stores, the Second Cup runs takeout coffee bars in commuter stations, hospitals and shopping malls, which are viewed as non-traditional markets. "We're growing rapidly in Toronto," says McEwen. "So irrespective of whether they have 12 or 25 stores here, they're not going to be a large factor." But for all the talk about friendly competition, the two companies sued each other in 1992, eventually settling out of court, over store designs in Vancouver.

For Timothy's, the key to surviving and growing remains the standard cup of fresh-brewed coffee. Rebecca McKinnon, president of the privately held company, which does not release sales figures, says that brewed coffee remains the mainstay of the Toronto market. She adds that Starbucks' espresso-based product could be a short-lived novelty. "It's a different offering," she says. "It will be interesting to see how the city responds."

While the specialty coffee stores inevitably compete against one another, company executives insist that they have grown mainly by luring consumers away from supermarket-style coffee. They contend that they produce a tastier cup of coffee by purchasing high-quality coffee beans, usually straight from the growers, and by imposing tight controls on the transportation, handling and processing of the beans. "Once people taste good coffee, their consumption usually goes way up," says McEwen. "It's a pleasure to drink." As the field becomes more crowded, however, the coffee chains are being forced to fight harder for the right to deliver that enjoyable experience.

Maclean's January 22, 1996