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Expansion Brewing

Local coffee roaster plans push into bigger markets

July 29, 2002|MELINDA FULMER | TIMES STAFF WRITER

There's no shortage of stories about Starbucks moving into a neighborhood and putting a mom-and-pop shop out of business.

What's harder to find is someone like coffee roaster Pedro Gavina, president of Vernon-based F. Gavina & Sons Inc., who thinks the Seattle-based giant has been good for his business.

Starbucks Corp.'s rapid expansion in the 1990s, while felling many smaller merchants, stirred a huge appetite for gourmet coffee among middle-class Americans. That has helped F. Gavina move its gourmet beans into more mainstream supermarkets across California and the West.

"They've created an awareness of quality coffee, and that's good for everyone," Gavina, a Cuban immigrant, said of Starbucks.

In Los Angeles-area grocery stores, F. Gavina's Don Francisco brand has become the No. 1 whole bean coffee, largely on its consistent quality and somewhat cheaper price. The company has 37% of the area's supermarket coffee bean sales, eclipsing Starbucks' 29% share, according to Information Resources Inc.

F. Gavina's ground coffee is ranked No. 3 locally, behind stalwarts Procter & Gamble Co.'s Folgers and Kraft Foods Inc.'s Maxwell House, but still one notch ahead of Starbucks, which is distributed to supermarkets by Kraft.

Now, buoyed by its local popularity, F. Gavina is planning to take on some of these coffee giants in supermarkets along the East Coast.

Analysts said that's a risky move for a family-run company of 250 employees that rarely advertises, eschews rigid corporate structure and prides itself on being as responsive to a small Armenian bakery as it is to a large client such as Safeway Inc.

Taking on Starbucks in your backyard is one thing, analysts said, but competing with it and other nationally recognized supermarket brands such as Millstone along both coasts is quite another, especially for a company as small as F. Gavina.

"It's the really strong brands that are gaining market share" in supermarkets, said Kristine Koerber, a beverage analyst with WR Hambrecht in San Francisco. "Companies really need to have a differentiated product," she said.

Moreover, without its own coffee shops, like those of Peet's Coffee & Tea Inc. and Starbucks, F. Gavina will need to do a lot more advertising, which could be costly, analysts said.

Although the company has enjoyed some heady economic times recently as wholesale coffee prices have dropped 80% from their peak in 1997, many of its larger competitors, such as Procter & Gamble and Kraft, have benefited even more. Those larger rivals have begun plowing profits into their faster-growing gourmet coffee brands.

Specialty coffee sales last year were estimated at $10.7 billion, up from $7.6 billion in 2000, with the bulk of the coffee being consumed at cafes and coffeehouses.

But sales to supermarkets have been growing quickly as well, as gourmet coffee has gone from an occasional indulgence to a staple in many households.

F. Gavina buys green coffee beans from around the world, roasts them and sells them to coffee shops, restaurants, hotels and supermarkets.

Its sales--almost $70 million last year--are just a fraction of rivals' such as Torrance-based Farmer Bros. Co., which supplies restaurants, food-service accounts and Starbucks, but larger than many of the regional roasters.

The company is moving into a new 237,000-square-foot plant just blocks from its current location, which will allow it to double its roasting capacity to 20,000 pounds of beans an hour and take Don Francisco into new markets in the Northeast.

Although making such a big leap in production may be daunting, Gavina said, his family's company must keep growing if it wants to hold on to business from big supermarket chains that have grown rapidly through acquisitions in recent years.

"They like to have a national program. You have to be active," Gavina said. "You can't fall asleep and say, 'I'm comfortable here.' "

The company has been able to move into markets such as Nevada, Arizona, New York, New Mexico and Florida largely on the strength of big institutional clients such as McDonald's Corp. and accounts with large supermarket chains.

Now, it is hoping to use some of its relationships to get a toehold in other markets on the East Coast.

"From the very beginning, they've worked harder than anybody else in the industry, and now they're seeing real success because of it," said James Lingle, president of Lingle Bros. Coffee, a rival roasting company in Bell Gardens. "They have been very clever in going after particular niches they could serve well and profitably."

In the beginning, that meant F. Gavina had to peddle its signature espresso coffee to mom-and-pop businesses such as Italian restaurants, Caribbean markets, Armenian bakeries and Vietnamese noodle shops.

But over the years, the company's product line has grown to dozens of coffees from South and Central America, Africa, Indonesia and Hawaii.

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