Coffee shop owners face a short, skinny economy with a double shot of optimism

A Traverse City cornerstone and popular meeting spot permanently closed its doors last month, shocking businesspeople who frequented the shop.

"It was time," said Crema! owner Alice Campsmith. "The economy was obviously a major factor and the shop wasn't as busy as people thought it was." And the drive-thru Java to Go, situated across South Airport from Grand Traverse Mall, shut its doors permanently weeks ago, as well.

Over the past five to seven years, coffee shops sprouted up nationwide like wildflowers, and the Grand Traverse region was no different – shops, bakeries and coffee houses seemed like they were on every corner.

"People were attracted to coffee houses for a couple of reasons. One, Starbucks' incredible success with lines around the building day in and day out; and two, the allure of being Cheers with coffee," says Bob Phibbs, former CMO of It's A Grind Coffee franchise, with over 125 national locations, and author of "You Can Compete: Double Sales Without Discounting."

Fast forward to today, and two major factors have changed – the economy has turned south, and the sleeping food and drink giant – McDonald's – has awakened, offering its own version of gourmet coffee-based drinks.

As a result, local residents continue to ask, "Does Traverse City really need another coffee shop?"

According to Ella Cooper-Froehlich, owner of Station Espresso Bar for 10 years, the answer is "yes." Her theory: the more coffee shops, the deeper the coffee culture. "The proliferation of shops means that it will become more and more commonplace to go to a coffee shop," she says from her shop in the historic train depot building overlooking Boardman Lake.

Cooper-Froehlich may be on to something. According to the National Coffee Association's 2008 National Coffee Drinking Trends Study, 17 percent of the adult population consumed a gourmet beverage on a daily basis in 2008 compared with 14 percent in 2007. Running the Station Espresso Bar for upwards of 10 years, she believes that having a positive attitude, offering Starbucks coffee, and incorporating more reasons to come to the area (the new Urban Diversions, Skegemog Gardens nursery, and City Market Saturday morning farmer's market) she will prosper. Cooper-Froehlich does add, however, "There are finite amounts available in the community to be spent on what could be construed as a luxury."

A luxury is how Ray Dornbusch, owner of Espresso Bay, chooses to market his coffee business. In fact, the tag line: "Daily moments of luxury" appears on all the cups and promotional materials for Espresso Bay, with locations on Front Street and Hammond Road. The line was born out of Dornbusch's effort to learn from the best in the business in the coffee corner of the country: Seattle.

"I trained myself through the champions of business who were very free with their secrets, since I was from the Midwest," he says. As a result, he believes he provides a top-notch "luxury" product and benefits from ample downtown Traverse City foot traffic. "You can probably get a cheaper cup of coffee somewhere else, but you can't get a better cup of coffee. After all, there are literally 100 ways to mess up espresso," he says.

While he admits that the slumping economy delayed his expansion plans, Dornbusch did open his second location on Hammond Road two years ago. "People who start a coffee shop underestimate two things: work and cost," he says, adding that it takes roughly 1,000 cups sold per day to break even.

The good news is that the trend is on his side. According to the National Coffee Drinking Trends Study, consumption of cups per day by consumers age 18-24 continued to trend higher in 2008. Young adults who drank coffee consumed an average of 3.2 cups per day as compared with 3.1 in 2007, a significant increase over 2005's level of 2.5 cups per day.

"People think it's hip and fun to own a coffee shop," Dornbusch says. "And, yes, they do appeal to young and old and everything in between. But, on the other side of the counter, it is, quite simply, a lot of work."

Twelve to 14 hours a day, seven days a week, to be exact, according to Shane Daley owner and self-labeled Chief Optimist of Cuppa Joe now operating for more than nine years. Daley, who owns five stores with wife and managing partner Sandi Daley, was dumbfounded by the amount of work and knowledge it took to run a coffee shop. "Sandi has a very discerning palate and can detect the more than 3,000 flavor subtleties in play to identify a great coffee," he notes, pointing out that wine, by comparison, has only 300 flavor components. "When a customer is paying three or four dollars for a cup of coffee, they know good coffee."

The couple opened their location in Building 50 after three years at the Front and Garfield location and once again overcame another hurdle: the avoidance factor of a ex-mental health facility, unoccupied for 50 plus years. Operating the Horizon bookstore coffee shop as well as the airport restaurant soon followed. The latest endeavor, the full service restaurant Warehouse Lounge in Traverse City's warehouse district, is the only one to feel the pinch of the economy, but Daley chalks that up to new business blues – namely, lack of awareness.

"It'll do fine, it just has to get on people's list of places to stop," Daley says. "We run ads, have gift certificates, host parties, but 90 percent of our marketing is through partnerships with local charities."

Kevin Endres blames the economy, labor costs and personal life changes for the closure of Village Bean on Hammond Road last year. But, in retrospect, location can make or break a foot traffic business like his.

"If we'd been on the other side (which would have made for an easier left hand turn), I believe we would have done a lot better," he says.

Forget the incredible profit margin for a moment – $2 on an 18 cent cup of coffee – two main factors are required for success in this business: choosing a location in the midst of other supporting, neighboring businesses, and devoting a lot of personal time to the endeavor in order to reduce labor costs.

As coffee shops continue to open and close in the Grand Traverse region, franchise expert Bob Phibbs has this warning for potential coffee shop owners: "Much like the idea of owning a bed and breakfast sounds fun, having strangers stay in your house can be anything but." BN

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