Transplanting the Maine Roasters brand into Massachusetts proved to be a canny business decision; the Nantucket store quickly became a sales dynamo. Expanding into Massachusetts, however, put Smith in an awkward public-relations spot. From the standpoint of locally owned specialty-coffee stores in Massachusetts, Maine Roasters was suddenly in the same shoes as Starbucks. What about the virtue of local ownership when he crossed the state line?
Smith had meant to create the appearance of local ownership when he opened the new stores. Maine would remain the company headquarters. But Smith had planned to reword the logos on his cups and napkins to read Massachusetts Roasters Coffee and New Hampshire Roasters Coffee. He ultimately rejected that expedient as a logistical nightmare. In the end he simply decided to leave unresolved the seeming contradiction between what he was saying in Maine and doing in Massachusetts. "I'm not at ease with myself," Smith concedes.
And it is with unease--and increasing amazement--that Smith watches as Starbucks deepens its footprint in Portland. Of the two Starbucks stores inaugurated this past spring, one is in the Maine Mall, on the city's south side; the other in the historic Hay Building, in downtown Portland beyond the Old Port area. Starbucks hasn't yet determined how many locations it will eventually open in Maine, according to a company spokesperson, although the rumor in Portland is that Starbucks vendors received word to prepare for five to seven stores.
Whatever the eventual number, the whole of the investment Starbucks makes in Maine won't begin to deplete the company's coffers. Last year it had $1.3 billion in sales, $81 million of which was profit. Its presence has caused some shifting in Portland's coffee-bar market. Among the 10 or so specialty-coffee stores that were operating in the city a year ago, at least two--the Daily Fix and KoKo's--have shut down, partly because of the arrival of Starbucks, the former owners say, although in neither case was that the primary reason for their decision. Both former owners later signed on as managers of Starbucks stores in Portland.
Smith notes that business at his Portland store was up 20% for the first quarter of the year, compared with the same period in 1998, an increase he attributes "in large part" to the way Starbucks has broadened the local market by "educating" consumers about specialty coffees. Even as he describes his company's improving fortunes, his intensity suggests if not a man under siege, then a driven entrepreneur in a hurry.
Smith sits in a straight-backed wooden chair at a small conference table in the cinder-block warehouse that serves as his Portland-based headquarters and his company's coffee-bean roasting plant. With a ready smile and dimpled chin, the slender 34-year-old Smith has the finely chiseled features of a TV anchor--say, a young Tom Brokaw. He is casually dressed in a rumpled, buttoned-down white shirt and blue jeans.
In explaining why he has chosen the strategy of depicting Maine Roasters as the hometown alternative to Starbucks, Smith says: "I liken it to a professional sports franchise. It's people rooting for us instead of for Starbucks. The word Maine in our company name goes a long way. It's civic pride." Although Smith says that his company lost $2,000 in 1998 on revenues of "just over $1 million," he's projecting $1.6 million in sales this year and expects it to earn "significant money" in 1999. During the peak summer months, the payroll will swell to 65 employees from its off-season roster of about 30.
Smith recounts years of stress, of "wondering if I'm going to make the payroll," and of picking himself up after being rebuffed by bankers whom he had approached for loans. But this year he has worked out a financial-restructuring plan that invites private investors to underwrite individual stores. It could yield at least $1.5 million in fresh capital for Maine Roasters and, by funding at least five more store openings by the end of next year, propel the company toward Smith's 30-unit goal, says Bradford Mead, a managing partner in Delta Capital Group. A small investment-banking firm based in Avon, Conn., Delta Capital has agreed to seek investors for Maine Roasters, to which, according to Mead, it has made a "low six-figure" loan that can be converted to stock.
As Maine Roasters expands it will collide all the more with Starbucks, and in the process some of the tarnish from its big-chain rival could rub off. That, perversely, could deprive Maine Roasters of the underdog status on which it now relies for its competitive edge. Maine Roasters is vying with Starbucks for the same upscale office workers and tourists willing to shell out $2 for a cup of cappuccino.
Smith has no illusions that he can match the national chain's clout when it comes to--among other things--product diversity, advertising, and employee training. Hence he's making the best of his trump card: his local roots. No matter that the roots seem grafted on at times, as long as they boost Maine Roasters' marketing power vis-Ã-vis Starbucks. In February, Smith began assigning door duty to two employees one morning a week. The pair stand outside the doors of Starbucks and hand out chocolates and Maine Roasters coupons that offer two cups of coffee for the price of one. Smith's employees may wear black hats, but they are Maine guys--the good guys, in local terms. In other words, says Smith, he's hoping the Maine label will convey a message: "Trust us. We're in town with you."
