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North Bay’s independent coffee shops grind through tough pandemic business climate

Gone was the ritual of the morning coffee stop. Lucrative revenue from restaurants and corporate accounts also dried up.

For North Bay’s independent coffee roasters and retailers, the pandemic blew a gaping hole in their business and forced wholesale changes.

While online sales provided a bounce, retail sales on store shelves and mixing food with coffee were the key to survival since the onset of the pandemic last March.

Still, there’s been plenty of fallout. The owners of Petaluma-based Acre Coffee sold the business earlier this year to longtime coffee veteran Rob Daly to concentrate instead on the restaurant business.

Flying Goat Coffee late last year closed its Santa Rosa Railroad Square location and its longtime store near Healdsburg Plaza due to high rents. It kept a small annex location nearby in the tourist town and hopes to come back later with a bigger presence.

Meanwhile, Black Oak Coffee Roasters of Ukiah has expanded south to take over the closed Flying Goat spot in Healdsburg. It will open its first Sonoma County location there next month.

“It (the pandemic) was chaotic,” said Jon Frech, founder and CEO of Black Oak, which opened in 2012 and has become a favorite of coffee aficionados in Mendocino County for its sourcing of beans and artisan roasting techniques.

“The pace of change. We just had to be really active as far as changing our business model around,” Frech said.

He is hiring now for the Healdsburg coffee shop, which also will feature a full food menu that he hopes will draw locals and tourists who return as the pandemic eases.

Before the coronavirus upended business and society last spring, the coffee business was quite challenging. Small local shops were at a disadvantage competing against giant chains Starbucks and Peet’s Coffee. Those behemoths have a large following, national scale and financial resources to implement changes quickly to position themselves to gain more of the nearly $50 billion annual share of the U.S. retail coffee market.

That tilted playing field forced local coffee purveyors to consistently work to find their niche. And recent history shows revamping operations doesn’t always mean success. That was the case with Taylor Lane Coffee, which was forced to downsize in 2019 into a mostly wholesale operation, after a former partner’s ambitious retail growth plan failed.

Last spring when the pandemic forced county and state lockdowns, coffee stores initially were shuttered before eventually reopening for takeout service. In the last month, they have been able to restart limited in-store business and welcome back loyal coffee drinkers inside their cafes and shops.

A strategy to achieve diverse revenue streams is critical, said Jon Bixler, co-owner of Bella Rosa Coffee Co. in Santa Rosa that has been in business about a decade. Its products are only sold in Sonoma County at local grocers such as Oliver’s Market and Pacific Market.

“This has highlighted the need to be well diversified,” Bixler said, reflecting on the tough year due to the ongoing pandemic.

Flying Goat faced tremendous rent pressure at its Santa Rosa and Healdsburg locations, said co-founder Phil Anacker, who helped pioneer premium coffee locally for the last 25 years.

“Neither landlord was willing to work with us during the economic challenges everyone faced during the pandemic — this despite over 20 years of loyal and reliable tenancy,” Anacker said in an email from Central America where he was meeting with coffee bean growers.

Flying Goat has signed a lease for a new Healdsburg shop and is in negotiations for a new store in Santa Rosa.

“We are very happy with the new landlords’ approach. They understand the value of the partnership,” said Anacker, who added that he has plans “for smart, measured growth” over the next five years.

The vacancy of Flying Goat’s former Healdsburg coffee shop opened an opportunity for Black Oak in Sonoma County, despite the challenges it faced in the past year, Frech said. The company’s wholesale business with cafes and restaurants slid and revenue plunged about 40% last spring. Discounts helped grow online sales and a $165,000 U.S. Small Business Administration loan through the Paycheck Protection Program helped retain workers.

Black Oak also caught a break when it signed a deal with Costco for the warehouse membership chain to carry some of its coffee products. And the opportunity to open a coffee shop in Healdsburg was too good to turn down. Frech brought in chef Beryl Adler, who had worked at hotelier Ritz Carlton, to develop a menu from breakfast burritos with chorizo to a carrot cake dessert.

“The idea of expanding was always something we approached very deliberately. I didn’t want to destabilize our company,” Frech said.

For local independent coffee shops, serving food with the java has increasingly become a staple for operators wanting a retail presence. For example, Daly, who took over Acre Coffee from an ownership group led by Steve DeCosse, is securing foods from area partners such as Red Bird Bakery and dairy processor Clover Sonoma.

“We’re coffee, but we also got incredible food,” said Daly, who used to be CEO of Taylor Lane. “That's part of the new Acre, as well as a community connection.”

Daly also sees promise from the trend of more consumers ordering coffee and food via smartphone, and developing wholesale customers for Acre.

When area companies last year abandoned offices and shifted to remote workers, Bella Rosa closed its small coffee shop near the Charles M. Schulz-Sonoma County Airport because nearby office employees were working from home. Also, it lost a lot of business from key restaurant and corporate accounts such as supplying coffee to Santa Rosa’s Keysight Technologies.

“The account that was buying $600 worth of coffee a week last year, they may be buying 50 bucks every two or three weeks,” said Bixler, the Bella Rosa co-owner.

A saving grace for the company is its own production, and making private label coffee products for retailers. Bella Rosa produces up to 85 different coffee items.

“We're really good at producing a lot of coffee quickly and getting it into different size packets,” Bixler said.

To Frech, the founder and leader of Black Oak, the area’s independent coffee shops can gain a competitive advantage with authentic local products. They can’t go head-to-head with Starbucks on price.

“At least for me, Black Oak isn't a business just trying to get bigger. We have an authentic connection with the communities where we operate,” he said. “The decision to expand has to sort of be with the right space and we have to have a good plan in place to engage with the community.”

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com.

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