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Coffee Coffee everywhere

ESSEX, Conn., July 24, 2006 – It’s not just late-summer temperatures on the rise.

      Competition also continues heating up in the growing U.S. coffee market, with retailers such as Dunkin’ Donuts and Tim Hortons expanding in a market estimated to grow another 30 percent – to about $34 billion – by 2010. It’s the latest chapter in a market that’s seen one Seattle coffee shop – Starbucks – grow to roughly 11,500 outlets worldwide.

      Since 1989, the number of coffee outlets in the United States has grown nearly 20-fold, according to the Long Beach, Calif.-based Specialty Coffee Association of America. The growth comes as coffee outlets have become increasingly popular drawing cards at retail centers and a more prominent part of the overall retail equation.

      “Coffee users generate a great deal of traffic at certain peak times, morning rush being No. 1,” says Wayne D’Amico, CCIM, and president and principal of Essex-based Property Politics. The firm specializes in providing development, brokerage and advisory services to national, regional and local clients

      “Coffee is not only a traffic generator, but it’s becoming a required amenity to the shopping experience,” D’Amico says. “Think of Stop & Shop with the Dunkin’ Donuts inside. This was a result of Stop & Shop’s long-time attempt to get Dunkin’ to allow them to sell the Dunkin’ coffee in the store. The ultimate deal was to put a Dunkin’ inside the Stop & Shop.”

      As coffee retailers look at capitalizing on the growing U.S. coffee market, D’Amico has undertaken efforts on behalf of Dunkin’ Donut franchisees in both New York and Connecticut. He has also worked on a deal involving Canada-based Tim Hortons, the leading breakfast chain north of the border. As such, it’s a niche to which Property Politics brings particular insight.

      “We understand the ‘MO’ of the coffee/donut franchisee,” he said. “Everyone thinks they have the perfect location for a Starbucks or Dunkin’ Donuts, but you need to understand and appreciate the factual physical requirements and preferences. The specifics and logistics of WHERE to put the store is the tough part, such as whether it is a drive-thru or on the "travel-to-work" side of the road, the proximity to competition and other generators. Insights into these very real parameters can help eliminate frustration and curb enthusiasm to a more realistic expectation.”

      In Connecticut, D’Amico performs exclusive site reconnaissance in target areas, and in New York, he has performed Market Impact studies for Dunkin’ Donuts franchisees. Recently, those efforts in Connecticut have resulted in the addition of a sixth Dunkin’ Donuts restaurant in Middletown.

      In that instance, D’Amico helped the regional Dunkin’ Donuts franchisee close a complicated transaction for its newest location. The result included repositioning an underutilized parcel to include a new 6,700-square-foot building housing Dunkin’ Donuts, as well additional retail and/or office space.
 
      But D’Amico’s efforts haven’t just been limited to Connecticut.

      “In New York, we represented a multiple storeowner who needed an ‘impact analysis and gravity study’ in Yonkers, N.Y., to determine the impact of locating a fourth store between three existing locations, but on the opposite side of the street,” D’Amico says. “The result was that adding a fourth store in a particular location would, in fact, and at least in the short-term, lower sales in one of the three existing stores.”
 
      In nearby Meriden, Conn., D’Amico was also retained to negotiate with Tim Hortons on a lease for a former Bess Eaton location. Tim Hortons in 2004 had acquired 42 New England Bess Eaton sites, including the Meriden location, from the Bess Eaton’s bankruptcy. With just eight U.S. outlets in 1995, when it merged with Dublin, Ohio-based Wendy’s International, Tim Hortons today runs more than 290 restaurants in the United States.

      “Our efforts took what was the remainder of a 40-year-old ground lease, significantly undervalued, and we repositioned the owner with a new 25-year deal that increased revenues by 28 percent,” D’Amico said. “I negotiated directly with the Tim Hortons’ U.S. head of real estate in what was one of Tim Hortons’ earliest ‘new’ deals in the U.S.”

      For D’Amico, the efforts come amid a flurry of action in the coffee marketplace. For instance, McDonald’s has moved to compete openly in the coffee business, Starbucks was recently attempting to break into the Dunkin’ Donuts stronghold in the Northeast, while Dunkin’ has announced plans to move into more national markets, as had Tim Hortons.

      “The bottom line is that there is a projection for a TON of coffee sales per capita internationally, and until we meet a true market penetration and ultimate saturation, there will be room for all brands to continue to expand for several years,” he said. “This makes it an exciting time to understand the product.”

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