How an Aussie conquered the US coffee market

14 December, 2017 by
Madeline Woolway

How Nick Stone cornered New York’s coffee market by offering the quintessential Australian coffee experience.

When the investment banker moved to New York, he was solely focused on attending business school.

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But Stone is now at the helm of a café business with a $20 million a year turnover and more than 20 venues across New York, New Jersey, Pennsylvania, California and soon D.C.

“The honest truth is I had no hospitality background,” says Stone. “It was only when I started to go to university [in Manhattan] that I realised how magical the Australian coffee and café experience is.

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“What I found in New York was that it was just so transactional. People didn’t have a local. People would say, ‘Let’s go get a coffee’ and then just go to the most convenient place. It was not about walking into a place where you know the proprietor and they know your face, your order and your name.”

However, it took more than just good memories for Stone to build a business that’s recently been dubbed one of New York City’s fastest-growing small business brands.

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“As part of my venture capital studies at business school, I was able to work on a thesis for an entire semester,” says Stone. “Everyone was focusing on apps and tech-related opportunities, but I decided to focus on coffee. I became fascinated with Starbucks and the success of it; how it’s worked in the US and how it failed in Australia.”

 

Bucking the trend

Analysing Starbucks’ divergent trajectories in the US and Australia revealed a gap in the US market. Although there are more than 13,000 Starbucks stores plus a host of other brands, Australia is far superior when it comes to coffee culture.

“I think we’re the only top 20 economy where Starbucks has failed,” says Stone. “But I do believe that Starbucks is a phenomenal company.

“They’ve built this company that has 20,000 stores in 30 years. The company’s valuation is nearly US$100 billion and the amount of brand loyalty they’ve had to develop in the States is quite incredible. People don’t have a local, but they know they can always go to Starbucks. That’s a huge thing with the US consumer and that’s why chains have worked well here.

“In 2010 I saw an opportunity: all these people that had grown up with Starbucks were starting to think it wasn’t that great anymore. Their palates were changing and they were after a broader experience with more than just coffee and tea products. It’s also food, environment and feeling like they have a local.”

In founding Bluestone Lane, Stone has managed to find a niche that strikes a chord with Americans’ longstanding desire for consistency and their new-found interest in personalised experiences.

“That’s what Australian café owners do so well — the interpersonal relationship,” says Stone. “You look forward to getting your coffee and it becomes part of your daily ritual, not just a transaction. That’s why Bluestone focuses more than anything on our people.”

 

People first

There are many challenges specific to operating a business in the US. Stone cites the size and number of chains, which makes finding real estate especially competitive as well. One challenge that will hit home for Aussie café owners is the staffing crisis. However, the struggle is different compared to the one experienced by the Australian market.

“The workforce isn’t skilled or trained in the type of customer service and experience we provide,” says Stone. “When they’re finishing school, university or TAFE, most Australians work in pubs, coffee shops or somewhere in hospitality.

“A big challenge has been convincing people that working in premium coffee is an artisan industry. In Australia, if you work at a café like Higher Ground or Kettle Black, that’s considered really cool. But in New York, working in a coffee shop versus Eleven Madison Park or Blue Hill Stone Barns, well there’s no comparison. We’ve been trying to get people to understand that at Bluestone, you can have a lot of autonomy; you can basically run your own independent café within the nest of Bluestone. You can grow with us and have amazing professional development.”

While the message is starting to work to Bluestone Lane’s advantage, finding people who are passionate about pursuing a career in premium coffee and cafés has become a major focus for Stone.  In fact, ‘people’ have become the most time-consuming of the company’s five focus brackets.

“The first bracket is coffee. We bought a 10,000sqf multimillion-dollar roaster, training lab and development centre in Dumbo, Brooklyn. The next one is all the food stuff; we really invest in allergen-free. For example, we built a gluten-free bakery in Dumbo. All the innovation on the food side is really important to us.

“The third bracket is real estate, making sure we have the right stores and they’re built the right way.

Fourth is brand. It was never about opening one or two disparate coffee shops. I’ve always been obsessed with companies that create brands and generate an emotional connection.

“A plastic bag and Louis Vuitton bag have the same functionality — they both carry things around. What’s the difference? It’s the emotional appeal, which is brand. Building a brand and creating awareness has been of utmost importance. We want to be part of people’s live.”

Intrinsic to the brand and its ability to create bonds with customers are another set of people — the staff.

“We spend three-quarters of our time on the fifth bracket — people,” says Stone. “That means recruiting the right people, it means developing the right people, and it means ensuring having the right amount of development pathways and succession planning.

“It’s also about improving our team’s skills, improving their knowledge about what we’re trying to create in the premium coffee space and then getting them essentially to run businesses. We don’t have general managers of stores. We have general managers of businesses. Instead of saying, ‘I run a store’, we say, ‘I run a business’.”

The business model, which consists of full-service cafés, smaller coffee shops of varying turnover as well as the roastery, training centre and bakery, allows Stone to set a clear pathway for his team.

“People can see that if they do a good job, they’ll progress through the ranks,” says Stone. “Everyone earns the same amount according to their title. We have servers, accredited baristas, baristas who have been accredited for six months, coffee and store performance managers, store managers, general managers and team captains.

“People can see that they’ll earn x amount if they get their barista accreditation, then after six months if they pass the follow-up exam, they’ll get more and be on the path to the next position, which is coffee education and store performance manager. People love the fact they can work towards positions.

“I built it like a corporation because I didn’t have small business experience.”

Introducing the linear relationship between roles and clearly outlining career pathways has not only helped Stone attract staff, but had a positive effect on retention rates, too.

“Retention here is a phenomenal problem,” says Stone. “Our employee turnover is really good, it’s about 40 percent. At some stores we have basically no turnover. It’s just made it so much easier for us to say, ‘If you stay with us for this long and develop these skills — which we provide training for — you can go to this amount’.”

 

The future

The US market has evolved since Bluestone Lane launched four years ago, but there’s still headway to be made.

“It’s changed a lot, but it’s still it’s still in its infancy,” says Stone. “The independent coffee shop wave has hit in the US. It may never reach the prevalence it has in Australia, but people’s tastes are changing and they are more keyed into experience.

“I would say 50 percent of people who talk to me say our coffee is the best, the other 50 percent say it’s the food, the staff or the space. We are differentiated here. That’s why I think we have an amazing opportunity over the next 10 years.”

Image credit: Alex Kate Knight