Caffeine Rush

Meet the local company that has its sights set on becoming Starbucks' biggest competitor.

by Drew Lazor

Illustration By Ryan Casey

With his broken-in jeans, untucked dress shirt, mop of silver hair and unplugged, topic-jumping manner of speaking, Joe Grasso is rather casual for an urban conqueror.

His office is on the sixth floor of the Curtis Center at Sixth and Walnut — the property that publishing magnate Cyrus Curtis built as his ledgerbook Xanadu. Grasso's gigantic personal office, naturally, once belonged to the man who helmed The Saturday Evening Post and Ladies' Home Journal, though in its modern incarnation, it's reminiscent of a slightly more lived-in version of Ari Gold's workspace on Entourage. It's clear from the gates that the laughy, engaging Grasso is high-energy — there's a branded Red Bull cooler behind his desk.

Michael T. Regan THE BREW CREW: Walnut Street Capital founder Joe Grasso (left) and Saxbys Coffee CEO Nick Bayer. (CLICK IMAGE FOR LARGER VERSION)

He's prepped to talk about Saxbys, a 30-location national coffeehouse chain, formerly based in Atlanta, that Grasso's $200 million real estate investment firm Walnut Street Capital (WSC) purchased this past summer. It's not long before besuited Saxbys CEO Nick Bayer strides in beaming, arms full of folders and briefs that presumably hold reams of important documents. He's just secured two Saxbys locations in the Philadelphia International Airport, and he's feeling good. Bayer, 29, is a tall, confident kind of guy who Grasso almost paternally refers to as "H.B." — short for "handsome bastard." They laugh. They joke.

They're happy because they're about to take over coffee in Philadelphia.

The mystique is in the numbers: There are currently 30 Saxbys in 13 states across the country, with three in suburban Philadelphia. Fifteen more are expected to open nationwide by the end of the year. For 2008, the goal is to open 200 sites — with between 15 and 20 of those stores in greater Philadelphia. Locations in Abington, Haverford and on campus at Temple University will all debut in the coming months, joining the spots in Malvern, Lansdale and Wayne; a total of 150 are tentatively earmarked for the tri-state area.

The big picture? Two thousand national locations within the next five to seven years.

But is Philadelphia — populated by dozens of independent coffeehouses and Starbucks sites in addition to widely regarded full-service firms like ISO-certified Ellis Coffee Co. and haute roasters La Colombe — able to sustain another big-time player? Is our city not full of scads of stubborn DIY coffee consumers? Won't your average urban progressive always choose mom and pop over The Man?

Can there be two The Men?

The story behind Saxbys, and its eventual relocation to town, begins in Colorado with Bayer. After graduating from Cornell in 2000, he landed a job as a business consultant in Atlanta. During his travels, Bayer ended up in Windsor, a town about 50 miles north of Denver.

It was there that the Chicago native came in contact with Capri Coffee, a café he felt had potential. "There was an opportunity there," says Bayer. "I wasn't even a coffee drinker at that point. But I was very impressed with the [clientele], the demographics, the array of menu items." Capri's owner rebranded it as Saxbys and Bayer purchased it shortly thereafter, incorporating the business in Atlanta. The store was successful, and he was able to open a second site, close to the original, several months later.

Saxbys in Philly, though, has roots in the chain's third location, which opened in Malvern in the spring of 2006. The move was initiated by Bayer's college friend, Haverford native Brian Whittaker, who also signed up as the location's franchisee. Whittaker's knowledge of the area helped Saxbys break into Philly, the brand's first market outside Colorado. He then began scouting a space in the Pavilion at Lansdale, a shopping complex owned by Grasso and WSC.

Required Reading
The Saxbys Vision.

Henry J. Holcomb's Aug.
13 Inquirer piece on the Saxbys acquisition.

The Independents Coffee Cooperative's statement about Saxbys Coffee.

"Brian said, 'You might want to come out here and meet these people,'" says Bayer. They agreed on terms and got the shop running. Soon, high-volume sales made Grasso take notice. "Joe said, 'When you're looking to grow this business, give me a shout.'"

Bayer shouted. And by "grow the business," Grasso meant that he would A) acquire Saxbys in July of 2007 and start the process of moving its headquarters from Georgia to the Curtis Center; and B) waste no time getting the media salivating by announcing aggressive, large-scale expansion plans aimed at legitimizing the firm as the premier competitor for Seattle-based Starbucks, which currently boasts about 10,000 domestic locations.

As far as the business press is concerned, there's something Pavlovian (and, considering the amount of initial coverage they got, newsworthy) about the prospect of a big-box mega franchise soon feeling the heat from a scrappy upstart competitor. (An Aug. 13 Inquirer headline read "Local developer buys anti-Starbucks Saxbys"). Saxbys was labeled a potential alternative to Starbucks, due to its mellower, varied coffee blends and diametrically different business model. Bayer calls Saxbys "the local coffee shop with national appeal" — locations are individually owned and operated, while Starbucks are all corporate-run.

Two thousand national locations by 2014 may seem like a pie-in-the-sky figure with only 30 sites open, but the goal is to double 2008's growth in 2009 — expanding at the rate of roughly one shop a day. Starbucks, which started with a single Seattle store in 1971, now grows at the clip of six locations a day worldwide; there are close to 300 shops in that city alone.

Grasso's expectations for Saxbys are high; so high, in fact, that he's unable to pin down approximately how much money it'll take to reach his mark. (Currently, Starbucks' biggest coffee-specific competition is the Minneapolis-based Caribou Coffee, which, as of September, had just 473 locations nationwide.) After all, what if they go even bigger?

"It's a great concept," says Grasso, a native Philadelphian. "It doesn't offend anybody. Millions and millions of dollars are going to be involved in the growth of this company in the short term. In the long term, hundreds of millions of dollars. It takes money. It's a big commitment. So far, we've beaten every goal we've had. I can't tell you exactly how much [it would cost], because if we keep beating our goals, that number will keep changing."

WSC did not make the value of the initial deal public. Regardless of the number of zeroes on the check, the businessman says he inked the deal based in no small part on the face behind it. "When I met Nick, it was more than just the company and concept — I was [also] looking at him personally," says Grasso. "I saw that fire in him, and I thought that it would be a good mix to have us work together."

Of course, even the most beautiful working relationship is nothing without a plan. And Bayer and Grasso will have you believe that Saxbys is something different altogether. As far as the coffee goes, Saxbys works off what Bayer calls a "smoother flavor profile" than Starbucks, which is characteristically strong and smoky. Non-traditional drinks include "Jet Tea" fruit smoothies and the trademarked "Frolatte!," or frozen latte.

The beverages do stand out, but Bayer and Grasso agree that the on-paper concept is just as big a selling point.

Saxbys uses the fact that each location is individually, independently owned and operated as the basis for the company's credo: to "mirror the uniqueness of the community we serve." Products like milk and pastries are purchased locally. The Lansdale shop hosts open mic nights; the Malvern location provides refreshments for PTA meetings at Radnor Middle School. The Wayne store carries pre-prepared Le Bus sandwiches. All stores have free WiFi. Environmental impact is considered, as well — paper cups are made from recyclable material, plastic cups from a compostable corn-based product. Though the franchise model does not allow for company-wide health care (a big bragging point for Starbucks), Bayer says he is working on options to nail down coverage for all Saxbys employees.

In Bayer's eyes, the concept falls somewhere in the half-caf gray area between how-are-ya familiarity and consistency of products — two very comforting selling points to the average coffee sipper.

"The consumer likes that it's their local coffee shop," Bayer explains. "But what people don't like about it [is] that if your [favorite barista] is not working today, you don't know if your vanilla latte's going to taste the same. I don't know if they're having a hard time paying their bills today, so they're going to use one pump of vanilla instead of two. We're a franchise business. We're locally owned and operated, but rest assured that you're in a big, national company. When you taste your vanilla latte today, it tastes just like it did yesterday."

It's quite a pitch, and people are buying into it. "We have more franchisees than we do locations right now," says Grasso. The company puts the average startup investment, not including franchise fees and royalties, at between $125,000 and $250,000.

But who or what is Saxby?

Bayer and Grasso chuckle when asked just that. "It was literally putting letters together," admits Bayer. "We felt as though it was a name that was recognizable. It sounds like you've heard of them before."

So Saxbys doesn't mean anything.

At least, not yet.

Michael T. Regan 'HOOD SENSE: Jason Huber, who co-owns InFusion Coffee & Tea locations in Mount Airy and Bella Vista. (CLICK IMAGE FOR LARGER VERSION)

While Bayer makes it clear that Saxbys is not expanding "in spite of Starbucks," it's certainly being drawn up as an issue. "We believe there is room in the coffee world for many different approaches and providers," reads a statement from Mike Lenda, Starbucks' regional marketing manager. "We're focused on continuing to provide the coffee expertise and welcoming experience that customers can get nowhere else."

It's not shocking to hear an enormous global company address its competition in polite boilerplate. What is surprising, though, is that the corporate-clash mentality essentially leaves the city's non-corporate coffee shops out of the equation.

And they've got something to say.

According to a report released by the Center City District, there are currently a total of 43 coffeehouses — 12 of which are Starbucks — operating in the area that roughly comprises Center City. The lack of public representation for the indies is likely a result of not having a PR machine backing them — but that doesn't mean some shops aren't taking measures to have their opinions heard.

On Aug. 15, shortly after news of the Saxbys acquisition went public, the Independents Coffee Cooperative — a nine-shop free-trade purchasing and support consortium that includes businesses like Chapterhouse, Joe Coffee Bar and Metropolitan Bakery — posted a statement on its Web site. "Saxbys sees the coffee market as being dominated by Starbucks where there's room for them: another chain competitor," it read. "Independents members are committed to being independent, and at the same time, support each other in order to remain viable in a time of ever-increasing numbers of cookie-cutter corporate giants who destroy the uniqueness of communities around the world."

"We wanted to show that we were paying attention to it, that you still have a choice," says Jason Huber, who co-founded Independents in 2004 as a way for local shops to jointly promote fair-trade issues and keep costs down. (The co-op buys a portion of its beans through Equal Exchange, one of the pioneering fair-trade organizations in America.) He and wife Jocie Dye, both native Philadelphians, founded InFusion Coffee & Tea in Mount Airy in 2002. They opened a Bella Vista location earlier this year. "Just because [Saxbys was] getting all this press ... it was kind of like a, 'Hey, what about us?' Why doesn't someone invest in the ICC to help us grow and become consistent? We could be nationwide — we could be a new model for the business. But their main thing is being a competitor for Starbucks."

"Obviously, our market is ripe," adds Huber. "[Growth] means that our market can sustain more and more coffee shops. [My first reaction was that] it's a good thing, a Philadelphia-based company investing in something that'll improve economic growth and provide jobs. My other reaction is that it's a bummer. Now, I have to compete for the same customer — for a new customer, which we were trying to get anyway — to come into our doors. To me, it's not millions of dollars. It's one cup at a time."

"There are 20,000 non-Starbucks shops in the U.S.," says Bayer when asked about Saxbys' relationship with the local competition. "What that tells me is that there are enough mom-and-pop coffee shops out there that are surviving. There's an opportunity for two or three local coffee shops to have multiple locations. And that's in every city."

But as far as Philly is concerned, the independent voice might be stronger because corporate coffee didn't arrive here until 1995, when the first Starbucks opened at 16th and Walnut. There are now 83 locations within city limits, a relatively low number when considering that comparably sized cities like Houston and Phoenix have more than 100 each.

It used to be "a lot of independents and then La Colombe," says Green Line Café co-owner Douglas Witmer, referring to the wildly successful city-based roaster and wholesaler that supplies beans to numerous local shops. "It seems like La Colombe is everywhere. Starbucks presence doesn't really have the density. Corporate coffee hasn't quite happened here yet as it has in other cities."

For Witmer, the decision to expand his brand (named for the old trolley line that runs by his flagship shop at 43rd and Baltimore) to three locations was based off of one simple need. "We realized that we needed to have more than one location to provide for our families," says Witmer of his and co-owner/brother-in-law Daniel Thut's decision to open in Powelton Village and at 43rd and Locust. "People look at the line out of the door and think the shop is making [a lot of] money, but the reality of it is that you have to sell a lot of coffee to make any money. One shop could only do so much in sales."

"I feel as though [Saxbys'] 'hybrid' kind of thing is a nice marketing tool," says Huber. "It's kind of like when Starbucks says we have some fair trade, and they really don't have that much. Maybe 0.5 percent is fair trade. But it helps create the feeling that you're participating in something. You can't bash a place if they're buying locally and infusing the local economy with money. But what I'm afraid of is the watering down of what those things truly mean."

On a grassroots level, Saxbys hasn't exactly earned a warm welcome. But a trip up the coffee food chain reveals some completely unexpected opinions.

The average coffee drinker probably doesn't know Massimo Taurisano's name. But chances are they've sipped his espresso.

A Wharton grad and native of Trieste, Italy, Taurisano — along with wife Carrie Lapp and partners Max and Nicoletta Tuccone — bought 15th Street's Café Hausbrandt, a retail face of the noted Italian coffee brand, in 2004. (It had been open for a year under different ownership prior to the purchase.) Last year, Hausbrandt USA introduced Academia del Caffé, an authentic, Italian-style espresso bar that now boasts seven locations in Center City (including one in Grasso's Curtis Center). Seven more will open in 2008. Earlier this year, Taurisano and Lapp purchased Philadelphia Coffee Works, an established product and equipment supplier; Taurisano says they have about 400 wholesale clients in the tri-state area. "I love the culture of coffee, the idea of selling coffee," he says. "I really think coffee is going to be like wine in the next five to 10 years."

As the force behind a formidable Philadelphia coffee brand, you'd think that Taurisano would bristle at the news of Saxbys coming to a city where he's had quite a bit of footing. His reaction was the exact opposite.

"My first thought was that this is an opportunity for us," says Taurisano. "We can help them to grow in terms of providing service to their [espresso] machines, and actually selling them the machines."

He says the company is currently bidding to secure a Saxbys equipment contract. Elsewhere, Hausbrandt is headquartered in the Public Ledger Building and Sixth and Chestnut, which — surprise — is also owned by Grasso. "Joe Grasso is my landlord," he adds. "I saw it as a great opportunity to be able to offer our services to him." If anything, Taurisano lends credence to the "more is better" belief generally agreed upon by Saxbys and the Independents cafés alike — competition's tough, but the more coffee options out there, the more it's on people's radars.

"They want it to come across that they will compete with Starbucks," says Taurisano. "But mom-and-pop coffee shops can be very successful and profitable. As long as you manage it properly, you can be in business with a Starbucks or a Saxbys next door." Take Saxbys' Wayne location, where three locally owned shops (and yes, a Starbucks) operate in the blocks surrounding it.

But Taurisano is still wary of the inherent dangers of going up against the conglomerate. "To compete with them ... it's not going to be easy," Taurisano says of Saxbys' expansion plan. "Even with 2,000 stores, that's just a percentage of Starbucks' [locations]. And who knows what Starbucks will be in five years? I wish them luck, obviously."

Founded in 1994, La Colombe ("The Dove") has long been synonymous with good — great — coffee. They supply beans to more than 50 cafés in Philadelphia, and dozens more restaurants. La Colombe's 30,000-square-foot, state-of-the-art roasting facility in Port Richmond produces some 1.5 million pounds of coffee annually.

They'll be even busier in the next few years now that they're roasting consultants for Saxbys Coffee.

The professional relationship between Saxbys and La Colombe co-founders Todd Carmichael and Jean-Philippe Iberti began a few months ago, when Grasso approached them for some input on Saxbys' current roster of products. They later ended up flying to Milan together to check out equipment for the stores.

"He had me taste some of his coffees. I made some very basic, off-the-cuff recommendations," explains Carmichael. "I said, 'Well, let me show you how that really can be done.' I really wanted them to refocus and take another look at their blends and their components from the base up. So I fired up our roaster and came up with lots of different ways of looking at things."

Carmichael and Iberti are candid when it comes to what challenges lie ahead for their new clients.

"When you grow that fast, you have to have a team that has their eye on the ball," says Carmichael, who began his coffee career in 1982 with Starbucks. "[If you don't] and you open 200 cafés in 4 minutes, some of those drinks are going to blow chunks."

Bayer and Grasso stress the intensive nature of Saxbys' franchisee training program, including the fact that there is very little room to deviate from the corporate-drafted drink recipes. It's of paramount importance, according to Iberti, who values on-the-ground quality above all else.

"What people forget in coffee is that the hand behind the coffee on any level — from the guy who's farming it to the guy who's brewing it — those hands can kill the product at any time," he says. "The finishing touch, the brewing of the coffee, is key. It might be a good product, but if they fuck it up, they fuck it up."

Though La Colombe is generally considered a high-end purveyor, it still has its wings in the independent café movement. There are three retail La Colombe locations, in Rittenhouse Square, Manayunk and New York City. Carmichael is the founder of the Indie Café Alliance, a more-than-2,400-member national organization that cafés can join free of charge to gain access to direct manufacturer prices on equipment, cups and many other incidental costs that go along with running a coffee business. It's comparable to the Independents Coffee Cooperative, albeit on a much larger scale. La Colombe and Saxbys, along with Delaware-based chain Brew Haha! and Jazz & Java (the chain from which Saxbys acquired its airport sites) belong to the Alliance.

Carmichael takes issue with cafés that make it a point to push ethics.

"Some are like, 'Buy my coffee because I don't slap my wife.' Dude, come on," says Carmichael. "Of course you don't slap your wife. Of course I do fair trade. Of course I belong to an alliance. Of course I try to offset my carbon footprint. Because I'm a human being, you know? On a larger level, it's the way everyone should behave. It comes with the territory. Joe Grasso and Saxbys are keenly in tune with the responsibilities to the community, the environment and their trading partners. But they're selling the coffee, not their image."

"Independent café owners are paranoid people," adds Carmichael of the reception Saxbys has been afforded by some local owners. "I'm an independent café owner myself, so I know. But I went up to Wayne, to the Saxbys up there. I met the owner. He was there behind the bar. I'm saying, what's different here? Your bag is different, it's preprinted and provided for you. [Corporate gives] you a lot of consulting and they help you with your location. But at the end of the day, the owner's still there with the freaking apron on."

Ask Huber, and he'll tell you that difference lies in him and his employees.

"I live in Mount Airy, three blocks from [my shop]," he says. "You get to rub elbows with people who took a chance. I don't feel like [Saxbys is] taking the same kind of chance. Yes, you build community economically, but you can also build community with the relationships you make. They're following a trend, and they've got a good thing going. But as a business owner, [I see the] consumers right across the bar, and thank them for putting their money where their mouth is. You help me support what I do, you help me continue to live in a neighborhood that's viable. That's what it's all about."

Saxbys' first city location, on the Liacouras Walkway at Temple, will be open within a month, and Carmichael doesn't see much changing. "There's no one greatest restaurant in the world," he says. "There's no one greatest wine. There's no one greatest band. We have variety. We have different things for everybody. No one is better than the other. Is there room for InFusion and Saxbys? Indeed. But which one speaks to you?"

(drew.lazor@citypaper.net)