Peet's Brews Expansion

"When we build, sales in all other components of our multi-channel model go up significantly," O'Dea says. The other channels are direct home delivery, sales to food services and offices, and sales in specialty grocery stores. "When we open a store, for example, our sales at grocery stores within a five-mile radius of the Peet's unit typically increase by 50%. Home delivery increases by similar proportions."

Stores average 1,600 sf to 1,800 sf. Through 2009, Peet's will continue to concentrate on expansion in the West. "There is so much opportunity there for us," O'Dea says. At the end of 2005, 92 of the company's then 111 stores were in California. Its largest competitor, Starbucks, which he does not name, operates 1,700 units in California. "So, we will build strength in the Western US first, follow with geographic expansion throughout the US and ultimately reach beyond the US," he says.

Peet's considers its fresh roasted beans the "gold standard" in coffee. Again, without naming giant Starbucks, O'Dea says Peet's prices in stores are typically five to 10 cents more a cup than its competition and about 10% higher for a bag of whole beans. "Even at $11 per lb., it's only about 23 cents a cup," he notes.

The US market for premium coffee and tea is now between $11 billion and $12 billion a year, according to O'Dea, and there are approximately 17,500 premium coffee houses in the US. "The market's growth is part of the national trend to premium products, such as wine and ice cream," he contends.

While 52% of US adults drink coffee daily, just 16% consume specialty coffee daily, according to O'Dea. "We intend to grow by introducing the masses to specialty coffee."

Peet's retail units, which also sell pastries, account for 68% of the company's business, with the remainder fairly evenly split among the other three channels, with grocery stores holding a slight majority share. The average mature Peet's store has annual revenues of $1.3 million.

The company was founded in Berkley in 1966 and went public in January 2001. Since 2000, it has expanded from 58 retail stores to 139 by the end of this year, and, during the same timeframe, expanded its grocery-store presence from 26 to 4,000 specialty grocer units.