Coffee shops and drive-through espresso stands are popping up faster here than one can say grande, double-shot, nonfat mocha, and java experts say that despite heated competition, those businesses are adding an extra caffeine jolt to an already energized specialty coffee industry.


Nationwide, U.S. specialty coffee sales rose sharply to $11 billion in 2005, up from $9.6 billion in 2004, says the Long Beach, Calif.-based Specialty Coffee Association of America. Coffee wholesalers and retailers here say the Spokane market has been robust as well, and they expect it will keep buzzing.


Espresso is exploding for us, says Bill Olmstead, president of Spokane-based RSI Specialty Food Equipment, which sells espresso machines and other equipment. Its not a fad, like people once thought, and its not going away.


Proof that the java industry still is wired here can be found in the number of drive-through stands and coffee shops that have opened recently or are slated to open soon:


A franchisee of Grants Pass, Ore.-based Dutch Bros. Coffee LLC has opened the chains first store here. A spokesman for the company says the franchisee hopes to open about 10 outlets in the Spokane area.


Deluxe Coffee Co., of Spokane, recently opened its first store in the new Village at Regal Pond development on the South Hill. Its owners hope to open about eight stores in Eastern Washington and North Idaho in the next few years.


Black Tie Coffee Co., of Spokane, which opened its first store last summer on the South Hill, added a second store in Post Falls in April and hopes to open shops in North Spokane and downtown Coeur dAlene within a year.


Cabin Coffee, which is owned by Spokane-based David Tawney Investments Inc. and operates four stores in the Spokane area, plans to open a South Hill store next fall. It also is eyeing locations on the North Side and in Liberty Lake.


Leonardos, a planned new coffee shop, is to open this summer in a retail complex just east of Whitworth College.


RSIs first-quarter sales grew by roughly 90 percent this year, Olmstead says. Part of that growth has come from customers who dont operate espresso businesses, but have decided to add espresso drinks to their menus, he says.


An espresso machine is a staple in any food environment now, he asserts. To not have an espresso machine is kind of dating yourself.


The growth in the number of coffee shops has driven up sales, and the outlets themselves have risen in popularity because they provide a place for adults to spend their work breaks and a setting for teenagers to hang out.


Coffee shops here have been enjoying strong sales, and while Spokane lacks the heavy foot traffic of a city like Seattle, drive-through stands are serving a steady stream of customers, he says. To succeed in the drive-through market, though, businesses have had to start offering other items, such as espresso milkshakes and pastries, to sustain their growth, Olmstead says. As a result, sales of ice cream machines and granita machines, which make cold espresso drinks, have been helping to boost business at RSI, he says.


Entrepreneurs frequently cite hefty profit margins as a reason to enter the coffee business, because a cup of coffee costs far less to brew and serve than what retailers charge customers for it, says Thomas Hammer, who owns Thomas Hammer Coffee Roasters, of Spokane, which sells coffee beans wholesale and retail in the Northwest. For instance, a double-shot mocha typically costs about 48 cents to produce, and sells for about $3.50, he says. Margins vary, though, depending on the size of the business, he says.


If you have an espresso cart and plug it in at a place like SIRTI (Spokane Intercollegiate Research & Technology Institute) with a boom box on the floor, youre going to make some sweet money, he says. But the industry has not done itself well by putting out delusions of grandeur in terms of the money thats in the business.


Coffee roasters, too, can benefit from large profit margins, he says, but larger operations sometimes shoulder additional costs that can cut into those margins, he says. Roasters can buy green, or unroasted, coffee beans, for about $1.75 a pound and sell the roasted beans for $7 a pound. Costs can rise, however, when roasters offer consulting services to their customers and expand their inventory.


Weve taken on a larger role in the industry, he says. As a result, margins have come down dramatically.


High volumes, rather than hefty margins, play a significant role in the success of a coffee outlet, says Tom Wood, who co-owns Black Tie Coffee.


Yes, the margins are fantastic, but you have to sell a lot of coffee, and customers always have the option of going someplace else, he says.


Black Tie Coffee stores need to sell at least 200 drink and food items a day to turn a profit, he says. Part of growing a coffee business, he says, involves finding a niche in an increasingly crowded market.


If businesses dont come up with a niche, they wont make it, because customers can always go to Starbucks, he says.


Starbucks, the Seattle-based coffee giant, hasnt been slowing down its torrid growth pace. For its second fiscal quarter, it recently reported record net income of $127 million and revenues of $1.9 billion, up 27 percent and 24 percent, respectively, from the year-earlier period. The company has opened 874 stores in the past year, and plans to open a total of 1,800 stores in 2006. It operates more than 10,500 shops worldwide.


Starbucks operates 31 stores in the Spokane area, says Haley Drage, a company spokeswoman. It doesnt have a specific number of stores it plans to open here in the next few years, but its always looking for new locations, Drage says.


One reason behind Spokane-based coffee shops survival in a Starbucks-saturated market is that customers are extremely loyal to locally-owned businesses, Hammer claims. Its a smaller community, so people often know the owners personally, he says.


David Tawney Investments owner, David Tawney, agrees that customer loyalty has fueled Cabin Coffees growth.


The company bought a store in Brownes Addition a few years ago that already was using the Cabin Coffee name, and since then has opened three other stores in the Spokane area, Tawney says. Also, it has leased 1,200 square feet of retail space in the Grape Tree Village development, on the South Hill, for a store it plans to open this fall.


Espresso beverages represent more than 50 percent of the stores sales, but since the company added food to its menu about a year ago, business has grown considerably, Tawney says. He expects the companys gross sales to exceed $1 million this year.


Personable service plays a huge role in the coffee industry, in contrast to other food and beverage businesses, such as take-out pizza outlets, Hammer says.


Customers depend upon knowing the owners and baristas, and they expect a quality cup of coffee, Hammer says.


Also, he says, while customers often buy pizza and other food items for large numbers of people, they want their coffee to suit their own personal tastes.


Meanwhile, competition continues to intensify, he says. For instance, Costco Wholesale Corp. sells its own brand of roasted coffee beans, which has hurt Thomas Hammer Coffee Roasters wholesale business somewhat, he says.


Drive-through stands also are competing for hot spots on busy thoroughfares, Olmstead says. Although he expects the specialty coffee industry will remain strong here, he says growth in that industry segment will depend on the expansion of residential and commercial development in outlying areas of Spokane.


Can Spokane sustain another 100 drive-throughs? Probably not, Hammer says. But, as much as we have a ton of shops, theres always room for more people who are doing truly tremendous jobs.


Contact Emily Brandler at (509) 344-1265 or via e-mail at emilyb@spokanejournal.com.