Curbing coffee wars: How competition can boost local businesses

January 30, 2014

(WBEZ/Lauren Chooljian)
Chalkboard art at the Brothers K. The Evanston coffee shop has served many an artfully prepared latte since it opened in 2005.

It’s a small business owner’s nightmare—a new business with similar products and a similar style moves in right around the corner.

Economic competition happens all over the place, of course,  but in Evanston, two businesses are trying to figure out if a competitive environment can actually help both businesses thrive.

Our story begins  with The Brothers K Coffeehouse at Hinman and Main streets in the suburb just north of Chicago. From the outside, it looks like any other small, local coffee shop with big windows that line both sides of the corner storefront. But coffee-lovers who come inside are greeted as if they’ve walked into a family party. Owners and brothers John and Brian Kim can be found doing anything from serving Metropolis coffee or various teas, to crafting the perfect foam pattern on top of a latte, to working the room and catching up with regulars.

Owner John Kim said in the eight or so years they’ve been at this corner they’ve learned about 80 percent of the names and faces of their customers.

As an example, he points to a table the brothers call “the table of elders” - a table of revolving regulars that stop by multiple times a day. Kim knows all their names - and even the names of some of their children.

And almost every patron you talk to will describe Brothers K as a modern-day “Cheers.”

Kim said friendly service is their leading business principle, and it helps that they’re in a great location.

“You have the [CTA] purple line, the Metra line, you have the Northwestern bus that goes both downtown and toward Northwestern,” he said. And with residential [property] to the east, more commercial spots to the west and a school nearby, Kim calls it “a great spot.”

So great, in fact, that it was only a matter of time before someone else moved in.

The new cup - and slice - in town

In this case, Dollop Coffee Company and Hoosier Mama Pie Company.

Paula Haney had been constantly looking for a bigger space to expand her popular homemade pie business. Her original Hoosier Mama shop in Chicago’s Ukrainian Village is just 750 square feet. If they can get just three people around the rolling table there, they’re lucky. And she, said, you still get elbowed a bit.

“We have a really wonderful crew that can work together without killing each other,” she said. “But it really takes a special baker.”

Meanwhile, Dan Weiss, owner of the independent Dollop Coffee Company was driving around Evanston one day and noticed a vacant retail space in a new development that happens to be right around the corner from Brothers K.

Dollop has a few shops around Chicago, but being from Evanston himself, and seeing how great the location is, Weiss said he got really excited about the opportunity.

“The same day, I ran into Paula and Craig, who own Hoosier Mama, at Metropolis coffee because we are both customers there,” he said. “And it kinda clicked - a pie and coffee shop. I think that would really work for this neighborhood.”

The two had worked together in the past - Dollop serves Hoosier Mama Pie in its coffee shops. But they decided to collaborate on an expansive 2,800 square foot space in Evanston: For his Aeropress or pour- over coffee drinks, and her sweet and savory pies.

It’s bright and filled with tables that surround the open kitchen - where they can now fit five people comfortably at the rolling table.

And the line of customers snaked around the corner when they first opened their doors in November.

Theory in practice

Now, an economist would say - to start - this situation is a pretty typical display of the economic theory of competition.

Marketing professor Tim Calkins from the Kellogg School of Management at Northwestern University said, in a totally new market, a business is less worried about competition, since it’s the only game in town (think: Brothers K).

But he said as soon as a market becomes more established, you get a lot more players popping up. There’s actually a Starbucks on the walk around the block from Brothers K to Hoosier Mama.

“The more attractive the market seems, the more new entrants you’re gonna get. Especially when you have pretty low barriers to entry,” Calkins said. “And everybody is scrambling to say how do you steal, and how do you hold on to your market share?”

Think about, for example, how many times you notice, for instance,  one vintage shop open. And before long, the block becomes a little district of similar stores.

Eventually, Calkins said, this could lead to one business driving another out of the neighborhood.

Lunch at Five Guys

But this is a competition story with a twist.

From the get-go, Dan Weiss from Dollop said he was worried about encroaching on Brothers K.

“If someone came and opened a cafe near Dollop in Uptown, I would be pretty freaked out,” Weiss said.

John Kim from Brothers K said he was pretty freaked out.

So they had a lunch - Weiss said he thinks it was at Five Guys - where Weiss said he asked for the brothers’ blessing, and explained that this wouldn’t be just a coffee shop.

“I said listen, this is gonna be a food concept. The coffee part of it is gonna go with it. You might lose a little business, but you’re not gonna lose much. And more importantly, it’s gonna bring more people to the square.”

But it wasn’t just the square they had in common. They both serve the same coffee, which means they share the same local wholesaler.

Metropolis Coffee co-owner Tony Dreyfuss calls the whole thing “really complicated.” Metropolis is a Chicago roaster with a loyal following: They sell to over 500 places across the United States and Canada, and he said they’ve never been in a situation where two of their coffee shop customers were this close to each other.

“We are really, really protective of the territory that our wholesale clients have. And it was an extenuating circumstance because we had worked with Dollop for so long and we had worked with Brothers K for so long,” Dreyfuss said.  

So Dreyfuss went and talked it over with his dad, his co-owner, and they decided if John Kim wasn’t comfortable with it, then they wouldn’t sell to Hoosier Mama and Dollop at that location.

John Kim said it was scary at first, and he originally said he would rather that their new neighbor not be a Metropolis account.

But, they went back and forth...

“And ultimately somebody was gonna go in there - I’m glad it was somebody that we know, somebody that knows us,” Kim said.

And in the way of competition, there was also the possibility that Brothers K could be hurt more if another local brand like Intelligentsia was being served in that space.

Tony Dreyfuss said Metropolis was also able to help Brothers K financially - though he didn’t want to share the specifics of the deal with me.

“I did recognize that it would have an impact. We talked about it, my dad and I, and tried to make it so it would hurt a little bit less.”

Kim said they have seen business slide a bit on the weekends, but their to-go business hasn’t dropped off. And customers say they feel the pull.

Taal Hasak-Lowy works from home and is really into coffee. I found her with her laptop at a table at Hoosier Mama early one weekday morning.

“When this place opened, I almost felt like I was cheating on Brothers k, and it was a bit of an issue,” Hasak-Lowy said

She said she’s been faithful to Bro K - as she calls it - for years. And she’s not willing to give them up.

Her solution?

“If I’m getting coffee just to go, I’m going to go to Bro K. They’re my main ‘crackhouse.’ I’ve been in a relationship with them for a long time. Loyalty is important.”

But if she has a meeting, she knows she can get a larger table - and a cup of Metropolis coffee - at the new place.

According to Tim Calkins, that kind of customer loyalty - and those early conversations and Five Guys lunches - set the two businesses up for a long term win-win. Calkins said it may be a bumpy road in the short term from Brothers K, and it might have been beneficial to them to move into the new space themselves.

However, he says Dan Weiss is right: Two similar stores in one area can help boost foot traffic.

“The economic theory says that’s an optimal move in many respects, because that’s the way both of them can end up with the most customers in sort of an interesting twist,” he said.

And second, he said, all three parties - the shops and their wholesaler--are right to believe that being “different enough” could actually benefit everyone.

“In a way, this is actually competition maybe at its best.  You know both of them are gonna have to fight very hard and they’re gonna have to think about how do we differentiate and what really makes us special?”

And whether that means even better pie, or even better service - Calkins says it will be the consumer who ends up winning the coffee war.

Lauren Chooljian is a WBEZ reporter. Follow her @laurenchooljian