Noe Valley Voice September 1998

Seattle Coffee Chain Buys Spinelli's

By Pat Rose

The West Coast coffee wars moved to the front burner in Noe Valley this summer.

That's because Tully's -- the second largest coffee chain in Seattle and Starbucks' chief rival -- swallowed up the Spinelli Coffee Company, which has 14 outlets in the Bay Area. Spinelli's flagship store, established in 1986, sits on 24th Street near Noe, within spitting distance of Starbucks on the corner.

Owned by Seattle real estate developer Tom O'Keefe, whose expansion philosophy includes locating across the street from Starbucks stores (Tully's corporate headquarters now occupies the former Starbucks headquarters in Seattle), Tully's will now command 62 stores worldwide.

In San Francisco, the Seattle chain has vowed to keep Spinelli's employees, as well as the local store's coffee beans and roasting methods. However, Tully's will soon blend in its own line of coffee drinks. And the chain's logo will replace the Spinelli sign sometime in the next couple of months.

Not wanting to make waves, Tully's management made a subtle announcement of the takeover in late June. The store placed a small notice on the counter, describing the sale as a happy collaboration between two popular coffee makers.

Nevertheless, the initial reaction among Spinelli's regulars was anger and frustration.

"The day we took down the Spinelli's sign inside the store, people really started freaking," said a Spinelli's employee who preferred not to give her name. "We got a lot of customer hostility, accusing us of becoming another Starbucks. We didn't know how to respond."

"I'm not happy about this," announced a Spinelli's customer who had just been informed of the acquisition. "This is the best coffee in the city next to Peet's. I'll probably start going back to Peet's."

"I think it's a shame," agreed Michael Goldstein, a local web site developer who has been coming to Spinelli's for five and a half years, with his dog Rudy. "Rudy grew up under the benches here, and we know the people here. So I'm not going to leave right away. I'll wait and see what happens. But I'm a little cynical, too. We've had a moratorium on opening small coffee stores and juice bars in the neighborhood, but that doesn't stop an out-of-state chain like Tully's from moving in. It doesn't seem fair."

Many customers shared his mixed feelings. "I think the sale is unfortunate, this is my favorite place," said one man as he grabbed his morning coffee-to-go. "Spinelli's has a nice independent feel, the coffee is better than Starbucks', and the employees are very mellow. I'll keep coming back until I notice a change, either in the employees or the coffee. Then I'll probably go down the street to Martha's [Coffee Company]."

Anxiety among store employees was also high. Soon after he finalized the deal, O'Keefe held a town meeting with the Spinelli's staff. He told the employees he was awarding them stock in the company and expanding their health benefits. He also assured them that no one would lose their jobs.

But two days later a district manager was fired, causing an exodus of managers and employees from the Cole Street and Embarcadero stores. (O'Keefe said later the manager was not "fired." Rather, she chose to leave when the company discussed redefining her job, he said.)

"He's a smooth-talking guy who was trying to be cool and relate to the 20-something employees. But we felt he wasn't being straight with us," said one employee in early August. "First he tells us, 'We're about coffee, not Starbucks,' and then later in the meeting, he says that his goal is to have a Tully's across the street from every Starbucks in America by the year 2000!"

The staff also expressed concern that O'Keefe would weaken the strength of Spinelli's coffee, and introduce things like flavored syrup to the store's menu. "He told us that people don't like coffee this strong," said one employee.

Many employees feared the atmosphere would change. "This used to be a fun, relaxed little neighborhood place," said one worker. "Now everything is much more formalized. I have to ask permission to wear shorts to work!"

Most of all, they were worried that they might lose their regular clientele. "We have good relationships with our customers," said a longtime staffer. "We know all of them. They've been coming in the same time every day for years." With Tully's name on the store, would all that customer loyalty be lost?

Not if he can help it, said O'Keefe in an interview in August. The new owner said he wants Spinelli's customers to know that Tully's and Spinelli's are "probably more alike than any two coffee companies around, because of our community involvement and how we take care of the people who work for us. More importantly, our coffee roasting style, and the blends and varietals we offer, complement each other perfectly."

Tully's will keep making Spinelli's strong, flavorful coffee. But the brewing method may change, O'Keefe said. "The brewing equipment is really the issue here," he explained. "Spinelli's uses urns which produce a very deep, rich-tasting coffee but use twice as much coffee in the process. Tully's uses a more modern drip brewing machine that can brew smaller quantities and keep coffee fresher. But we won't replace the urns with our new equipment unless we can absolutely duplicate the urn flavoring."

In fact, Spinelli's founder and owner Arnold Spinelli is staying on with the company as "Vice President of Coffee," to ensure that the quality of the coffee doesn't change.

"Tom and I share similar ideas about coffee, people, and community," said Spinelli. "I felt Tully's was a mirror image of what we were doing here, and we could help each other compete for top-quality coffee and continue to give the staff opportunities for growth."

His new role, Spinelli said, will allow him to focus on the part of the business he likes best, which is selecting and blending coffee. Spinelli pointed out that while some new blends will be added, Spinelli's popular House, Original, and Bambino blends will stay in all the stores.

While admitting that the Tully's stores in Seattle bear a strong resemblance to Starbucks -- the furniture, colors, and layout all follow the successful Starbucks formula -- O'Keefe maintains that his business is not a Starbucks clone. "I think there is a better way to do it than Starbucks," he said. "We offer a higher-quality cup of coffee and an atmosphere where employees and customers can have fun."

As for the Spinelli stores, O'Keefe said he will not make dramatic changes to their design. "We may paint, do cabinet upgrades, and add more comfortable furniture. We're getting input from employees about what each store needs. We don't want to alienate customers," he said.

But, like Starbucks, which has over 1,600 stores in North America and 29 in San Francisco, Tully's does have an expansion plan. "In the Bay Area, we want to have an additional 10 stores by March of 1999," O'Keefe said, and another 40 to 60 stores over time. "We want to open up more stores everywhere in the Bay Area -- downtown San Francisco, Marin, the South Bay, and the East Bay."

Still, O'Keefe said he's not trying to force his coffee on anyone. "In Noe Valley, we've decided on a 'soft' store conversion. Store signs and brand identification on things like cups will go up in two to three weeks [by the first of September]. We'll do a more formalized conversion in 60 to 90 days."

The strategy seems to be working. By late August, customers' tempers had started to cool and staff members were getting back to business as usual.

"I think the initial shock has worn off and everyone is feeling better that they've still got a job and the stores haven't closed," said Terri Pate, an assistant store manager who was among several 24th Street employees promoted after the sale.

O'Keefe has been true to his word, she said, giving staff good benefits and promoting from within.

"The customers have also calmed down about the sale. We're reassuring them that even though the name is changing, the coffee and the people behind the counter will stay the same, and that's the important thing."