Fuel for the City That Never Sleeps

Much of the recent growth in the high-end coffee market in New York can be traced to Starbucks. New Yorkers were warming to the idea of sophisticated coffee before the Seattle company entered the city in the mid-1990s, with chains like New World Coffee, Cooper’s Coffee and Oren’s Daily Roast starting to pique the interest of coffee drinkers for a taste beyond watery diner coffee and the traditional “regular” cup from street carts, laden with milk and sugar. But Starbucks saturated the market, opening up its first New York store in 1994 with plans to have 100 outlets in Manhattan within four years. (There are now nearly 200.) That created a huge market of consumers who would no longer tolerate subpar coffee — but it drove most of the smaller chains out of business.

By ALISON GREGOR

The New York Times

October 11, 2011

Small coffee chains, benefiting from lower retail rents and a seemingly bottomless thirst for high-end coffee even in a weak economy, are seizing the opportunity to expand in New York City.

Inside Cafe Grumpy in Chelsea. The homegrown chain started in 2005

and now has four locations. 

Photographs by Fred R. Conrad/The New York Times.

“It’s crazy how many people are opening coffee shops in the city,” said Caroline Bell, a co-owner with her husband, Chris Timbrell, ofCafé Grumpy, which recently opened its fourth location, at 13 Essex Street on the Lower East Side.

Among the other homegrown operations are Ninth Street Espresso, with three Manhattan locations; Roasting Plant, with two cafes;Jack’s Stir Brew, also with two Manhattan locations; Gregory’s Coffee, with four coffee shops; Think Coffee, also with four; and MUD, which started as a coffee truck but has now started opening what it calls MUD spots.

Café Grumpy opened its first coffee shop and roastery at 193 Meserole Avenue in Greenpoint, Brooklyn, in 2005 when “it was like tumbleweeds going down the street,” Ms. Bell said. They chose the location because they lived there, but also because the landlord was willing to take a risk on a new food business.

“It’s a lot easier now,” having proved to be a viable business, she said, which has enabled Café Grumpy to expand into Manhattan, where it also has a shop in Chelsea.

Blue Bottle Coffee, a San Francisco roaster and brewer, opened its first New York cafe in Williamsburg, Brooklyn, in March 2010. “It’s a good time to be in coffee,” said James Freeman, the owner of Blue Bottle. “Especially Manhattan is really awakening to some more careful roasting, and interesting flavors and a more professional cadre of baristas making their drinks.”

Blue Bottle, which started as a street cart serving coffee at farmers markets in 2002, is in the process of fitting out two other cafes in New York: one at Rockefeller Center and the other at 450 15th Street in Chelsea. Mr. Freeman said he expects them to open by the end of this year.

Other chains that started elsewhere but are now venturing into the city includeStumptown Coffee Roasters of Portland, Ore., with a cafe in Manhattan and a brew bar in Red Hook (currently closed for remodeling); and Intelligentsia Coffee of Chicago, which has its “New York Lab” in Manhattan.

Real estate brokers say that coffee shops need a high volume of customers to be viable, which is why many are aimed at commuters in office neighborhoods. The addition of other products, like baked goods or a variety of drinks or packaged coffee beans and other accoutrements, can help keep coffee shops going in commercial neighborhoods as well as in residential neighborhoods, where retail rents may be lower, but so is traffic.

Much of the recent growth in the high-end coffee market in New York can be traced to Starbucks. New Yorkers were warming to the idea of sophisticated coffee before the Seattle company entered the city in the mid-1990s, with chains like New World Coffee, Cooper’s Coffee and Oren’s Daily Roast starting to pique the interest of coffee drinkers for a taste beyond watery diner coffee and the traditional “regular” cup from street carts, laden with milk and sugar.

But Starbucks saturated the market, opening up its first New York store in 1994 with plans to have 100 outlets in Manhattan within four years. (There are now nearly 200.) That created a huge market of consumers who would no longer tolerate subpar coffee — but it drove most of the smaller chains out of business.

One chain that held on was Oren’s, founded in 1986 by Oren Bloostein, which was forced to scale back a bit, said Jeffrey Roseman, an executive vice president and principal with the real estate service firm Newmark Knight Frank, who has worked with Oren’s to find locations.

“I think he got hurt,” Mr. Roseman said. “Clearly, he had a bigger chain before Starbucks got here. I think he sort of scaled it down, and only operated one or two stores through Starbucks’s height, and recently again picked up and has slowly expanded.” Oren’s now has nine locations in Manhattan, including one that opened last year in Times Square.

“I actually think you started seeing more independent coffee chains as a backlash to Starbucks,” said Andrew Moger, the chief executive and president of BCD, a real estate and development firm for restaurants that works with small coffee chains such as Joe the Art of Coffee, which has seven locations in New York, and Toby’s Estate, an Australian-based coffee chain that plans to open its first New York coffee shop in December on North Sixth Street in Williamsburg.

“As Starbucks kept growing, guys who had a more boutique product or what they considered to be a better product said, ‘I could do this,’ and they put their plans into action,” Mr. Moger said.

Dean Rosenzweig, vice president of retail services for the commercial brokerage CB Richard Ellis, said a combination of factors had prompted small coffee chains and independent shops to open.

“The higher jobless rates that came out of a softer market meant that more people were finding their entrepreneurial spirit within themselves,” Mr. Rosenzweig said. “The lower rents that came out of it were able to accommodate the model that a lot of these shops felt they needed to open up.”

As well, landlords became more flexible about considering food service businesses and new businesses as tenants — even ones with a strong odor. “In a softer economy, landlords have a little bit less leverage in that area,” he said.

Mr. Rosenzweig, who used to work for Starbucks’s real estate department, said that as a landlord representative, he has been getting lots of calls from Seattle’s Best Coffeefranchisees of late.

“Seattle’s Best, which is Starbucks’s sister company, has apparently sold a lot of territory in the New York area, so you’ll soon start to see Seattle’s Best locations popping up,” he said.

Another large chain entering the New York market is Coffee Bean & Tea Leaf, which is based in Los Angeles and has some 750 shops around the world. It opened a cafe at 1412 Broadway, just a block south of the new Oren’s — which is itself a block south of a Starbucks.

Mr. Rosenzweig is working with Pudge Knuckles, a start-up with a roasting facility in Red Hook that plans to become a chain with perhaps a dozen shops. Pudge Knuckles will open its first shop at 184 Kent Avenue in Williamsburg this fall and is scouring the Upper West Side of Manhattan for its second location.

The company takes pride in its New York City heritage, with names like East Coast Thriller and Five Borough Blend for its coffees, and aims to provide an unpretentious alternative to other overly sophisticated coffee chains, said Ivan Greene, a former professional rock climber who started Pudge Knuckles with Hartje Andresen, a model.

Real estate brokers say there is still plenty of room for competition. “I would say there’s really no place in Manhattan where you’re not going to find a competitor,” said Shelton Franklin, a senior managing director at S. Blair Partners, a real estate services company that works with Gregory’s Coffee and other chains. “There’s always somebody a block away, but there still seems to be room for more.”