March 21, 2005
Quality control | With an eye for detail, Mary Allen Lindemann and Alan Spear have made Coffee by Design a Portland institution
By Taylor Smith
When Mary Allen Lindemann and Alan Spear opened the first Coffee by Design coffeehouse in the summer of 1994, they already had become well acquainted with the skeptics. Even before they moved into a shop on upper Congress Street in Portland, they had friends and bankers tell them it would never work.
First of all, the critics would say, choosing that neighborhood wasn't a smart move. An adult movie theater sat literally across the street, and the area ˆ which had a vacancy rate of 40% ˆ was known for playing host to the seedier elements of Portland's population. Second, Lindemann and Spear constantly heard skeptics say Portland wasn't sophisticated enough to support their concept for a community coffeehouse. The couple, who had gotten married in 1988, saw it differently: "When we looked at that neighborhood, we didn't see the porno district," says Spear. "We saw a real sense of community. It was very much alive."
The pair had spent the late 80s and early 90s in Seattle, Wash., where they were first introduced to the world of coffeehouses. At that time, Starbucks was just becoming a nationally known brand and Americans were learning about specialty coffee. (The Long Beach, Calif.-based Specialty Coffee Association of America estimates that there were 585 coffeehouses nationwide in 1989; today, that number is closer to 18,000.) Lindemann and Spear figured that if a community-based coffeehouse model could work in Seattle, it could certainly work in a New England city.
They spent a year in Burlington, Vt. and six months in Providence, R.I., looking for the perfect setting, and eventually settled on Spear's hometown of Portland. Despite observers' less-than-enthusiastic endorsement of the Congress Street location, within a year of its opening Lindemann and Spear saw a burgeoning arts scene cropping up in the neighborhood, which was populated by the Portland Museum of Art and a growing number of galleries. Meanwhile, the once-dilapidated State Theater was renovated, and a handful of restaurants began lending some character to formerly vacant storefronts.
Lee Urban, the city of Portland's director of planning and development, credits Lindemann, Spear and CBD with a significant role in the revitalization of the area now known as Portland's arts district. The company, he says, has been a strong economic development tool in Portland, adding to the employment market and contributing to the somewhat squishy notion of "quality of life." "We're the only city in the Northeast that has an in-migration of 25-to-34-year-old people because they think it's a great place to live, work and play," he says. "In that way, Coffee by Design plays a major economic development role. If someone wanted to know if there was an entrepreneurial spirit in Portland, Coffee by Design would be one of the first places I'd recommend."
Urban calls CBD an unqualified success story, and Lindemann and Spear have worked during the company's nearly 11 years in business to keep it on a path of controlled growth. The pair have steadfastly rebuffed numerous offers to franchise or expand CBD's retail stores, preferring instead to keep a close hand on the company's tiller. As a result, CBD has become a key part of the city's fabric. Its black-and-white coffee cups ˆ with a cityscape silhouette that shows the Munjoy Hill Observatory and the arches of the Portland Museum of Art ˆ are easily recognizable, and its small-batch roasts have found favor with even the most discriminating epicureans.
In 2004, the company's 10th anniversary year, Lindemann and Spear consolidated CBD's retail operations, selling one of its three coffeehouses and moving its roastery and wholesale business ˆ the fastest-growing part of the company ˆ to a newly renovated $700,000 facility at the foot of Munjoy Hill on Washington Avenue. With more than 30 employees, from counter help to master coffee roasters, the company's revenues for the first time broke the $2 million mark. Sales grew roughly 20% over the previous year's numbers, and, despite the heavy investment in its new roastery, CBD posted an undisclosed profit, marking the company's 10th straight year in the black.
Meanwhile, Lindemann and Spear have continued to run CBD with a well-defined corporate ethos that ranges from environmental awareness and employee development to community involvement and support of the local arts scene. The pair have served on dozens of local and statewide committees devoted to the arts, economic and small-business development and issues like homelessness and women's health over the years, and have won scads of awards honoring their business achievement and civic involvement. Most recently, Arlington, Va.-based NAMI, a mental illness advocacy group, recognized CBD for fostering a mental-health-friendly workplace for employees and customers.
They've done it all in a marketplace that has grown increasingly crowded, with competitors ranging from the now-numerous local roasters to the ubiquitous green-and-black of Starbucks. In short, Lindemann and Spear have positioned CBD as much more than a local coffeehouse ˆ the company has become a proxy for small-business success in a state where small businesses are a vital cog in the economic machine.
Learning to let go
For the past decade-plus, Lindemann and Spear have handled operational tasks of all stripes, from setting long-term profit goals to lugging a shop-vac across town to unclog a refrigerator fan. The pair is adamant that having a near-constant presence in their retail shops on Congress Street and India Street and in the Washington Avenue roastery pays big dividends, both fiscally and operationally. But the time they plow into the business admittedly takes a toll on their personal lives; in the early days, Spear says he and Lindemann regularly worked 120-hour weeks in order to avoid the cost of hiring extra help.
That strategy, he says, was instrumental in the company turning a profit just six months after the first store opened on Congress Street. But last year, as they reevaluated their first decade in business and started drafting a new five-year plan, the pair realized that they needed to loosen up on the company's reins. "The business can't just be about Alan and Mary Allen," says Lindemann.
In hopes of relieving some of the top-heavy decision making at CBD, Lindemann and Spear have given more operational responsibilities to the management staff on the wholesale and retail sides of the business. The company's two retail managers, who oversee operations at the Congress Street and India Street locations, are responsible for everything at their stores from hiring personnel to being accountable for reaching monthly budget numbers.
On the wholesale side, Rob Perry, a six-year CBD veteran who Spear calls the company's "master roaster," has steadily increased his workload to include managing wholesale accounts as well as roasting roughly 150,000 pounds of coffee a year. In January, Lindemann and Spear took Perry on a trip to Costa Rica to visit a handful of coffee farms, where Perry saw first-hand how the green beans he sorts every week in the Washington Avenue roastery are harvested at the point of origin and readied for shipment.
On a recent Monday morning, Lindemann and Spear meet with their three-person roastery crew, gathering around the conference table in the Washington Avenue location. Lindemann and Spear haven't finished unpacking their office, despite having moved in five months ago. Bulging boxes of document folders are stacked between desks and around the conference table, which is down a short hallway from the open-air micro-roastery and coffee bar. The bookshelves already are filled to capacity with office supplies and coffee-machine service manuals. A row of Lonely Planet travel guides ˆ Peru, Guatemala, Colombia ˆ occupies one shelf, while another holds a handful of Spanish language instructional tapes. One bookshelf is nearly filled with CBD photo albums, one for each year the business has been running.
The meeting's agenda covers issues ranging from the wholesale market to the rising cost of green coffee beans and paper coffee cups. Lindemann rattles off a calendar of events, including a breakfast hosted by Maine Businesses for Social Responsibility (a longtime board member, she served as the group's president last year). The roastery crew takes notes, marking down important dates on their calendars.
In a few days, a continuing education group from the University of Southern Maine will be coming in to the roastery for a new evening class called "The history of coffee: From bean to cup" that Lindemann and Spear will teach with help from the roastery crew. Spear says the class will be a kind of test run for the roastery, which he says was built in large part as an education facility for people in the community to learn about the origins of coffee. The relatively sparse front counter ˆ called the "drip bar" ˆ offers just a handful of coffees, and there's no espresso machine to make a tall Americano or double latte. Nor is there a flavored or custom blend offered at the drip bar, because Spear and Lindemann want customers to taste freshly roasted coffee beans from a single source, whether it's La Manita estate in Costa Rica or an indigenous grower in Panama.
A few days later, Lindemann, who handles the retail side of the business (Spear heads up the wholesale and roastery operations), meets with her two store managers to discuss budget numbers, staffing issues and a composting project the India Street manager has spearheaded to reduce the waste generated in the retail stores. They discuss a recent budget overrun at the Congress Street location in January, where payroll numbers ate up a higher-than-expected portion of the month's revenues, and ways to cut costs at individual stores. Lindemann suggests taking some chores, such as cleaning the stores' floor mats, in-house rather than farming them out, or keeping an eye on inventory ˆ one store manager realized her staff never double-checked deliveries to make sure they were accurate. The ultimate decision, though, rests with each manager. "I've learned to let go," says Lindemann. "We're sharing more of the day-to-day things, and starting to delegate a lot."
Lindemann and Spear bring different management styles to CBD. Spear, who often dresses the part of a conservative Mainer in jeans and a subdued sweater or CBD logo polo shirt, describes himself as very process-driven, with a reverence for the balance sheet's bottom line. Meanwhile, Lindemann, whose oval eyeglasses and omnipresent red lipstick have made her an easily identifiable sight in CBD's retail shops, says she takes a more big-picture approach to the company's operations. The mix has worked well for the business, the couple says, though working with a spouse isn't something they'd recommend to a newly married couple. "It's not for everybody," says Lindemann. "But what's pretty amazing is that I've learned things about Alan's capabilities that I never would have known."
An open book
To make employees aware of the costs involved in running each store, the company has an open-book policy that details the stores' financials. During the last few months, the store managers have been encouraging their staffs to take an interest in the budget, in hopes of teaching them how, for example, a ruined box of coffee lids can contribute to a store missing its profitability target during a given month. It's that kind of company-wide attention to the bottom line that helped CBD turn a profit for 10 straight years.
Spear disagrees with the notion that the specialty coffee industry ˆ a nearly $9 billion industry, according to the Specialty Coffee Association of America ˆ is a path to riches: "There are so many people in the industry touting it as a good way to make a quick buck," he says. Instead, he says CBD is constantly battling pricing pressures that make squeezing profits on a cup of coffee increasingly difficult.
Ideally, Spear would like to make a 10% profit on a $1.25 cup of coffee. Last year, he says, the company earned just six cents on each cup ˆ a five percent profit margin. Spear attributes part of that shortfall to skyrocketing specialty coffee prices, which have cost CBD 50%-100% more during the past year. (Mike Ferguson, SCAA's chief communications officer, says the price increase has been a long time coming, since coffee prices during the past five years have been affected by severe overproduction. "There are too many people growing coffee," says Ferguson, noting that Vietnam, which in the 1980s was the 11th largest coffee producer in the world, now is the second-largest producer after Brazil.)
But CBD's profits are affected by more than rising prices for raw coffee beans: Ferguson estimates that the cost of the coffee itself makes up only about 10% of the total price for a cup of specialty java. The rest comes from the fees to import the coffee, roasting, employee overhead and other costs for things such as paper cups and lids. In fact, Spear says he's seen six price increases, of eight percent each, during the last year for the paper cups and lids CBD buys from Stamford, Conn.-based International Paper.
And purchasing roughly 800,000 cups a year, Spear says, means those price increases are cutting deeply into CBD's per-cup profits. (Spear is talking with Chinet, a division of Finnish paper products manufacturer Huhtumaki that has a manufacturing location in Waterville, about taking over as CBD's cup and lid provider. And even though Spear knows the products won't be manufactured in Maine, he says it makes him feel good that his company's business will, at least indirectly, support Maine workers.) Meanwhile, Spear says the company spends $80,000 a year on dairy products like milk and half-and-half, and he's constantly on the lookout for ways to trim such ongoing costs. "If we can save 15 cents a gallon on milk, that's a big deal," he says.
Due to the confluence of pricing pressures, in January Lindemann and Spear made the decision to raise retail coffee drink prices by eight percent, the first time in six years the company jacked up its per-cup price. "As a company, we can absorb [price increases] to a point, but you have to constantly evaluate it," says Spear. "If our expenses go out of control, it could flip [CBD's profitability]."
Wholesale nation
Lindemann and Spear aren't surprised that retail sales are putting the squeeze on company profits. After all, they say retail revenue growth has leveled off at about 10% during the past few years. But at the same time, the pair have seen CBD's wholesale business post big growth since landing their first commercial account in 1998.
A wholesale operation was among Spear's priorities as he and Lindemann opened CBD's India Street location in 1998. The facility, a 2,000-square-foot building on Portland's East End, offered enough space to fit a retail coffee counter and a small-scale coffee roastery. Spear's plan was to begin roasting enough coffee to supply the retail stores ˆ Congress and India streets, as well as a store in Monument Square in Portland that Spear and Lindemann sold last year ˆ and follow that up gradually with a foray into the wholesale world.
But just a few months after the India Street roastery operation was up and running, Spear was invited to pitch a coffee blend to Fore Street, the national-caliber restaurant in downtown Portland. Sam Hayward, the restaurant's chef and owner, says Fore Street had just ended its wholesale relationship with another local firm and was looking for an exclusive arrangement with a Maine-based roastery. Despite having very limited experience custom-blending coffee, Spear worked on more than 20 blends before presenting Hayward a handful of blends that combined roasts of coffee beans from Yemen, Colombia, Sumatra and Mexico. He sat with Hayward for almost four hours, chatting about coffee and tasting the different blends. "I was so nervous," says Spear. "I just had this vision that it would be one of the most pretentious environments, but I felt like I was in someone's living room talking about coffee."
Hayward knew right away that the coffee would be the perfect addition to Fore Street's revered menu. "When we tasted his coffees, they were the best roast that we had run into," he says. "It was a no brainer; the coffee was superb."
Spear was delighted to learn CBD won the Fore Street account, but admits that he had no clue how a wholesaler was supposed to service an account. For the first few orders, Spear wasn't even quite sure how much to charge. Meanwhile, he was working 18-hour days trying to get the new roastery up and running. "It was crazy," he says. "It was like going back to the beginning."
Shortly after landing the Fore Street account, Spear began receiving wholesale orders from a handful of Portland businesses, including restaurants, coffee shops and other retailers. To cart local coffee orders around town, Spear asked a bicycle shop just a few blocks from CBD's India Street store to build a custom trailer for his mountain bike. But within about a year, CBD's wholesale accounts began to grow outside of Portland, including a long-standing account with Frank's Bake Shop in Bangor. (These days, deliveries to the greater Portland area are made in a CBD van.)
Spear says the company now serves roughly 120 wholesale accounts. Most are in Maine, in coffeehouses and restaurants from Machias to Wells, but CBD has accounts as far south as Raleigh, N.C., where the Irish restaurant chain Ri-Ra, which operates seven restaurants from Portland to North Carolina, commissioned a special blend. (Spear says he's unlikely to take on another chain customer like Ri-Ra because of volume concerns.) He services each of those wholesale accounts himself, meaning that on any given night he may be at a café in Bath until 11 p.m. fixing a clogged espresso machine, or following up with a caterer in Washington, D.C., to make sure it received the right mix of coffee blends in a recent order.
Controlled growth
The late nights have taken a toll on Lindemann and Spear. On a recent weekday, the couple was driving separate cars and chatting on their cell phones when they passed each other on a local street. They each pulled over, and Spear ran across the street and jumped into the passenger seat of Lindemann's car. "It was the first time in days we had the chance to just sit and talk," says Spear, laughing.
Their goal this year is to take at least one day off per week. Spear says he'd like to get back into road cycling and have some time in the garden, and Lindemann says she'd love just to catch up on some much-needed sleep. (She says Spear is much better at actually taking that day off than she is, however.)
In addition to their other responsibilities, Lindemann and Spear also act as unofficial consultants to many of their wholesale clients, helping new coffeehouse owners get their operations up and running, and offering their knowledge of the industry to owners of existing coffeehouses. Lindemann and Spear in early 2004 sold their Monument Square coffeehouse to Zarra Hermann, a Portlander who for more than a decade managed The Movies, an art-house theater in the Old Port. (Both parties declined to disclose the sale price.)
Zarra's Monumental Coffeehouse has been open for eight months and Hermann says Lindemann and Spear offered lots of practical advice as he was going through the process of opening the shop. "They tried to prep me the best they could," says Hermann. "They gave me a lot of great advice to get me up and running, and if I want to talk with them about something, I can do that. They also want to see me succeed ˆ that's one of the things you don't find with every person you deal with."
Consulting is something Lindemann and Spear would like to add to CBD's official roster of offerings. For now, however, they're focusing on keeping the retail and wholesale businesses chugging along. Lindemann and Spear have begun to draft their next five-year vision statement, which includes expectations for revenues at the two retail locations to grow at a fairly modest 10% annual rate. But they're aiming for the wholesale part of the business to boost the company's overall growth rate to about 15%. (Wholesale revenues, says Spear, have been growing at a steady clip of 25% and 30% annually.) What's more, Lindemann and Spear would like to see a greater mix of CBD's sales come from the wholesale side, which currently is responsible for just over 40% of the company's revenues. Instead, they'd like to see a 75%-25% split between wholesale and retail sales.
As for expanding the CBD empire beyond the shores of Portland's peninsula, don't bet on it; Spear doesn't expect the company to grow physically during the next five years. "If we really wanted to accelerate the growth, we could open two retail stores a year and become a $10 million company fairly quickly," says Spear. "But that's not our vision. We want more controlled growth."
First of all, the critics would say, choosing that neighborhood wasn't a smart move. An adult movie theater sat literally across the street, and the area ˆ which had a vacancy rate of 40% ˆ was known for playing host to the seedier elements of Portland's population. Second, Lindemann and Spear constantly heard skeptics say Portland wasn't sophisticated enough to support their concept for a community coffeehouse. The couple, who had gotten married in 1988, saw it differently: "When we looked at that neighborhood, we didn't see the porno district," says Spear. "We saw a real sense of community. It was very much alive."
The pair had spent the late 80s and early 90s in Seattle, Wash., where they were first introduced to the world of coffeehouses. At that time, Starbucks was just becoming a nationally known brand and Americans were learning about specialty coffee. (The Long Beach, Calif.-based Specialty Coffee Association of America estimates that there were 585 coffeehouses nationwide in 1989; today, that number is closer to 18,000.) Lindemann and Spear figured that if a community-based coffeehouse model could work in Seattle, it could certainly work in a New England city.
They spent a year in Burlington, Vt. and six months in Providence, R.I., looking for the perfect setting, and eventually settled on Spear's hometown of Portland. Despite observers' less-than-enthusiastic endorsement of the Congress Street location, within a year of its opening Lindemann and Spear saw a burgeoning arts scene cropping up in the neighborhood, which was populated by the Portland Museum of Art and a growing number of galleries. Meanwhile, the once-dilapidated State Theater was renovated, and a handful of restaurants began lending some character to formerly vacant storefronts.
Lee Urban, the city of Portland's director of planning and development, credits Lindemann, Spear and CBD with a significant role in the revitalization of the area now known as Portland's arts district. The company, he says, has been a strong economic development tool in Portland, adding to the employment market and contributing to the somewhat squishy notion of "quality of life." "We're the only city in the Northeast that has an in-migration of 25-to-34-year-old people because they think it's a great place to live, work and play," he says. "In that way, Coffee by Design plays a major economic development role. If someone wanted to know if there was an entrepreneurial spirit in Portland, Coffee by Design would be one of the first places I'd recommend."
Urban calls CBD an unqualified success story, and Lindemann and Spear have worked during the company's nearly 11 years in business to keep it on a path of controlled growth. The pair have steadfastly rebuffed numerous offers to franchise or expand CBD's retail stores, preferring instead to keep a close hand on the company's tiller. As a result, CBD has become a key part of the city's fabric. Its black-and-white coffee cups ˆ with a cityscape silhouette that shows the Munjoy Hill Observatory and the arches of the Portland Museum of Art ˆ are easily recognizable, and its small-batch roasts have found favor with even the most discriminating epicureans.
In 2004, the company's 10th anniversary year, Lindemann and Spear consolidated CBD's retail operations, selling one of its three coffeehouses and moving its roastery and wholesale business ˆ the fastest-growing part of the company ˆ to a newly renovated $700,000 facility at the foot of Munjoy Hill on Washington Avenue. With more than 30 employees, from counter help to master coffee roasters, the company's revenues for the first time broke the $2 million mark. Sales grew roughly 20% over the previous year's numbers, and, despite the heavy investment in its new roastery, CBD posted an undisclosed profit, marking the company's 10th straight year in the black.
Meanwhile, Lindemann and Spear have continued to run CBD with a well-defined corporate ethos that ranges from environmental awareness and employee development to community involvement and support of the local arts scene. The pair have served on dozens of local and statewide committees devoted to the arts, economic and small-business development and issues like homelessness and women's health over the years, and have won scads of awards honoring their business achievement and civic involvement. Most recently, Arlington, Va.-based NAMI, a mental illness advocacy group, recognized CBD for fostering a mental-health-friendly workplace for employees and customers.
They've done it all in a marketplace that has grown increasingly crowded, with competitors ranging from the now-numerous local roasters to the ubiquitous green-and-black of Starbucks. In short, Lindemann and Spear have positioned CBD as much more than a local coffeehouse ˆ the company has become a proxy for small-business success in a state where small businesses are a vital cog in the economic machine.
Learning to let go
For the past decade-plus, Lindemann and Spear have handled operational tasks of all stripes, from setting long-term profit goals to lugging a shop-vac across town to unclog a refrigerator fan. The pair is adamant that having a near-constant presence in their retail shops on Congress Street and India Street and in the Washington Avenue roastery pays big dividends, both fiscally and operationally. But the time they plow into the business admittedly takes a toll on their personal lives; in the early days, Spear says he and Lindemann regularly worked 120-hour weeks in order to avoid the cost of hiring extra help.
That strategy, he says, was instrumental in the company turning a profit just six months after the first store opened on Congress Street. But last year, as they reevaluated their first decade in business and started drafting a new five-year plan, the pair realized that they needed to loosen up on the company's reins. "The business can't just be about Alan and Mary Allen," says Lindemann.
In hopes of relieving some of the top-heavy decision making at CBD, Lindemann and Spear have given more operational responsibilities to the management staff on the wholesale and retail sides of the business. The company's two retail managers, who oversee operations at the Congress Street and India Street locations, are responsible for everything at their stores from hiring personnel to being accountable for reaching monthly budget numbers.
On the wholesale side, Rob Perry, a six-year CBD veteran who Spear calls the company's "master roaster," has steadily increased his workload to include managing wholesale accounts as well as roasting roughly 150,000 pounds of coffee a year. In January, Lindemann and Spear took Perry on a trip to Costa Rica to visit a handful of coffee farms, where Perry saw first-hand how the green beans he sorts every week in the Washington Avenue roastery are harvested at the point of origin and readied for shipment.
On a recent Monday morning, Lindemann and Spear meet with their three-person roastery crew, gathering around the conference table in the Washington Avenue location. Lindemann and Spear haven't finished unpacking their office, despite having moved in five months ago. Bulging boxes of document folders are stacked between desks and around the conference table, which is down a short hallway from the open-air micro-roastery and coffee bar. The bookshelves already are filled to capacity with office supplies and coffee-machine service manuals. A row of Lonely Planet travel guides ˆ Peru, Guatemala, Colombia ˆ occupies one shelf, while another holds a handful of Spanish language instructional tapes. One bookshelf is nearly filled with CBD photo albums, one for each year the business has been running.
The meeting's agenda covers issues ranging from the wholesale market to the rising cost of green coffee beans and paper coffee cups. Lindemann rattles off a calendar of events, including a breakfast hosted by Maine Businesses for Social Responsibility (a longtime board member, she served as the group's president last year). The roastery crew takes notes, marking down important dates on their calendars.
In a few days, a continuing education group from the University of Southern Maine will be coming in to the roastery for a new evening class called "The history of coffee: From bean to cup" that Lindemann and Spear will teach with help from the roastery crew. Spear says the class will be a kind of test run for the roastery, which he says was built in large part as an education facility for people in the community to learn about the origins of coffee. The relatively sparse front counter ˆ called the "drip bar" ˆ offers just a handful of coffees, and there's no espresso machine to make a tall Americano or double latte. Nor is there a flavored or custom blend offered at the drip bar, because Spear and Lindemann want customers to taste freshly roasted coffee beans from a single source, whether it's La Manita estate in Costa Rica or an indigenous grower in Panama.
A few days later, Lindemann, who handles the retail side of the business (Spear heads up the wholesale and roastery operations), meets with her two store managers to discuss budget numbers, staffing issues and a composting project the India Street manager has spearheaded to reduce the waste generated in the retail stores. They discuss a recent budget overrun at the Congress Street location in January, where payroll numbers ate up a higher-than-expected portion of the month's revenues, and ways to cut costs at individual stores. Lindemann suggests taking some chores, such as cleaning the stores' floor mats, in-house rather than farming them out, or keeping an eye on inventory ˆ one store manager realized her staff never double-checked deliveries to make sure they were accurate. The ultimate decision, though, rests with each manager. "I've learned to let go," says Lindemann. "We're sharing more of the day-to-day things, and starting to delegate a lot."
Lindemann and Spear bring different management styles to CBD. Spear, who often dresses the part of a conservative Mainer in jeans and a subdued sweater or CBD logo polo shirt, describes himself as very process-driven, with a reverence for the balance sheet's bottom line. Meanwhile, Lindemann, whose oval eyeglasses and omnipresent red lipstick have made her an easily identifiable sight in CBD's retail shops, says she takes a more big-picture approach to the company's operations. The mix has worked well for the business, the couple says, though working with a spouse isn't something they'd recommend to a newly married couple. "It's not for everybody," says Lindemann. "But what's pretty amazing is that I've learned things about Alan's capabilities that I never would have known."
An open book
To make employees aware of the costs involved in running each store, the company has an open-book policy that details the stores' financials. During the last few months, the store managers have been encouraging their staffs to take an interest in the budget, in hopes of teaching them how, for example, a ruined box of coffee lids can contribute to a store missing its profitability target during a given month. It's that kind of company-wide attention to the bottom line that helped CBD turn a profit for 10 straight years.
Spear disagrees with the notion that the specialty coffee industry ˆ a nearly $9 billion industry, according to the Specialty Coffee Association of America ˆ is a path to riches: "There are so many people in the industry touting it as a good way to make a quick buck," he says. Instead, he says CBD is constantly battling pricing pressures that make squeezing profits on a cup of coffee increasingly difficult.
Ideally, Spear would like to make a 10% profit on a $1.25 cup of coffee. Last year, he says, the company earned just six cents on each cup ˆ a five percent profit margin. Spear attributes part of that shortfall to skyrocketing specialty coffee prices, which have cost CBD 50%-100% more during the past year. (Mike Ferguson, SCAA's chief communications officer, says the price increase has been a long time coming, since coffee prices during the past five years have been affected by severe overproduction. "There are too many people growing coffee," says Ferguson, noting that Vietnam, which in the 1980s was the 11th largest coffee producer in the world, now is the second-largest producer after Brazil.)
But CBD's profits are affected by more than rising prices for raw coffee beans: Ferguson estimates that the cost of the coffee itself makes up only about 10% of the total price for a cup of specialty java. The rest comes from the fees to import the coffee, roasting, employee overhead and other costs for things such as paper cups and lids. In fact, Spear says he's seen six price increases, of eight percent each, during the last year for the paper cups and lids CBD buys from Stamford, Conn.-based International Paper.
And purchasing roughly 800,000 cups a year, Spear says, means those price increases are cutting deeply into CBD's per-cup profits. (Spear is talking with Chinet, a division of Finnish paper products manufacturer Huhtumaki that has a manufacturing location in Waterville, about taking over as CBD's cup and lid provider. And even though Spear knows the products won't be manufactured in Maine, he says it makes him feel good that his company's business will, at least indirectly, support Maine workers.) Meanwhile, Spear says the company spends $80,000 a year on dairy products like milk and half-and-half, and he's constantly on the lookout for ways to trim such ongoing costs. "If we can save 15 cents a gallon on milk, that's a big deal," he says.
Due to the confluence of pricing pressures, in January Lindemann and Spear made the decision to raise retail coffee drink prices by eight percent, the first time in six years the company jacked up its per-cup price. "As a company, we can absorb [price increases] to a point, but you have to constantly evaluate it," says Spear. "If our expenses go out of control, it could flip [CBD's profitability]."
Wholesale nation
Lindemann and Spear aren't surprised that retail sales are putting the squeeze on company profits. After all, they say retail revenue growth has leveled off at about 10% during the past few years. But at the same time, the pair have seen CBD's wholesale business post big growth since landing their first commercial account in 1998.
A wholesale operation was among Spear's priorities as he and Lindemann opened CBD's India Street location in 1998. The facility, a 2,000-square-foot building on Portland's East End, offered enough space to fit a retail coffee counter and a small-scale coffee roastery. Spear's plan was to begin roasting enough coffee to supply the retail stores ˆ Congress and India streets, as well as a store in Monument Square in Portland that Spear and Lindemann sold last year ˆ and follow that up gradually with a foray into the wholesale world.
But just a few months after the India Street roastery operation was up and running, Spear was invited to pitch a coffee blend to Fore Street, the national-caliber restaurant in downtown Portland. Sam Hayward, the restaurant's chef and owner, says Fore Street had just ended its wholesale relationship with another local firm and was looking for an exclusive arrangement with a Maine-based roastery. Despite having very limited experience custom-blending coffee, Spear worked on more than 20 blends before presenting Hayward a handful of blends that combined roasts of coffee beans from Yemen, Colombia, Sumatra and Mexico. He sat with Hayward for almost four hours, chatting about coffee and tasting the different blends. "I was so nervous," says Spear. "I just had this vision that it would be one of the most pretentious environments, but I felt like I was in someone's living room talking about coffee."
Hayward knew right away that the coffee would be the perfect addition to Fore Street's revered menu. "When we tasted his coffees, they were the best roast that we had run into," he says. "It was a no brainer; the coffee was superb."
Spear was delighted to learn CBD won the Fore Street account, but admits that he had no clue how a wholesaler was supposed to service an account. For the first few orders, Spear wasn't even quite sure how much to charge. Meanwhile, he was working 18-hour days trying to get the new roastery up and running. "It was crazy," he says. "It was like going back to the beginning."
Shortly after landing the Fore Street account, Spear began receiving wholesale orders from a handful of Portland businesses, including restaurants, coffee shops and other retailers. To cart local coffee orders around town, Spear asked a bicycle shop just a few blocks from CBD's India Street store to build a custom trailer for his mountain bike. But within about a year, CBD's wholesale accounts began to grow outside of Portland, including a long-standing account with Frank's Bake Shop in Bangor. (These days, deliveries to the greater Portland area are made in a CBD van.)
Spear says the company now serves roughly 120 wholesale accounts. Most are in Maine, in coffeehouses and restaurants from Machias to Wells, but CBD has accounts as far south as Raleigh, N.C., where the Irish restaurant chain Ri-Ra, which operates seven restaurants from Portland to North Carolina, commissioned a special blend. (Spear says he's unlikely to take on another chain customer like Ri-Ra because of volume concerns.) He services each of those wholesale accounts himself, meaning that on any given night he may be at a café in Bath until 11 p.m. fixing a clogged espresso machine, or following up with a caterer in Washington, D.C., to make sure it received the right mix of coffee blends in a recent order.
Controlled growth
The late nights have taken a toll on Lindemann and Spear. On a recent weekday, the couple was driving separate cars and chatting on their cell phones when they passed each other on a local street. They each pulled over, and Spear ran across the street and jumped into the passenger seat of Lindemann's car. "It was the first time in days we had the chance to just sit and talk," says Spear, laughing.
Their goal this year is to take at least one day off per week. Spear says he'd like to get back into road cycling and have some time in the garden, and Lindemann says she'd love just to catch up on some much-needed sleep. (She says Spear is much better at actually taking that day off than she is, however.)
In addition to their other responsibilities, Lindemann and Spear also act as unofficial consultants to many of their wholesale clients, helping new coffeehouse owners get their operations up and running, and offering their knowledge of the industry to owners of existing coffeehouses. Lindemann and Spear in early 2004 sold their Monument Square coffeehouse to Zarra Hermann, a Portlander who for more than a decade managed The Movies, an art-house theater in the Old Port. (Both parties declined to disclose the sale price.)
Zarra's Monumental Coffeehouse has been open for eight months and Hermann says Lindemann and Spear offered lots of practical advice as he was going through the process of opening the shop. "They tried to prep me the best they could," says Hermann. "They gave me a lot of great advice to get me up and running, and if I want to talk with them about something, I can do that. They also want to see me succeed ˆ that's one of the things you don't find with every person you deal with."
Consulting is something Lindemann and Spear would like to add to CBD's official roster of offerings. For now, however, they're focusing on keeping the retail and wholesale businesses chugging along. Lindemann and Spear have begun to draft their next five-year vision statement, which includes expectations for revenues at the two retail locations to grow at a fairly modest 10% annual rate. But they're aiming for the wholesale part of the business to boost the company's overall growth rate to about 15%. (Wholesale revenues, says Spear, have been growing at a steady clip of 25% and 30% annually.) What's more, Lindemann and Spear would like to see a greater mix of CBD's sales come from the wholesale side, which currently is responsible for just over 40% of the company's revenues. Instead, they'd like to see a 75%-25% split between wholesale and retail sales.
As for expanding the CBD empire beyond the shores of Portland's peninsula, don't bet on it; Spear doesn't expect the company to grow physically during the next five years. "If we really wanted to accelerate the growth, we could open two retail stores a year and become a $10 million company fairly quickly," says Spear. "But that's not our vision. We want more controlled growth."
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