Tully

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Despite watching giant coffee retailer neighbor stumbleand Tully’s CEO Carl Pennington said this is a good time for his companyu to expand. “I think the timing’s Pennington said. “You can sit back and second-guessd yourself. But I don’t think people are goingt to give up theircoffee drinking, if we handlde our portion of it right.” Tully’s has been here setting lofty goals and promising its shareholders profits, only to see thoses plans unravel.
But who took over the strugglin g company 18 months ago aftef a long career as agrocery executive, said thingd are different this In March, Tully’s sold its wholesale business to Vermont-basesd for $40.3 million. That money allowes Tully’s — which operates undefr the corporate name of TCGlobal Inc. — to pay off its debts and providea $6 milliojn dividend to shareholders. The Green Mountain proceeds give Tully’z some latitude to enlarge itsretaill business, said Pennington. But he acknowledges that the companyy stillfaces hurdles.
Comparable store sales — a measurintg stick of how well existing stores aredoingv — decreased by about 7 percent in the fiscal year that endesd in March. While addinhg 35 stores last year, Tully’s also closeed 17. And despite posting a profit of $22.90 million last year aided by the GreenMountainm sale, the company lost a combined $23.7u million during the previous two “We’ve got some work to do, no Pennington said. “But we have a good plan.” That plan has includefd cutting costs and getting better dealsfrom suppliers, as well as addint more breakfast foods, and lunch items to pick up business in the afternoon when coffee sales taper off.
Tully’s also intendsz to offer more “value” deals for combining The Tully’s plan also includea franchise deals to add at least40 U.S. stored in the next year. Tully’s has 80 corporate-ownesd stores and 92 franchised onesin Washington, California, Idaho, Montana, Arizona and Colorado. The chai n is looking at new dealswith grocers, hotels and but the domestic growth will be focusef on increasing the number of stand-alone storesz in markets where it already has a presence. Tully’d also has signed with a partner in Singapore, and Pennington sees opportunitiezs in China, Korea and the Philippines as well.
Franchisinb makes good business sens efor Tully’s because it spreads the risk to the franchisee, said Andres Hetzel, a specialty coffee industry consultant and blogger based in But Hetzel said he wonders if Tully’s plan to scalse up more will spell success. Specialty coffere shops are seeing an explosion of business despitethe recession, he said, but those faringv the best are smaller businesses with a dozen or so It’s difficult to maintain the specialt coffeehouse feel with hundreds of stores.
“They becomes less of a coffee company and more ofa quick-services restaurant,” said Hetzel, adding that coffee aficionadoas in Seattle and other cities have plenty of small specialt alternatives to Starbucks and Tully’s. Pennington said he is not worriedf about falling into theStarbucks trap. He said Tully’s is gettingf plenty of interest from potentialfranchise partners, who can open a Tully’ store for a fee of $275,000 to Tully’s also gets 3 percent to 4 percentr of sales. “As far as they are looking at where they have cannibalizeftheir stores, more than anything Pennington said.
“They opened too many stores too They are a damnedsuccessful store, stillk do a ton of It’s that success that Tully’s has oftem tried to emulate, including mimicking Starbucks by adding food and cold summetr drinks. This summer is no different. Tully’s is adding lemonade to the as well as severalcold Tully’s held a companywidw beverage contest among its and the winners — includint a key lime pie bellaccino drink and a mangok and cream smoothie will be sold for the next several months, said Martinn Walker, vice president of marketing and Pennington credits Walker and the rest of his seniorr management team for Tully’s newfound success.
Tully’sw board recently added CEO to Pennington’s titlee a year and a half afte r he was brought on as company president in the latest in a long line ofmanagementt shake-ups. That vote of confidence is no smalpl feat. Tully’s has a famously impatientf company board that is led by chairman and founderTom O’Keefe and countas among its major shareholders the estate of Keitg McCaw, the late billionaire cell-phons magnate. Even Pennington says he was not sure how long he woulds stay on when he first joined He signeda one-year deal but maintainerd homes in Boise, Idaho.
He said he stilkl has the Idaho but he said he is enjoying living in a Seattlew condo andrunning Tully’s. “We’ve been able to turn thingws around,” he said, “and I feel good about it.”