Bean Town

Is this town bean enough for the both of them? With Starbucks ever expanding and Diedrich Coffee and Greenberry's Coffee & Tea trying to carve out a piece of the market, you'd think Houston java joints might start to feel the pinch. Instead, it seems that our heat is the perfect percolator for the state's fastest-growing coffee-by-the-cup market.

It's virtually impossible to calculate the number of kaffeeklatsch sites in this city. The 2001/2002 Zagat Survey lists seven indie coffeehouses -- like Brasil and Empire Cafe -- and 11 coffee shops/diners, but that doesn't include coffee bars nestled inside locations such as Whole Foods Market or Schlotzsky's, and it certainly doesn't include the ubiquitous Starbucks.

Starbucks Coffee opened its first location in Seattle in 1971, but it wasn't until 1994, two years after the company went public, that the coffee shops came to Houston. That December Starbucks opened three Galleria-area locations, and they haven't looked back since.

"There are over 70 locations in the metropolitan statistical area," says Starbucks' community affairs manager Keith Stewart. And that doesn't include licensees such as the airport locations and the Barnes & Noble cafes. Los Angeles ranks no. 1 in terms of locations, but Houston isn't far behind. Stewart declines to discuss Houston- specific revenues, but overall, for the 43-week period ending July 28, the company's net revenues were $2.7 billion, an increase of 24 percent over consolidated revenues for the same period in fiscal year 2001.

"There are a lot of coffee drinkers in Houston," says Stewart. "People all over the country, no matter how hot the weather, enjoy a good cup of coffee." Stewart confirms that three more locations have signed leases, including the Starbucks in the soon-to-open John P. McGovern Commons Building in the Texas Medical Center. But a former district employee says there may be as many as 40 more local Starbucks locations on the drawing board. As for siting, Stewart says: "It's actually not as scientific as you would think. We wound up with two across West Gray from each other, more from phone calls and e-mails from the public asking us to put one there. It's not rocket science; we're just trying to serve a good cup of coffee."

If Starbucks is the 800-pound gorilla of coffeehouses, it doesn't seem to be stifling the competition. Guatemalan coffee roaster Carl Diedrich Sr. opened the family's first coffee-by-the-cup shop in Newport Beach in 1972. Today there are some 1,525 locations nationwide. Native Houstonian Dirk Smith was working for the company six years ago when the first Diedrich Coffee shop opened in Houston. Four years later he bought the Houston franchise, today valued at $1.5 million and comprising three locations.

"Starbucks has done a lot to promote the product," says Smith. "They do a lot to market coffee, and that's great, but we're a little different." While Smith thinks Starbucks patrons like to "grab a cup and go," he has tried to make Diedrich more of a hangout. "We have live music and we encourage people to stay." He says 80 percent of his customers are repeats and adds that during the summer months, the cold coffee and tea drinks do well, especially with the kids. He sees potential for even more growth.

"I personally don't intend to go outside the Loop again because we have a very strong brand name in this area," says Smith, who has two Montrose-area stores and one in Clear Lake. "We grow at a controlled pace; we add only when there's cash flow. But I do see four or five more stores in the next few years."

But wait, there's still room for more. Meet new kid on the block Carol White, who just opened Houston's first Greenberry's Coffee & Tea Company franchise. White, who has spent more than 20 years in the local hotel business (Four Seasons, Staybridge Suites and Crowne Plaza), knew what she wanted. "I liked the idea of a coffee shop atmosphere, but I wanted something not as trendy as Starbucks and not as hippie as some of those dark, poetry-reading places."

She found what she was looking for in the genteel Greenberry's. The company carries 32 types of coffee (all fresh and small-roasted from the Virginia headquarters), 18 loose teas, pastries baked on the premises and upscale merchandise. Delicate and whimsical china tea and coffee sets line the windows. "After all, you wouldn't want a Starbucks mug on your coffee table at home," says White.

The shop on West Alabama at Revere opened in late July, and already White says she's halfway to her break-even point. The franchise cost $19,500 (which also gave her first right of pass at other Houston stores), but the build-out, based on Greenberry's standards, was "quite expensive." Still, the location already sees 100 visitors a day, and when it reaches 300 to 500, White thinks, she'll add two or three more locations.

Of her competition, White says, "We may take some of their customers, but not some of their market. There's enough to go around. Starbucks knows more than I do, and they obviously think this is a coffee town. When I was looking for this location, I counted 20 [Starbucks] in a three-mile radius. But it doesn't matter. I would have gone into the same center with one if I thought it was the right space."

"Coffee drinks," says Dirk Smith, "are an inexpensive pleasure." A pleasure that Houstonians are thirsting for. But how much caffeine can we consume? Starbucks' Stewart says the company, which has more than 4,000 locations in North America, looks to Subway sandwich shops and McDonald's, which have more than 14,000 locations, as models.

"We think we can achieve 20,000 to 25,000 in the world," he says. As for Diedrich and Greenberry's, Stewart admits, "The tide raises all boats." Even in Houston.

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Marene Gustin