"If you look at Starbucks, over 50% of their coffee sales are mochas or lattes," notes Frank Magdlen, president and managing director of Crown Point Group. "Very few people are actually buying black coffee there." Magdlen says that Moonstruck will sell many such blended drinks -- but with one key difference from the Starbucks variety: the chocolate in Moonstruck's drinks will be fresh and of higher quality. People, he adds, will be able to taste that. So he doesn't see Starbucks entering Moonstruck's market. In fact, he believes the coffee giant will help legitimize the upstart. "Flattery from the right people will help promote the concept," he says.
Roth also claims that Moonstruck is potentially more profitable than Starbucks. "We have slightly higher margins and a higher average ticket," he notes. He says the real concern is execution. "We have to maintain our focus on people, delivering the right level of service and cultivating a culture that is really ours." Moonstruck's main worry is finding good store managers in a tough job market, he says.
Chip Richardson, a broker in the Portland office of brokerage house Wed, Bush, Morgan Securities Inc., declined to invest in Moonstruck, though he found it "an interesting deal." He explains, "It's not obvious to me that chocolate has the repeat sort of business that coffee has." Richardson adds that Moonstruck's impressive per-square-foot numbers generated by the small Portland store will fall once the company starts operating much larger outlets. And finally, he observes that Moonstruck chocolate is a luxury, and sales could soften "if the economy turns down."
Meanwhile, it's full speed ahead at Moonstruck, where Deb Simmons notes that chocolate sales historically do not suffer in recessions and that "chocolate is one of the last legal, socially acceptable sins." Is unassuming little Moonstruck really ready for prime time? "It's so easy to get swayed and tempted and sidetracked," concedes Deb, guardian of the brand. But then maybe the brass ring comes by only once in life, if that.
About a year ago, Bill Simmons went up to Seattle for a meeting over lunch with Maveron, a venture-capital firm, and talked with a portfolio manager there for three hours. "He seemed genuinely impressed and told us to come back when we have four or five stores up and running," Bill recalls.
Maveron was cofounded two years ago by none other than Howard Schultz. Its mission? To find the next Starbucks.
Edward O. Welles is a senior feature writer at Inc.
Related inc.com resource:
Should You Be a Copycat?
Others in the Starbucks Parade
Many small companies have borrowed stratagems from Starbucks in hopes of replicating the java king's success. Here are four such businesses:
"Starbucks has moved coffee from being a commodity to an experience. We are moving dry cleaning from being a chore for the customer to an experience," explains Kirk Kinsell, the CEO of Hangers Cleaners, based in Raleigh, N.C. (See Upstarts: Dry Cleaning.) To distinguish its 40 stores from other dry cleaners, the company uses nontoxic liquid carbon dioxide as a cleaning agent. Kinsell says his outlets look like "fine apparel stores" and don't smell like petrochemical refineries.
Much as Starbucks has created a base of loyal customers, Jimmy John's submarine-sandwich chain has developed a cult following, by locating most of its 100-plus stores in college towns. "We do strong guerrilla advertising each fall, when all the freshmen enter school," says Linda Kelley, president of the Jimmy John's franchise, based in Elgin, Ill. "Once we get them hooked, we have them for life."
Maui Tacos, based in New York City, has taken everyday Mexican fast food and spiced it up with exotic Hawaiian flavors, imitating what Starbucks has done with upscale coffees and flavors. The result, says Maui Tacos CEO Chuck Leaness, is gourmet fast food offered in a stylish setting.
Paul Clayton, CEO of Jamba Juice Co., based in San Francisco, admires Starbucks for its revolutionary ability "to drive significant sales volume through a small footprint." That translates into a lower investment in real estate and into higher returns -- a principle Jamba Juice is applying to its 330 stores, which sell fresh juice, smoothies, and health snacks.
THE START-UP ISSUE
Part 1: Your Way
The Rationalist: The Death of Gut Instinct
The Copycat: The Next Starbucks
The Spin-Off: Hiding in Plain Sight
The Soloist: Balancing Act
The Idealist: Into the Frying Pan
The Zealot: Mission Critical
The Pro: The Rules
The Accidental Entrepreneur: Field of Dreams
Part 2: Anatomy Update -- Big Plans
Part 3: The Start-Up Diaries -- Year One
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