The man who made Starbucks hum was Howard Schultz. Moonstruck found its own Schultz in Tony Roth.
The man who made Starbucks hum was Howard Schultz, who in 1982 was selling coffee machines for a Swedish appliance maker, Hammarplast. When he discovered that a tiny store in Seattle, called Starbucks, was placing orders larger than Macy's, Schultz paid a visit. What he saw so intrigued him that he begged the Starbucks founders for a job and finally landed one after a year and a half. Then he begged them to sell coffee not just in bulk but by the cup. He met with resistance at nearly every step but kept hammering away until his initiatives succeeded. Today Schultz, the driving force behind the meteoric growth of Starbucks, is the company's chairman.
Moonstruck found its own Howard Schultz in Tony Roth. Like Schultz, who was raised in a working-class section of Brooklyn, Roth came from modest circumstances. He grew up on a farm in Illinois, one of five brothers. After attending the University of Illinois, he went into the investment business and then the food industry, marketing new products in natural and gourmet foods.
Roth, as thorough as he is tireless, stumbled across a statistic in his research on the food industry: in 1999 gourmet-chocolate sales in the United States saw double-digit growth for the first time in 70 years.
That fact led him to Hawaiian Vintage Chocolate, a small grower of high-quality cacao beans and maker of raw chocolate in Hawaii. For Hawaiian Vintage to grow, it needed an outlet on the mainland. Roth found Moonstruck and tried to persuade the two companies to work together. But Hawaiian Vintage's owners, like the original owners of Starbucks, wanted to stay independent and near the production end of the food chain.
But Roth didn't give up there. The more he looked at Moonstruck, the more the numbers amazed him. "There are not that many deals with this much lift potential," he says.
Roth acquired a license for the exclusive right to open Moonstruck stores in the Midwest. He then agreed to merge his company, Eclipse Management Group LLC, with the Simmonses' Moonstruck Confections. Eclipse would own 25% of the merged company, Moonstruck Chocolatier. The Simmonses then sold the East Coast license to another major investor, Leon Wagner. Over the next two years, Moonstruck Chocolatier plans to sell up to 45% of the company in return for $2 million in cash. That, says Roth, should provide enough capital to get the company to an initial public offering.
Roth came in as a strong advocate for an aggressive retail strategy and tipped the balance in its favor. "Moonstruck could continue being a seasonal specialty business," he says. But he believed that Moonstruck had far more to offer the market than a box of fancy chocolates to be bought on the occasional holiday or a showcase item to elevate the image of an upscale department store. "We needed to take their superior product and superior menu direct to the market," Roth says.
"We needed a management catalyst," says Bill Simmons. "Tony has the conviction to go forward. He could visualize the concept in play." What Bill saw in Roth was a man whose discipline matched his energy. "He's never afraid to run the numbers on an idea he likes," Bill says. He recalls Roth's falling asleep over his laptop while drafting detailed memos late at night.
Roth opened three new stores in Illinois (two in Champaign and one in suburban Chicago) between June and November of last year. That finally focused the company on retail -- just as Howard Schultz's plan had done with Starbucks many years earlier. Roth spent just $70,000 in tenant improvements to get the two Champaign stores running. The first store, which Roth opened June 22, grossed $21,000 and earned a tiny profit in just its fourth month of operation.
The third Moonstruck store in Illinois opened in November near Chicago. On a Sunday afternoon more than a week before the formal opening, with the staff still putting the finishing touches on the decor, the store did $650 in sales. Five days later, with the formal opening still three days away, it rang up $2,000 in sales.
Roth's stores look nothing like the one in Portland. They're seven or eight times larger and should top out at about $700,000 each in annual sales, with about 60% of their business in high-margin (60% to 70%) chocolate truffles and drinks. (The balance will come from other beverages, pastries, and ice cream.) Roth's aim is to revive the long lost chocolate bar. Referring to the Portland store, Roth says: "Imagine it with seating for 12 to 15 people. Imagine having jazz on Friday nights."
Educating the customer will take the form of regular truffle tastings and positioning the truffle case as a strong focal point in each store. "That gives us the chance to talk to the customer about the high cacao content in our truffles and the fact that they are handmade with all natural ingredients," says Roth.
With the opening of the bigger stores, some large investors have come calling. What's the appeal? "I think it's a combination of Starbucks and Godiva," explains Marc Robins, who has invested in Moonstruck and lent it managerial guidance through his Portland company, Crown Point Group. What intrigues Robins about Moonstruck is that "the selling clock" is always ticking. "They sell coffees until 11 in the morning, chocolate confections from 11 to 3, and people stop in and buy a box of chocolates when they go home at night," he says. "Starbucks doesn't have that."
And then there is the wall-space issue. In a typical coffeehouse like a Starbucks, the walls are relatively "dead." The merchandise on the walls -- mugs, dishes, and espresso machines -- usually turns over slowly. Moonstruck devotes its wall space to gift boxes of handmade truffles, which sell briskly for $24 to $40.
But will people really drink hot chocolate in droves, and if they do, won't Starbucks jump into the market? Roth's answer to those questions is, Starbucks has already jumped in. It sells a lot of sweetened coffee-based drinks. "They're already in the chocolate business big time," he says.
