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Radtke and his management team also plan to expand Coffee World, the company's chain of retail coffee shops selling Melitta products, from 13 outlets in the U.S. to as many as 200 over the next 18 months.
"The gourmet coffee trend is here to stay," proclaims Radtke (even though he still prefers to drink his company's unflavored coffee, Melitta Traditional, with just a bit of cream, thank you). Radtke says his company developed a production process to add flavor to high-quality coffee beans without masking their natural taste. "Once people appreciate good coffee," he adds, "they can't go back to the mainstream stuff."
Melitta North America is playing follow the leader. It has watched Seattle-based Starbucks Corp. grow rapidly in recent years, selling gourmet coffees through a retail coffee shop chain that has 1,000 outlets in the U.S. and Canada. From less than $60 million in fiscal year 1991, Starbucks' annual sales increased to $465 million in 1995 and continue to grow. Though Melitta has been slow to react to the U.S. upswing in flavored coffee consumption, industry experts say the company still could capitalize on the trend. "Melitta is taking a page out of Starbucks' book by using stores to draw attention to its brand," says Ted Lingle, executive director of the Specialty Coffee Association of America, based in Long Beach, Calif. The trade group estimates that U.S. sales of speciality coffee, which totaled $3 billion in 1995, are growing about 10% a year, and that there will be more than 10,000 coffee shops across the nation by 1999, up from approximately 5,600 today.
"If Melitta has a good focus and good product," Lingle says, "and is able to find good locations and train people to run the stores, there's great opportunity in retail."
Melitta's hesitation to branch out in the U.S. may be due, in part, to its European roots. Although Radtke is based in Clearwater, he reports to higher-ups at parent company Melitta Group, an 88-year-old business with worldwide headquarters in Germany.
The company was started in 1908 by Melitta Bentz, a housewife in Dresden, after she figured out a way to end her husband's complaints about grounds in his coffee: pouring the brew through a cup lined with blotter paper.
Now based in Minden, Germany, Melitta Group posted revenues of $1.6 billion in 1995 from the sale of coffee, coffeemakers, filters and food wrappings. Still family-owned, Melitta Group has three executives who are grandsons of the founder. Less than 10% of Melitta's worldwide sales comes from the business unit Radtke runs out of Clearwater. Melitta North America rings up annual revenues of about $100 million - less than one-fourth of Starbucks' sales. While a few million come from peddling coffeemakers made in Mexico, the bulk of Melitta North America's business comes from the sale of coffee roasted in New Jersey and coffee filters made in Florida. At its factory in Clearwater, located in the same building complex that houses the company's North American headquarters, Melitta has enough capacity to make 240,000 packages of filters per day. Melitta claims to have the largest share of the U.S. filter market.
Even though its annual sales of $100 million are three times greater than they were 10 years ago, Melitta North America has been a neglected stepchild of the parent company until recently, according to Radtke. "It used to be that most resources would go to Europe," he says. "Now there's a big desire to grow faster here; the U.S. has been targeted for investment."
Melitta moved into the U.S. market in the early 1960s, introducing a manual drip coffeemaker and filter system that replaced traditional electric percolators in millions of households. "We taught Americans not to cook coffee like cowboys," Radtke says. By the end of the 1970s, however, Melitta was an also-ran in the U.S. coffeemaker business, eclipsed by another company that sells electric drip coffeemakers under the Mr. Coffee name.
Still, Melitta's coffee and coffee filters have remained strong sellers in certain parts of the nation, especially the Northeast and California. And according to the company's surveys of U.S. consumers, Melitta enjoys strong brand-name recognition - an asset that should prove especially valuable as Melitta introduces its gourmet coffee line and expands its coffee shop chain.
A securities analyst who follows Starbucks, Kim Galle of Boston-based Adams, Harkness & Hill, doubts that Melitta can quickly copy the success of Starbucks' retail coffee business. "Starbucks has a stronger brand name for gourmet coffee, while the Melitta name is usually associated with the equipment," he says. Galle notes that when Melitta rolls out its new gourmet brands, Melitta finally will give consumers a choice between ground and whole bean coffee. Until now, Melitta has sold only ground coffee - a tradition that might undercut the company's efforts to project a gourmet image. "The fact that Melitta has historically sold only canned coffee may actually be a liability," says Galle.
Whether Melitta can succeed in recasting its image in the U.S. may hinge on its fledgling Coffee World chain. "We've always sold our product through supermarkets and other retailers," says Radtke. "But we finally realized we have to be in coffee shops because that's where people experiment a bit. We're opening coffee shops to build our core business."
Most of the 13 existing Coffee World shops are in shopping malls and hotels; one of them is located at the student center of the University of South Florida in Tampa. This month, Melitta is planning to open its 14th Coffee World shop, in an Orlando shopping center. "For the chain to be a success, we have to have a critical mass of at least 50 stores," Radtke says. "Our target is 100 to 200 within the next 15 to 18 months."
In addition to opening company-owned Coffee World outlets, Melitta would like to form partnerships with existing coffee shops, then stock them exclusively with Melitta coffee and related products.
Given the large number of independently owned coffee shops in the U.S., Radtke sees plenty of opportunities to build a large chain to compete with Starbucks at the retail level.
"You've got Starbucks, with nearly 1,000 stores, then there's nothing," he says. "We can consolidate the small shops through partnerships and offer the credibility of our brand name."
Business Beat - Week of May 3rd
