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Beating the Chains

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Marty and Louise Cox leveraged the unique advantages of families in business to outfox powerhouse Starbucks.

By Deanne Stone in Family Business Magazine

Five years ago, Marty and Louise Cox quit their corporate jobs and opened their first coffeehouse, It’s A Grind, in Long Beach, California, a sprawling seaside community 20 miles south of Los Angeles. Today the couple operates five It’s A Grind stores in the area and is planning to open three more before year’s end.

The ubiquitous Starbucks chain already had secured a strong foothold in Long Beach, with two shops right near the Coxes’ first outlet. But unlike many family businesses owners who feel doomed by chain-store competition, Marty and Louise have copied what the chains do right, and leveraged what a small family business can do better.

Capitalizing on their hometown connection, they’ve created their own local coffeehouse chain that provides top-quality beverages and unbeatable service in a friendly, neighborhood atmosphere. Last year, It’s A Grind drank up $2.5 million in sales, up 28 percent from the previous year. Here’s how they’ve done it.

KNOW THE NEIGHBORHOOD

When they married 10 years ago, Marty, now 34, and Louise, 41, knew they did not want to spend the rest of their lives working in corporations. He was an outside sales rep for an office-supplies company and she was a sales trainer for the phone company. The specialty coffee boom was under way and Louise, a native of Vancouver where coffeehouses are a way of life, suggested that they look into opening their own store in Long Beach, where they lived. Both enjoyed the java-hut ambience and thought owning one could be fun and profitable.

The Southern California Association of Coffee, headquartered in Long Beach, offered nuts-and-bolts courses in operating coffeehouses. Marty and Louise signed up. They also read every book they could find on the subject and visited independently owned cafés in Los Angeles and San Francisco. But what they surmised was that if they were to succeed, they would have to model themselves on the big chains. They analyzed Starbucks’ strategy and stores, then sought the best legal and financial advisers to help them get started.

After two years of study, Marty and Louise began searching for a location. Here they had two advantages. Louise’s knowledge of market research and demographics learned at the phone company helped them identify the critical factors in selecting a location: lots of foot traffic, visibility from the street, a good anchor tenant, plenty of parking for morning commuters, and a family neighborhood with a median income of about $50,000.

It was Marty’s familiarity with the town, however, that enabled them to find a location for their first store—a place Starbucks had overlooked. Marty has lived most of his life in Long Beach. With a native’s instinct for the direction in which neighborhoods are moving, Marty spotted a promising storefront in an underserved area. It had all the critical factors Louise had identified, but lacked a coffeehouse. “It was the kind of street Starbucks ignores,” Marty says. “They prefer to locate stores in high-traffic shopping centers.”

Marty and Louise wanted their coffeehouse to have a friendly neighborhood feel, but also wanted it to look professional, like Starbucks. They hired an interior designer who helped them select appealing colors (they settled on rust and purple tones) and upholstered wingback chairs comfortable for reading. On the walls, they hung photographs of the jazz and blues musicians whose music they would play in the store. And taking advantage of Long Beach’s mild climate, they provided plenty of outdoor seating.

WORK LONG AND PROSPER

The name the couple had chosen for their business, It’s A Grind, proved to be more than a clever pun. It was prophetic. The Starbucks shops in the area were open daily from 5:30 a.m. until 11:00 p.m. To compete, Marty and Louise had to keep similar hours. “When we first opened, some people advised us to close earlier in the evening and on Mondays when business tended to be slow,” Louise says, “but we couldn’t do that.” The reality today is that most small businesses face competition from chain stores and the Internet. If they want to play the game, they have to do what the corporate players do.

More important than long hours, though, was the standard of personal service that would become the couple’s trademark. Working behind the counter, Marty and Louise got to know their customers by name and remembered how they liked their drinks prepared. When regulars forgot their wallets or were short of cash, Marty and Louise gave them IOUs. The honor system worked and built customer loyalty. Fans brought their friends and, on weekends, their families. It’s A Grind became a neighborhood meeting place.

Marty and Louise also built good will by providing complimentary coffee at community events, such as Little League games, AIDS fundraisers, and church benefits. “When local charities approach us,” Louise says, “they know they can get an answer quickly. Working through Starbucks’ bureaucracy is a different story.” A case in point was a student poetry reading organized by English teachers at a local school. The event was held in a Barnes & Noble store that also housed a Starbucks. When the teachers couldn’t locate the right contact person at Starbucks, they turned to Louise for help. “I think it was pretty telling that I brought our coffee to the event,” says Louise, “when Starbucks was right there.” While many chains do donate to local charities and provide personal service, Marty says customers respond differently to him and Louise knowing they are a family-owned business. “A lot of our customers feel loyalty to the local guy. They’re always telling us they hate chain stores, but I’ve never believed in bashing the competition. If anything, Louise and I are grateful to Starbucks for educating people about specialty coffees. We wouldn’t have a business without them.”

Within two years of opening their first store, Marty and Louise opened two more. In this town of 427,000, Starbucks was not their only competitor for good locations; small chains and other independents were also expanding. With some 2,700 stores nationwide Starbucks has the biggest clout, though, and many cities court them by offering generous subsidies. Landlords welcome Starbucks too, knowing they can afford to pay higher rents than independent businesses. As a result, hunting for new locations was taking more of Marty’s time.

But once again, Marty’s knowledge of Long Beach gave him the hometown advantage. One of the locations he chose was a neighborhood where he had lived as a boy. While the demographics were good, the shopping district was run down. Marty and Louise saw the potential and took a chance. Their bet paid off. “The community was thrilled to have us. They gave us a warm welcome,” Marty says. “Since we moved in, the area has been revitalized, bringing more foot traffic.” It’s A Grind’s fourth store is located in a food court on the first floor of a downtown high-rise building, and the fifth is in a small shopping center. Marty has identified locations for the three stores he and Louise plan to open this year, but the leases have yet to be negotiated.

SAME LOOK, BETTER SERVICE

As they expanded to new locations, Marty and Louise repeated the same décor in each store. Just as Starbucks has an identifiable look, so do the It’s A Grind coffeehouses. “We wanted the same consistency of appearance that the chains have,” Marty says. “Each store has the same selection of coffees, the same menu, the same merchandise. We want our customers to know what to expect when they patronize our stores.”

While Marty and Louise copied the professional look of Starbucks, they strove to differentiate themselves from the chains by what they call the customer experience. From the start, they established the policy that customers are not only right, they should also be happy. “If we noticed that a customer looked stressed about something because he had to wait too long in line or because he couldn’t find a parking place,” says Louise, “we’d offer him a coupon for a complimentary drink on his next visit.” This level of attentiveness to customers’ satisfaction came naturally to Louise, a gregarious personality who enjoys interacting with people. She had to teach it to their employees.

It’s A Grind has 85 employees; most are local college students who work part time. Between opening new stores and worker turnover, training staff became a full-time job. Drawing on her corporate background, Louise designed a three-day training program and wrote the manual. At the end of the class, trainees take a final exam. As an incentive to study hard, Marty and Louise offer higher starting salaries to trainees who have the highest scores. Louise’s daughter, Danielle, age 16, works in one of the coffeehouses on weekends. Like the other employees, she had to pass the training course before she was hired.

While Louise handles the staff responsibilities in this husband-and-wife partnership, Marty is the numbers man. He scouts new locations and does the strategic planning for each new store. Although pleased with the business’s progress, Marty and Louise are not content to rest on their laurels. They have bigger plans: to make It’s A Grind the number- one regional coffeehouse chain in the Long Beach area, and to keep it there.

CONSULT THE EXPERTS

Marty and Louise knew that before they could take the business to the next level, they would have to sharpen their business practices. From the time they conceived of starting a coffeehouse, they have relied on professional advisers to guide them. “When we began,” Louise says, “we promised each other we’d never compromise on quality. That goes for the coffee beans we use and for professional advice we get. A lot of family run coffeehouses fail because they cut corners and don’t get the professional help they need.”

Marty had read an article about a Long Beach retail consultant, Bob Phibbs, who had helped save a local coffeehouse, Polly’s, that had operated in the same location for 20 years. When two Starbucks opened nearby, Polly’s almost sank. Marty liked Phibbs’ approach and called him up.

Phibbs, 41, calls himself “the retail doctor.” He has been an independent consultant for seven years. An energetic personality, he has helped some 60 small, independent businesses in Southern California, including Bay Shores Inn and Haute Links restaurant, cope with chain-store competitors. Like any good doctor, he is most effective with clients who are willing to change old habits. “It’s not the big who will kill the small,” says Phibbs, “as much as the creative who will devour the passive. Too many small, independent businesses blame all their problems on the chain stores. They keep crying ‘poor me’ but they don’t change how they do business.” One way to survive is to find a niche the chains don’t fill. Phibbs is currently writing a book, Just Because You See Icebergs in the Water Doesn’t Mean You’re on the Titanic, that sums up his consulting philosophy. It boils down to focusing on three areas: facility, marketing, and sales.

Phibbs began working with Marty eight months ago. He gave It’s A Grind high marks on its facilities. All were clean, attractive, well-lighted, professional looking and, he was happy to see, had no handwritten signs. Marty and Louise’s marketing and sales methods, however, needed improving. They had been offering coupons in the local papers. To capitalize on Marty’s native roots, the ads included the tag line, “Born and raised in Long Beach.” Phibbs believes a more effective marketing strategy is direct mail advertising. “Marketing doesn’t have to be expensive as long as you know your target,” he says. “The best place to start is with your customers.”

Marty had been trying to put together a mailing list for four years without much luck. Phibbs suggested in-store promotions that are fun and encourage customers to bring family and friends. Two recent promotions included a drawing to win a trip for two to Las Vegas, and free balloons, some of which had prizes inside for free drinks. To participate, customers had to fill out their names and addresses on a card. The cards build the mailing list, which Marty and Louise then use to announce other promotions. Marty and Phibbs are now gearing up a new promotion to increase the business’s name recognition. They’re printing It’s A Grind bumper stickers. License plates of cars spotted carrying the stickers will be posted in the stores and the vehicles’ owners will receive free coffee for a week.

Simultaneously, Phibbs revamped It’s A Grind’s sales methods. “Marty and Louise had established lots of policies,” Phibbs says, “but what was missing from the training was teaching the staff how to sell.” Phibbs says this is a common mistake among service businesses, which become so focused on providing good service that they forget about salesmanship.

Phibbs began with more advanced training for all of It’s A Grind’s 85 employees. “A lot of college students don’t know how to talk to people,” he says. “I tell them that all selling begins with a relationship. You have to greet the person first as a friend and then as a customer. If a mother comes into the store with kids in soccer outfits trailing behind, ask her ‘How was the game?’ before taking her order. And don’t say, ‘May I help you?’ to her. Instead, ask ‘What can I make for you today?’ That makes her feel special.’”

Phibbs preaches that selling is nothing more than a transfer of feeling from the salesperson to the customer. When the salesperson is enthusiastic about the product, the customer is likely to be, too. “Most people order the same drink every day,” Phibbs says. “To introduce them to the variety of drinks served, the employee might say something like, ‘Have you ever tried a chocolate espresso bean shake? It’s my favorite. If you like a strong espresso taste, you’ll really like this.’ Adding flavoring increases the price of the drink by about 50 cents. The result is that you’ve given the customer a new experience and you’ve increased sales.” Phibbs’ approach has proved so successful that he has taken over all staff training, freeing Louise to concentrate on quality control.

At the end of each month, Marty totals employees’ average sales from the computerized cash register. Those who score the highest on sales per transaction win prizes, which vary each month. “The employees like the competition,” says Marty. “It gives them recognition. It’s also a reminder that the business is a sales organization, whether the employees think of it that way or not. Bigger sales mean more money for the company and bigger tips for the staff.”

Marty attributes a good portion of the business’s 28 percent increase in sales last year to Phibbs’ guidance. Sales were even up in January, traditionally the slowest month. As important as the specific changes have been, Marty says the best thing Phibbs has done for him is to hold him accountable as a manager. In the past, if an employee wasn’t doing a job properly, Marty would step in and do it himself. “Bob got me out from behind the counter. I was so caught up in the day-to-day ordeals of running a business that I didn’t have time to think about the big picture.” It wasn’t that Marty didn’t have new ideas. If anything, he was generating too many ideas and going in too many different directions.

Now when he comes up with a new idea, Phibbs draws a bull’s eye target and they talk about where the idea falls. If it falls in the center, then he knows it is worth pursuing.

DANGERS OF FAST GROWTH

Success, of course, comes with its own costs. Since opening their first coffeehouse, Marty and Louise have had little time for much of a life outside the business. They were on call 16 hours a day. When employees got sick or didn’t show up to work, or there was a problem at any one of the stores, they had to take care of it. They have since delegated those responsibilities to a regional manager and an assistant manager. “We realized we couldn’t do it all,” Louise says. “There’s no price tag you can put on preserving your sanity. I can’t stress enough the importance of having employees you can trust.”

Expanding further will add to the demands on their time. Marty is seemingly indefatigable. Even when he worked in corporations, he routinely put in 14-to-16-hour days. Louise, however, had reached her limit. After working seven days a week, 52 weeks a year, with no vacations for five years, she wanted to cut back. “I was mentally and physically exhausted,” she says. “We would come home from working all day and have time only to walk the dogs. Then we’d fall asleep and start all over again at 5 a.m. the next morning. We had nothing to talk about but the business. We needed some other input in our lives, and it was easier for me to reduce my hours than it was for Marty to reduce his.”

Marty and Phibbs continue to meet for a half day once a week and talk by phone several times a week as questions arise. With Phibbs as his coach, Marty has someone other than Louise with whom he can talk about the business.

That outlet, along with Louise’s more reasonable 35-hour week, has helped reduce the stress on the couple’s marriage. With their life and business more under control, Marty and Louise feel confident that having Starbucks as neighbors will not affect their business. “We’re not worried,” Marty says. “We do a great job. Yes, Starbucks does the same things we do, but we do them better. Besides, we like the competition. It gives us something to measure ourselves against.” ▪

Deanne Stone is a business writer and freelance contributor to Family Business Magazine, who specializes in writing about family foundations and family businesses.

Source: Family Business Magazine, Spring 2000

Copyright © 2000. Family Business magazine. Subject to the provisions of the Terms and Conditions of the Family Business Web Site, subscribers to Family Business magazine may print and distribute copies of this article, electronically or otherwise, provided that (a) such printing and distribution is done only for your personal, informational, non-commercial purposes, and (b) you do not remove or obscure the copyright notice or other notices. For other uses, including reprint permission for non-subscribers, contact Family Business magazine.