Stealing Starbucks’ Buzz

NEW YORK (CNNMoney.com) — As dairy prices rise, forcing Starbucks customers to shell out more for a grande decaf no-whip mocha, some small coffee stores are finding a way to outbrew the cappuccino king.

Starting Tuesday, Starbucks will raise U.S. prices on cappuccinos, lattes and other coffee drinks by about nine cents a cup to help offset soaring costs for milk and other commodities, according to the company.

Wholesale milk prices have soared over the past year, amid strong global demand, which has resulted in higher retail prices for dairy products and higher production costs for coffee shops like Starbucks, according to Rick Kment, a dairy analyst at Omaha, Neb.-based agriculture consulting firm DTN.

In fact, Starbucks’ chief financial officer warned it would be “very challenging” for the coffee shop chain to meet the high end of its 2007 earnings forecast, in part because of rising dairy prices.

But for Doug Hibbing, president of Fort Walton Beach, Fla.-based Cuppy’s Coffee & More, a small specialty coffee franchise, there’s an upside to the dairy squeeze.

Although some diehard java fans don’t balk at spending more than $3 for a latte, Starbucks customers may go elsewhere if prices get too high, Hibbing believes. And Cuppy’s 38 stores are more than happy to sell them their caff� lattes instead, which cost $2.50 to $2.75 for a 12 oz. cup.

“If (Starbucks) raises their prices, it gives us more latitude to take a share of the business,” Hibbing said.

Whether they stop in to Starbucks or get their joe elsewhere, 51 percent of adults in the U.S. said they drink coffee daily, according to the National Coffee Association, which means there’s a big market for the espresso-obsessed.

Even as dairy costs rise, “the margins in specialty coffee are still very comfortable,” Hibbing admits. “It does cut into the profit margin some, but it’s not a deal breaker by any stretch of the imagination.”

And therefore, Cuppy’s can keep prices well below the cost of Starbucks, at least for the time being. In addition, “because our stores are locally owned and operated we don’t have the layers and layers of overhead some of our competitors have.”

And that’s what Hibbing hopes will stimulate the company’s expansion. Cuppy’s expects to open 100 franchised locations by the end of the year.

Cuppy’s Coffee Café Turns into California Hot Spot

Murrieta Cuppy’s Coffee franchisee Mike Luevano shares how live entertainment helped significantly increase his business.

Offering live music at your Cuppy’s Coffee & More Café is a great way to get involved with the community and gain loyal customers. Hosting bands at your café is also another way to generate revenue at your store. Mike Luevano, a Cuppy’s Coffee & More franchisee in Murrieta, California, offers some great insight on how to get started as well as the success it has brought his store.

Q: How successful is the live entertainment at your store?
A: Very. Our entertainment nights are doing well, but that’s because they are done the right way. This is not an initiative to put partial effort into—it requires full dedication.

Q: Has the live entertainment brought more traffic to your store?
A: Live music helps us distinguish our brand and rise above the coffee houses in this area by bringing something unique to our café.

Q: How often do you offer live music at your Café?
A: We offer live music Tuesday through Saturday, with an Open Mic night on Wednesday.

Q: How do you generate enough revenue to support the bands and make a profit?
A: We charge a $5 cover for bands playing Tuesday and Thursday, and a $6 cover for bands playing Friday and Saturday. We pay each band a dollar for every customer they draw to the store, that way they are paid based on their promotions and pull. Open Mic Night is free.

Q: How many customers does the live entertainment attract each night?
A: Anywhere from 50 to 120 people on a good night.

Q: How do you choose your live entertainment?
A: I rely on www.myspace.com* as a promotion engine. I established a web page on myspace.com for Cuppy’s Coffee Music. I use myspace.com to search for bands in my area and then contact them on their myspace page.

*Please note: www.myspace.com is an online community that allows you to network professionally and/or personally with people on a regional, national and/or global level based on common interests, industries or relations.

Q: What are you doing to market these bands?
A: Each band has fans that come into watch them. I then obtain contact information from the fans to market them for the next show. I encourage those that enjoyed the music to sign their name and myspace username on a list so I can send them updates regarding the upcoming bands.

Q: What do other café owners need to consider before offering live entertainment in their stores?
A: Proper staging, lighting and sound are crucial. Also, you need to offer more than a small corner stage if you want to be a real venue and attract bands that will draw around 100 people or more a night.

For more information on the live music at Mike Luevano’s Murrieta Cuppy’s Coffee Café or an example of his live music schedule visit http://myspace.com/cuppyscoffeemusic.