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July 26-August 1, 2006

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Teri Hope

Photograph by Felipe Buitrago
The Independent Grind: Los Gatos Coffee Roasting Company owner Teri Hope was forced to close her successful coffeehouse at the Stanford Shopping Center in February.

Stanford's Boulevard Of Broken Beans

How Los Gatos Coffee Roasting icon Teri Hope got pushed out of the increasingly homogenized Stanford Shopping Center

By Najeeb Hasan

BEFORE Santana Row, the Stanford Shopping Center's street market—an open-air alleyway featuring an eclectic collection of independent grocers and restaurants—was Silicon Valley's most prominent attempt at imitating Europe. So much so that the shopping center's website still makes a point to remind potential visitors to enjoy the mall's "European-style street market where the scents of gourmet coffees, fresh flowers and international cuisine fill the air."

That website evidently hasn't been updated for some time, given that the mall unceremoniously booted the street market's long-serving local provider of gourmet coffee from her location more than five months ago.

It was almost two decades ago that Teri Hope, the pioneering owner of the South Bay institution the Los Gatos Coffee Roasting Company, introduced her coffee to the peninsula by opening up the Palo Alto Coffee Roasting Company at the Stanford mall. The shopping center, managed by Stanford at the time, had been wanting to introduce that open-air Eurovibe and was aggressively searching for independent entrepreneurs with business plans that would provide just that. Hope, a single mom whose Los Gatos espresso bar had revolutionized coffee drinking in Silicon Valley, was a natural choice, and Palo Alto Coffee Roasting quickly became a Palo Alto success story. For years, until the tech bubble burst, her store won annual awards from the mall's managers for consistently raking in the highest sales per square foot.

But on Feb. 28, Hope closed her doors in Palo Alto for the last time. Hers isn't the story of a mom-and-pop store that gamely tried to make it and couldn't—in fact, Hope was making it. It was not Hope's decision to close the doors, but that of the shopping center's new managers, the Indiana-based Simon Property Group. SPG, America's largest shopping-mall owner, bought the 1.4 million-square-foot Stanford mall from the university in 2003 for $333 million.

"I try to be philosophical about it because my heart is broken," says Hope, "and I felt quite rejected. [Palo Alto Coffee Roasting] was beloved by the local community, and I get calls everyday from former customers. But I do recognize that we do live in a society of free enterprise, where people have property rights."

Living On in Los Gatos

At her flagship store in Los Gatos, Hope hasn't allowed her experience with the Simon Group to take the fight out of her. Starbucks is, of course, the 1,000-pound gorilla in the coffee business, but her attitude toward the coffee giant is a smart one: instead of retreating or criticizing, stay flexible enough to do what Starbucks can't.

"I try to do the things that Starbucks doesn't do," she explains. "I try to roast coffee on-site. I have a quality factor that I believe is superior. I have a freshness factor; I have a personal touch with my staff, who know the customers. Starbucks has turned to an automated system, and there's a market for both of those styles in this business. There's enough people who appreciate what we do and the way we do it, while some people love going to a trademark business."

Hope has recently partnered with a wine and cheese expert and is planning to introduce a wine-tasting bar and a Mediterranean-style delicatessen to her Los Gatos coffeehouse. In addition to her coffee roasting operation and her espresso bar, she envisions serving light tapas-style dinners, platters of cheeses and cured meats and glasses of local wines at Los Gatos Coffee Roasting, again broadening her product base. Again, she's doing what Starbucks can't.

Palo Alto Power Play

In Palo Alto, however, Starbucks did what Hope couldn't—establish a lasting presence at the Stanford Mall under the new ownership. The franchise was the first new tenant under the Simon Group, making it the 43rd Starbucks to be found in a Simon Group-owned mall.

Hope says she was shown the door when the time came to renew her lease.

"I was told that they preferred to rent to a Triple A tenant," she recalls. "I said, What is a Triple A tenant? They told me it was a business that would have a national chain and national marketing. I was floored—it took me a while to digest what I was told. Historically, [with the Stanford managers] I was always offered renewals of my lease."

Her conversation, she says, with Simon Group leasing agent Robb Cox lasted only a few minutes—she describes it as a "short, blunt conversation"—and, despite Hope's offer to pay an increased rent, Cox refused to budge (Cox did not return calls seeking comment.) Later, the mall's managers did offer to relocate her from her plum location in the street market to another area in the mall, but, after examining the space they offered, she decided she couldn't justify the $500,000 investment such a move would take.

In the end, Hope played the role of the gracious loser, closing her business abruptly, but managing to find employment for all of her employees—Peet's, she says proudly, was thrilled to hire staff that she had trained.

'I Don't Know What They Were Thinking'

It could be said that David Schaub owes his business to Teri Hope. Schaub, the son the a meat-market owner in Los Gatos, went to grade school with Hope and watched as Hope opened her famed Los Gatos coffeehouse. One day, while in Palo Alto, he came across the Palo Alto Coffee Roasting shop in the mall and saw Hope inside.

"I knocked on the window, and we started talking," he says. "I asked what she was doing, and she told me that Stanford had asked her to open a coffee shop there." From Hope, Schaub quickly learned that the mall's first manager, Rosemary McAndrews, had a vision for locating independent tenants that emphasized freshness in their products. And, more importantly, Hope told him that McAndrews was looking for a meat market—which led to Schaub's Meat, Fish & Poultry in the mall's street market.

"I don't know they were thinking," Schaub now confesses about his landlord. "She had a great following and a great product, but Starbucks came into the center, which is not to say they took a lot of her business."

Schaub and other independent vendors at the Stanford mall have seen that the times are changing and understand that some are luckier than others. Schaub successfully renewed his lease with the Simon Group—though not without some speed bumps—while others are already dreading the prospect.

"We have a fear of not getting our lease renewed," admits a manager at Fiori, a locally owned floral shop in the mall's street market. "That's why our shop looks pretty dismal; our owner hasn't been spending a lot on remodeling."

Schaub is more fortunate, however, because he operates a niche business that is difficult to replicate. Butchering is a dying trade and, as such, there isn't a Starbucks version of Schaub's on every corner—which is also why the Simon Group couldn't tell Schaub that they preferred a national advertiser when they were negotiating his lease.

"I'm just a small, family-operated, mom-and-pop deal," says Schaub. "I don't have 20 or 30 corporate lawyers and bags and bags of money to negotiate with. But, in the end, they knew my store was instrumental to the street market's success. Along with the farmers market and the grocery store, it created an atmosphere that was food-friendly. We had all grown together and helped the street market become a destination. Simon realized that there is nothing like this and that they didn't have anything else that fit this personality."

But wasn't Palo Alto Coffee Roasting just as integral to the shape of the street market? Indeed, it could be argued that fresh-roasted coffee adds as much to atmosphere as fresh meats, fruits and vegetables.

"I don't think Teri fit the mix," answers Schaub. He points to the luxury leather crafter Louis Vuitton directly across from Hope's location as an indication that Simon may have wanted to segue into luxury retail at that location in the street market. In that, he may have a point, as the store taking the coffeehouse's place will be Frette, which advertises itself as selling "fine Italian linens."

"She could see the writing on the wall," Schaub concludes. "It was baffling. At one point, they said to her, Why don't you open a tea shop? She said, This is what I do; I roast coffee beans. I hated to see her go—not only because I had coffee there every morning at 11 o'clock. I see the center changing because there are not as many startup enterprises. The days of the small dream are gone—at least at this center. There's a lot of push for corporate, already-tested models. That makes sense for the Simon Group; they have a certain type of framework that works for them."

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