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June 12, 2007

Peet’s CEO Speaks

Peets_2
photo from flickr

I’ve always admired Peet’s Coffee — even when I was a die-hard Starbucks marketer. On market trips to California I would always bring back a pound (or two) of Peet’s whole bean coffee. And every Christmas I would order Peet’s Holiday Blend to compare with Starbucks Christmas Blend.

Peet’s has managed to maintain its coffee authenticity all the while growing at methodical pace. Peet’s authenticity stems from Alfred Peet who is regarded as the “grandfather of specialty coffee” in the US.

Alfred Peet’s story is remarkable. His father was a coffee roaster in the Dutch village of Alkmaar. In 1938, when Alfred was 18 years-old, he began helping his father roast and blend coffee beans. During WWII, Alfred was forced into a German labor camp. By 1948, Alfred left his domineering father and spent time in Java and Sumatra. While in the Indonesian Islands, he gained an appreciation for exotic, full-bodied Arabica coffee beans. In 1955, Alfred found himself working for a coffee importer in San Francisco. Eventually, he became unsatisfied with the poor quality of coffee the importer was roasting and selling.

Finding himself unemployed in 1965, Alfred Peet decided to open up his own coffee shop roasting and selling high-quality coffee. Peet’s Coffee & Tea opened for business on April of 1966 in Berkley, CA. (It was a few years later when three coffee-loving friends opened up a coffee shop in Seattle, WA selling Peet’s coffee. That coffee shop was then known as Starbucks Coffee Tea & Spice.) [source material from UNCOMMON GROUNDS, Mark Pendergrast]

So the authenticity Peet’s Coffee & Tea has is real … and today, the company is publicly-traded with 150 locations (mainly in California).

Patrick O’Dea has been the CEO of Peet’s since 2002 and in an informative interview with Fortune magazine, O'Dea shared some perspective on how Peet’s competes in coffee world dominated by Starbucks.

FORTUNE: How do your stores compare with Starbucks?

O’DEA: “We're fundamentally different from other coffee shops. Our average sales for stores open at least three years are $1.3 million, which compares to about $1 million for a Starbucks. Of that, $500,000 comes from sales of whole bean coffee and tea. When you walk into our stores, you will find a bean counter with 32 bins of fresh beans, and we scoop to order. You can also order a beverage, which accounts for the other $800,000. We sell a lot more straight-up coffee than Starbucks does. We do have a blended cold drink line called Freddos, but we sell very few beverages in our stores that don't contain coffee. Our prices are about 10 percent higher than Starbucks.”

FORTUNE: What do you make of Starbucks' [chairman] Howard Schultz's recent memo warning against the "commoditization" of the Starbucks brand?

O’DEA: “I think whenever you get that large, there is always pressure to continue to drive comp-store sales. But you have to be careful about how you go about doing that. We are indifferent to where you buy your coffee - in the grocery store, via home delivery or in our stores. As a result, we do not report comp-store sales because that would cause us to do unnatural things. Even though 68 percent of our business is from retail stores, we don't view ourselves as a retailer.”


For more … read the Fortune Magazine interview.
For much more … read the dissection Paul Williams and I did on the Howard Schultz memo noted above.
And for much, much more … read the WHAT MUST STARBUCKS DO? manifesto.

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Comments

Nothing like a nice cup of Peet's! When I first moved to Pasadena I invited a friend to meet me for coffee at Starbucks and was immediately told, "Peet's is where everyone hangs out here." We still stop into Starbucks from time to time, but it's Peet's whenever we can get it.

Thanks for the link to a great article!

mark

If what Howard says is true, things really have changed over the past nine years. During the four years I worked at Starbucks, and wrote many of the quarterly analysts reports, comps were a major measure of how we were doing and were widely reported.

Lewis ... the trend now is to play coy with reporting comp sales figures to Wall Street. More and more retailers (and businesses) would rather report profit numbers than comp numbers to showcase the true health of a business.

Instead of reporting comp sales figures to Wall Street, more and more businesses are wanting to report only profit numbers because it many ways, profit is a stronger measurement than comp sales. As you know, comp sales is a game that can be played. Remember back at Starbucks and all those Brewing Sales. That was playing the comp sales game by focusing on selling $300 machines instead of $3 lattes. And today, SBUX plays the comp sales game by ALWAYS introducing promotional beverages at a slightly higher price. McDonald's has been playing the comp game for years with their McRib strategy.

When at Starbucks I always valued comp transaction numbers more than comp sales numbers. Knowing that more people were coming in the door year-over-year was very important because I knew they were buying something.

"As a result, we do not report comp-store sales because that would cause us to do unnatural things."

The second part of this statement speaks to conversations I've had with some CEOs over time. I call those who step away from doing unnatural things unsung heroes in today's day and age.

What really honks me off is that I've been proselytizing Peet's for years - and the best they could do was have me sign up for a lousy affiliate program. ;P

Yesterday, Oprah marches a few cups out to her audience and it's like the world discovers something I've been *SCREAMING ABOUT* for years.

Dunno. They've yet to recognize their biggest supporters - just their *BIGGEST* supporters. >:P

Peet's is the bomb. Did Oprah really march it out to her audience? Well good if she did- I love this company and I love their coffee and the more people that enjoy it, the better. After moving to Colorado some years ago, I would pack several pounds in my suitcase after a visit to the Bay Area. Happily they sell it here now at all the grocery stores.

Am I a ZEALOT or just a big fan? We adopted a wonderful chocolate lab in February of this year, and his name is........


yep- his name is Peet!

Rock on Peets is the best coffee and tea around. I say this as I have not only been in the past before Peets was in Los Angeles been a loyal Starbucks and Coffee Bean fan worked for them too. Not only does there coffee and tea not measure up to Peets neither does there company and corparate culture. I love Peets coffee and tea, the company and corparate culture rock. I now work at Peets and am so very happy that I have the opportunity to work for them.
All you fans thanks and respect the bean.

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