Bucking Starbucks - PJ's USA Inc. will be competing with Starbucks Corp. in New Orleans, Louisiana - Brief Article

Nation's Business, Oct, 1998 by Michael Barrier

Free-Spirited Enterprise Starbucks Coffee Co., the powerhouse chain of specialty coffee stores, has only one store so far in New Orleans, in the lobby of the Sheraton Hotel on Canal Street. "I know that lobby well," says Bryan K. O'Rourke. "I go there once a week and sit and watch. I'm their dutiful student, because I know that everything they've done, they've spent millions of dollars figuring out." O'Rourke is president and CEO of a 20-year-old, New Orleans-based coffee company, PJ's USA, Inc., that is just a tad smaller than Starbucks.

PJ's has 21 stores in the South, versus more than 1,500 nationwide for the Seattle-based giant. (PJ's takes its name from Phyllis Jordan, the founder, who was out of town the day we stopped by the company's offices.) Starbucks announced earlier this year that it plans to move into the New Orleans area in a big way It would be hard to think of a market (except maybe Seattle) that is more receptive to robust coffees, as anyone who has had a cup of chicory coffee at the Cafe du Monde on Jackson Square knows, The question is whether New Orleans coffee drinkers are too firmly wedded to their local purveyors for a national chain to pry them loose. PJ's, far from hunkering down in the face of high-powered competition, is adding franchisees (of the 21 stores, only four are company-owned). Ten more stores are "under construction," O'Rourke says, and PJ's is about to spend $1 million to completely automate its roasting facilities. The market for specialty coffee may appear saturated if you live in one of those big cities where there seems to be a Starbucks on every corner, but O'Rourke believes there's lots of room for growth-even in the New Orleans area, where PJ's already has 15 stores and is planning to open four more. The Specialty Coffee Association, based in Long Beach, Calif., has forecast that there will be around 10,000 "coffee cafes" in the United States by sometime in 1999, ranging in size from portable carts to large chain stores. But such cafes are still concentrated on the West Coast, O'Rourke says, leaving vast areas under-caffeinated. Likewise, even though consumption of specialty coffees has grown rapidly in recent decades, most people still don't drink lattes and mochas. The association's figures show specialty coffees accounting for less than 10 percent of "food-service" consumption in restaurants, fast-food stores, and the like. "I feel some pressure to grow," O'Rourke says. "Phyllis feels some pressure to grow. But we're not going to do anything stupid." And what would be stupid, he thinks, is to try to grow too big. In competition with a giant like Starbucks, he thinks, a rival chain's very smallness may be its largest asset. "Coffee is like wine," O'Rourke says. By that he means that coffee beans aren't fungible-the beans from different parts of the world differ as much as the grapes grown in France differ from those grown in California. The analogy isn't perfect, of course-if it were, some aficionados would be paying $25 for an extra-special cup of coffee and $100 for a pound of beans. But as with winemakers, so with coffee companies: The bigger you get, the harder you must work to stay out of the mass-produced, grocery-store groove. Its small size is thus an advantage for PJ's, O'Rourke says, because it's easier for the company to maintain high quality Small, elite coffee growers who can fill all the needs of a chain like PJ's can't possibly fill a big chain's needs. "When it comes to product," he says, "we'll always be a little better." The PJ's outlet that we visited in River Ridge, La., felt like a bright Southern kitchen, in contrast to Starbucks' gleaming Italian-bar look, and O'Rourke says the difference in atmosphere works to his company's advantage, too. Because the fixtures are so much less expensive, he estimates that it costs about half as much to open a PJ's as it does to open a Starbucks. Small size means, too, that PJ's can roast its coffee beans in a way that would be inefficient for a large concern that needs to roast a lot more beans at a time. The company uses a Sivetz Fresh-Air Roaster, which O'Rourke compares to a hot-air popcorn popper; it's used by other small, high-quality coffee companies, like Kaladi Brothers Coffee Co. in Anchorage, Alaska. One big advantage: It won't burn the beans, a hazard with other forms of roasting. O'Rourke thinks that PJ's can grow to about 100 units - the target for the next four or five years - without compromising quality. "That's about as big as we want to be," he says. "We want to be a regional player that does what we do well. Being big is great, but it's also nice to be able to do things that you can't do anymore when you're big."