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Bean There, Done That

How Starbucks gets independent coffeehouses evicted to avoid buying out their businesses

By Vrinda Normand

FRANK BARDACHINO'S business ended before it ever had a chance to take off. In May 2004, two years after he opened Barda's Coffee and Cafe in Campbell, he had a growing base of loyal customers and a positive outlook. He still had three years left on the lease of his commercial space.

But the well-known coffee giant based in Seattle wheeled and dealed. Bardachino's landlord, Kirkorian Estates, suddenly asked if he would be willing to sell his lease. "Not really," he said. "I've invested a lot of time." Bardachino recalls that Kirkorian restated the offer and eventually admitted that a franchise was interested in the location.

"Starbucks doesn't typically buy out businesses," Bardachino says. "What they do is go to the landlord, and the landlord puts pressure on the tenant to either get out or say that when your lease comes up, we're not going to renew it. Or we're going to jack up your rent so high that you can't afford to pay it."

Kirkorian never threatened Bardachino's lease directly, he says, but "hinted at it" in a "nice roundabout way." A representative from Kirkorian confirmed that Bardachino's lease was bought out because a franchise had shown interest.

Not surprisingly, a Starbucks now sits at 1820 Campbell Ave. "My way of looking at it was like, gee, I have three years left," Bardachino says. "The next three years it's going to be kind of difficult, and in the third year, they're not going to renew my lease. So I just took the money and ran."

But he could have walked away with a lot more, he says, if Starbucks had gone to him directly and offered to buy his cafe. "You know, business is business," he sighs. "In the long run, [the landlord] can get higher rent and more visibility."

Bardachino is convinced that he is not alone. In the process of closing his cafe, many customers consoled him with similar stories of mom-and-pop businesses booted out before their leases were up or denied renewal when Starbucks was waiting in the wings.

How much truth is there to these reports? While many were clouded with exaggeration and lacked specific details, we found two cases that reveal an intriguing connection to the questionable real estate practices of the coffee giant.

Mill Valley

The drama behind this North Bay independent coffeehouse suggests that Starbucks was playing hardball as early as 1993. Former co-owner Norm Weintraub says he had six months left on his lease and a three-year option, which meant he could extend his stay at an increased monthly rate that reflected the growth of the surrounding market.

Weintraub's business was thriving, and he planned to settle down for at least another 10 years. But his future dreams were shaken when he discovered his landlady was entertaining another offer. Weintraub says a secretary intercepted a letter from Starbucks offering a $30,000 signing bonus and nearly triple the rent the Roastery was paying.

Then-co-owner Deborah London (formerly Teixeira) says she still has the letter, dated Dec. 10, 1993. She and Weintraub were told they could keep their lease option if they matched the corporation's bid. They put up a grassroots fight, getting 1,000 people to sign a petition against Starbucks.

In the end, London says the coffee company's "mean-spirited" attempt to foil her family-run business failed—not because she won an expensive legal battle but because she agreed to the inflated rent. The Roastery survived, indeed thrived, until 2000, when London and Weintraub sold the business to Bonavida Coffee and Tea.

"Starbucks has been doing this on every street corner," Weintraub says. "They are the most ruthless site locators you can imagine."

Cafe Europa

The next saga took place closer to home, on the corner of Branham and Snell in San Jose. Cafe Europa was a bright coffeehouse and Middle Eastern eatery that invited neighborhood chatter. Owner Terry Jarrouche opened the business in 1996 after investing nearly $200,000 remodeling the facility.

Longtime customers say the cafe was greatly valued in the local community. "Terry knew everyone's name," recalls Lisa McCusker of San Jose. "She had your coffee ready when she saw you get out of the car. If you came in, and you didn't have money, she'd say, 'It's OK, catch me tomorrow."

This kind of personalized service drew a loyal following who supported Jarrouche when she faced the corporate challenge. In the spring of 2000, Jarrouche says her landlord, a Southern California-based company called Burnham Pacific Properties, "started giving her a hard time." BPP says she failed to pay rent. She says her checks weren't cashed.

During business hours, contractors came in to measure her store, telling her they were checking out the fire-safety system. Her suspicions were finally confirmed when she received a shipment of green uniforms with Starbucks' name above the address. "Oh my God, what's going on?" Jarrouche exclaimed. "I panicked. I started crying," she says. The UPS delivery guy tried to console her and let her photocopy his packing slip.

Jarrouche's attorney, John Colistra, saw the case as part of Starbucks' "grandiose plan to inundate the market with their little coffee shops. To my knowledge, they made an offer to the landlord. So the shopping center was looking for any reason to break the lease." When Jarrouche fell behind on the rent once, BPP refused to accept the late payment and initiated legal proceedings to evict her.

BPP is no longer in the land management business, according to Peter Ryan, the San Francisco attorney who represented the former corporation in the case. "It was strictly that she didn't pay the rent," Ryan says. "I am not aware of any connection with Starbucks." He had a good laugh when Metro informed him of the uniform shipment. "That's very weird," he said.

Several hundred customers signed a petition in support of Cafe Europa. McCusker made a photo essay of appreciative patrons and sent it to Starbucks. Janice Thompson, another supporter, wrote letters to Starbucks and BPP. "What are you doing to this lady," she asked. "We really value her. We would like to keep her here."

Thompson says Starbucks responded with a flowery letter about its contributions to the community. She wrote again to say Starbucks' actions belied its statements. "They got word from a lot of people—don't even try to put a Starbucks here. Nobody will go."

In the end, the community uproar bought Jarrouche a small amount of time. Colistra says the case was settled in bankruptcy court, and the judge decided that Cafe Europa could stay for the remainder of the lease. But Jarrouche emptied her savings on legal fees, and at the end of 2001, five days before Christmas, her request to renew her lease was denied.

Oddly, Starbucks never moved into the vacant space. McCusker and Thompson suspect the company was scared off by the response of passionate customers.

Jarrouche became a real estate agent when Cafe Europa went under. Now her ads are posted on the shopping carts in Safeway, the very store that hosts the coffee company that supposedly ruined her business.

Stoop-Sitting

It's difficult to say whether or not Starbucks' real estate practices are unethical. Jeff Kallis, professor of marketing and business law at San Jose State University, says that in the case of Barda's Coffee and Cafe, the corporation's move was permissible because Bardachino agreed to sell his lease.

It would be improper, however, if Starbucks induced the landlord to terminate the lease for false reasons. All things considered, the $30,000 signing bonus in the Mill Valley case might be considered a bribe. And was Starbucks really behind the BPP effort to evict Cafe Europa?

Metro's repeated attempts to contact Starbucks' corporate headquarters failed.

Mike Ferguson, media spokesman for the Specialty Coffee Association of America, contends that it is "fairly rare" for independents to harbor bad feelings about Starbucks. In fact, he explains, "Most independents are seeing their businesses improve. The number of independents in the industry has not changed, even with the growth of Starbucks."

Ferguson's figures are based on a national count of SCAA members, which aren't broken down regionally. He might be surprised to look at the Valley Yellow Pages. In the 2002-2003 directory, Metro counted roughly 20 Starbucks stores and 40 independents listed under coffeehouses. In the 2004-2005 book, the numbers were reversed, with more than 40 Starbucks and about 25 independents.

"Starbucks has essentially been the demise of the independent coffeehouse," says Tim Wright, owner of Keystone Coffee, a coffee wholesaler his family has owned since 1867. He says there's been a significant downward spiral among independent coffeehouses.

"I don't know of anyone who is looking to open a new coffee shop. I don't know of anyone who would want to," Wright says. "Because even if you [find] a successful location, Starbucks will eventually sit on your doorstep."


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From the September 29-October 5, 2004 issue of Metro, Silicon Valley's Weekly Newspaper.

Copyright © Metro Publishing Inc. Metroactive is affiliated with the Boulevards Network.

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