.How Peet’s Starbucked Itself

The iconic East Bay company that pioneered gourmet coffee with a small business ethos has grown increasingly like its mega-chain offspring.

The morning rush at the Peet’s on Lakeshore Avenue in Oakland is, in a word, insane. It’s said to be the highest-transaction outlet in the company’s growing empire, and it’s a sight to behold: Starting around 7:30 or 8 every weekday, the line snakes through the narrow store, thick with parents and young children, college students, bleary-eyed commuters, and blazered office-goers anxiously chatting on cellphones over the din. On the other side of the register, a small group of harried workers rush to fill everyone’s order — or, at the very least, manage the chaos. At the espresso bar, a young woman glances up at the computer screen above her as it blinks from blue to red with each passing minute, a visual reminder of the importance of speed and corporate control. A single drop of sweat rolls cinematically down her brow.

This is Peet’s Coffee & Tea, circa 2011: successful, efficient, and, many say, losing its edge and its ethos as it continues to compete in an increasingly crowded market. Once a small business known for its relaxed vibe and killer beans, Peet’s is a now a company where baristas are timed as they make drinks and dinged if they take too long; where secret shoppers watch whether employees are sticking to the corporate sales pitch; where the workforce is increasingly overworked, underpaid, injured on the job, burned out, and plagued by turnover. It is, in other words, a far cry from what it once was: the North Berkeley neighborhood coffee shop that brought craftsmanship and superior beans to the United States.

“They’ve lost the energy and passion as they’ve grown,” noted Miles Small, editor of the trade publication Coffee Talk, based outside Seattle. “I think the bigger they get, the more distance they put between them and their founding philosophy.”

In many ways, Peet’s appears to be a victim of its own success: It was, after all, founder Alfred Peet who personally trained the entrepreneurs who founded Starbucks, now one of the largest companies in the world. He also paved the way for a new group of small specialty coffee roasters, many of whom took inspiration, either directly or indirectly, from his philosophy and who now threaten to siphon off Peet’s’ former demographic of coffee aficionados.

And it was only because of Peet’s’ initial popularity that the company ever had the chance to expand into the behemoth it is now. “As soon as Peet’s became the universal benchmark for what specialty coffee could be, it started to attract interest from people wanting to buy stock,” Small explained. In 2001, when the company went public, and shares rose 17 percent on its first day of trading, it was a clear sign of not only the company’s popularity, but also what was to come: “That was the defining moment for Peet’s,” Small noted. “At that point, they had no choice: They had to grow or die.”

And grow they did. There are now Peet’s coffee outlets all across the country — in Cambridge, Massachusetts and Chicago, Illinois; in airports and malls and hotel lobbies and BART stations. At press time, Peet’s was operating a total of 191 stores across North America; just last week, the company announced that it would be opening a new location on College and Alcatraz avenues in Berkeley. Last month, analysts at the firm Baird Equity Research estimated that the company will rake in $372 million in revenue this fiscal year; meanwhile, last quarter, Peet’s recorded a 12 percent revenue increase over the corresponding period last year, according to a company press release.

But somewhere along the road to hundreds of millions of dollars in annual revenue and ubiquitous lattes, the company that began as a small, locally-oriented coffee shop with a commitment to quality and corporate responsibility has, in many ways, come to be none of those things.

“They no longer fill that high-quality need any more — they serve the masses,” noted Iulia Bodeanu, who worked at three different Northern California Peet’s stores before leaving for another job earlier this year. “It’s no longer: ‘This is where you get the best cup of coffee.'”

It’s not a stretch to say that Alfred Peet started a revolution when he opened his first coffee shop on the corner of Vine and Walnut streets in Berkeley in 1966. “Most people in the world — and even most people in the coffee industry — don’t realize the contribution that Alfred Peet made to coffee and to specialty coffee,” Small said. “He was crucial.”

Born in Holland in 1920, Peet was raised in the coffee trade and worked for the Lipton Company in London after World War II before moving to San Francisco to work for a coffee importer. Here, he was shocked to discover the poor quality of coffee Americans were drinking and quickly made it his life’s mission to bring better coffee to the United States.

The signature Peet’s style was made in small batches, with high-quality beans and in the company’s trademark super-dark roast. It was also known for an unusual (at least for the time) attention paid to the growing process. “He was really the first person to acknowledge and praise these growers that were trying to make a quality product,” Small noted. “As a roaster, he roasted with care because he appreciated the difficulty of growing coffee, and he roasted coffee with a passion that he felt the growers deserved.”

Peet’s Coffee, in short, was revolutionary. It prospered in a time before anyone knew what it meant for a bean to be shade-grown or fair-trade; before laypeople could point out the difference between an African and a South American coffee; before, even, anyone knew there was anything better out there than instant. And Peet, himself, became something of a folk hero among his customers and contemporaries. “Al Peet was a legend,” recalled Erna Knutsen, who knew Peet socially in the early days and now runs her own small coffee company, Knutsen Coffees. “His standards were terrific. He thought he was the best judge of good coffee. His reputation was for fine coffee and for being very discriminating.”

The Alfred Peet mythology still runs thick at his namesake company, even though he retired more than thirty years ago. After he died in 2007, the flagship store at Walnut and Vine expanded to include a small museum of Peet’s life: Glass-walled cabinets display newspaper clippings and old-fashioned coffee and tea paraphernalia; a flatscreen TV plays a video explaining Peet’s considerable legacy; the walls are lined with black-and-white photographs of the scene outside the store in its earliest days, of a bespectacled and stern-looking Peet surveying a collection of coffees, of eager customers lining up for fresh-roasted beans.

The store itself is now a bona fide tourist destination, as the Peet’s origin story has come to be something of a fable in both the coffee business and Berkeley lore — a symbol of the enduring power of quality over quantity, of the triumph of the little guy, and of the East Bay’s continuing influence in the realm of specialty coffee.

But now, both the company and the coffee culture it spawned are nearly unrecognizable from what they were when Peet’s opened that first tiny shop. And for Small, there’s no question that the company has changed markedly in recent years. “The company drifted away from its original passion and became much more corporate,” he said. “It’s still good coffee — it’s fine coffee — but there’s a certain loss of passion.”

To anyone paying attention, this was probably inevitable. The original Peet’s model — which placed a premium on small batches, extraordinary attention to detail, and extreme freshness — is very difficult to replicate on a large scale. It’s hard to keep your coffee fresh when it’s being sold in supermarkets, and it’s hard to maintain a homegrown feel when you’re raking in hundreds of millions of dollars a year. “I don’t think you can grow a chain that large and maintain the integrity of the passion of the founders,” Small said.

None of this is lost on the customer: “Customers crack jokes all the time that Alfred Peet is rolling over in his grave,” said one employee. “Sometimes it feels like every day.”

Which isn’t to say everyone’s wholly disappointed by the turn Peet’s has taken. Before being interviewed for this story, Small had just bought a pound of Peet’s beans, and Kenneth Davids, editor of the Berkeley-based website CoffeeReview.com, noted that the company’s coffees still tend to rank pretty high in his publication’s tests. In fact, Davids said he’s been largely impressed by the way Peet’s handled its expansion. “They came to a point where they could either stay small or they could expand. And if they expand, how do they maintain their Peet’s-ness? Given that difficulty, I think they’ve been pretty cautious and thoughtful about how they’ve changed.” Or, at the very least, they haven’t totally given up the ghost: “They could have destroyed the business so easily — so easily! To me, it’s a surprise that they didn’t.”

But as an employee, Iulia Bodeanu got to see from the inside out how — as a publicly traded company with investors to answer to and a bottom line to attend to – Peet’s turned to an increasingly corporate model. “Coffee is a labor of love for the most part, and Peet’s started as a very personal company,” she said. “It’s just not the same now.”

In her mind, one of the clearest distillations came in 2009, when the company introduced a controversial policy: Employees were now required to ask every patron if they’d like a pastry with their drink. “When I started, in the manual it said, basically, ‘Use your best judgment,'” she recalled. “That used to be the philosophy — try to read the customer and get a feel for whether they’re in a hurry, whether they look like the kind of person that would want something to eat, whatever. But then somewhere along the way, it became ‘Shove this pastry down their throat whether they like it or not.”

It’s a sales technique not uncommon in food service, but many felt that it flew in the face of the previously flexible ethos at Peet’s. It signaled, in a sense, a shift from thinking of patrons as customers to regarding them as consumers. It was, in fact, part of the reason why one former employee, Leon Wheeler, left the company: “I wanted to be a barista, not a salesman.”

The pastry policy is enforced largely via Peet’s team of secret shoppers, who systematically come into stores to measure the level of customer service. Employees are given a script and coached on how to talk to customers — for example, to ask how his or her day is going and to answer detailed questions about whichever drink the store is promoting at the time. If an employee fails to follow the script, the shopper notes that in his or her report, which is then filed away and used in future employee reviews, and which can be posted in the back of the store for other employees to see.

Though Wheeler noted that the system provides a way for managers to get a sense of what’s happening on the floor when they’re not looking, others said the secret shopper program feels to them like an overly corporate, one-size-fits-all solution to customer service. “It’s really, really rigid, and if you don’t hit on specific points” — like, for example, a caramel latte’s “toasted and buttery” notes — you’re dinged, said a former employee.

Peet’s officials declined to be interviewed for this story.

It’s all part of what some are calling the “Starbucksification” of Peet’s — a process that started relatively slow but is, at this point, impossible to ignore as Peet’s retail outlets continue to roll out more merchandise, more seasonal promotions, and more offerings. In what’s perhaps the clearest example, lattes — let alone flavored ones — were completely absent from the Peet’s menu until the 1990s. (Alfred Peet is said to have bristled at the idea of even selling drip coffee, as he wanted to focus on whole beans instead.) Indeed, as late as 1999, Jerry Baldwin, the former Starbucks CEO who bought the company from Peet when he retired in the mid-Eighties, was quoted in the San Francisco Chronicle saying he considered the company to be “a specialty roaster more than a beverage bar.” Now, Peet’s sells a full slate of espresso drinks, as well as seasonal beverages like pumpkin spice lattes and flavored freddos, iced beverages nearly identical to the ubiquitous frappucino.

In other words, while Starbucks once copied Peet’s, Peet’s is now copying Starbucks. Or, as Bodeanu put it: “Now it feels like all they do is take the same promotions from Starbucks. It’s like, what are other people doing? Let’s copy it. There’s no philosophy to it anymore.”

To be fair, some of Peet’s offerings are likely a response to changing consumer tastes: The Starbucks hegemony has, undoubtedly, meant that people come to expect caramel lattes, pastries, and iced drinks at their local coffee chain. There’s the irony: In going public, expanding, and competing on a national scale, the company that was once a leader is now a follower.

As Peet’s has been busy following Starbucks, another market niche has emerged, and it’s squeezing Peet’s from the other direction. Twenty, ten, or even five years ago, if you cared about coffee, Peet’s may have been your only option. But now, an army of small businesses — Cole Coffee in Rockridge; Blue Bottle in Jack London Square and elsewhere in the Bay Area; Philz Coffee, a small chain that opened an outlet a few blocks away from the Peet’s flagship in 2009 — are increasingly serving the customers that may have been Peet’s devotees back in the day: serious coffee drinkers who appreciate small-scale production, high-quality beans, artisan roasting, and homespun service.

Indeed, these companies are responding to a market need that seems to be directly related to the heightened expectations that Peet’s originally engendered. “Peet’s has been hugely influential in forming people’s tastes,” said James Freeman, CEO of Blue Bottle. When Freeman was just starting, selling his coffee from a truck at farmers’ markets, “It was like, that’s how everyone measured taste,” he said. “You were as good as you could measure up to Peet’s.”

Moreover, Freida Hoffman, of Berkeley’s Local 123 cafe, noted that Peet was a pioneer for responsibly sourced coffee. “Something that Peet’s really did was help raise awareness of organic and fair trade — that’s something that customers have now come to expect.”

Ultimately, Hoffman said, her business essentially wouldn’t be possible had it not been for Alfred Peet. “I don’t think without Peet’s we would have jumped from Folger’s and Maxwell House in a can to where we are today,” she said. “I absolutely respect Peet’s and what they’ve done for coffee.”

She noted, however, that many of her customers are former Peet’s regulars.

All this competition is perhaps most apparent when you talk to the people who tend to bear the brunt of it: lower-level employees at Peet’s. “The pressure is absolutely constant,” said one barista.

She didn’t want her name revealed, nor did any of the other current employees interviewed for this article. Several also asked that their history with the company, store location, and other identifying details be concealed, and all expressed intense, if abstract, fear of retribution for their participation in this story. They also spoke of a corporate structure that’s vast, top-down, and marked by pressure at every rung of the ladder.

Wheeler, a former employee who was willing to speak openly about Peet’s, worked at various stores through the 2000s before serving as an assistant manager at the Lakeshore branch. He said he and other leaders felt increasing pressure to raise profits. “Each quarter, you’d meet with your district manager and go over the numbers and talk about how to get them up.”

And that expectation — that profits will continually rise — gets relayed to lower-level employees: “My manager and my assistant manager are under constant pressure to make more and more profits, [pressure] which they pass on to us,” said one employee at a highly trafficked store. “The rare moments when we have a break, maybe some time to stretch or get a glass of water, you’ll look over at the manager and he’ll be stressed because we don’t have any customers.”

Managers — many of whom climb from the bottom of the ladder and have no financial or business background — are tasked with simultaneously increasing revenues and keeping their employees happy in the face of mounting pressure. “You’re paying these people basically just above minimum wage, and you’re asking them to bust their ass — to raise the numbers but also have the product stay the same and the customer service stay the same,” Wheeler said.

This is a relatively new phenomenon, according to Bodeanu. “They used to be very flexible. But almost right after I got to West Portal [in 2009], there was a lot more emphasis on the boss to make money and hold us accountable,” she said of one of the San Francisco stores. That meant moving to the same time-clock and workforce management system that Starbucks uses, and implementing a points system for lateness — each time an employee was late, he or she would receive a point, which added up to various disciplinary actions. “So you’re allowed a certain amount of leeway, but in a way it doesn’t matter if you have extenuating circumstances,” she said. “It used to be on a more case-by-case basis, but now there’s no room for management judgment or a human component — it’s all automated.”

These increasingly draconian tardiness policies have resulted in higher turnover — which means a steady stream of new employees. “You basically have a bunch of people who are brand-new and don’t know how to run a coffee shop,” an employee said. “It’s chaos.”

Furthermore, in its quest to drive down operating costs companywide, Peet’s has cut back on staff: Last quarter, total operating expenses decreased by about 2 percent, which a company press release attributed in part to lower payroll costs in its retail stores.

Meanwhile, employees say they’re now expected to make drinks faster than ever before. In every Peet’s store, there’s a computer screen above the espresso bar that’s linked to the cash register. The computer displays six boxes, each corresponding to a drink in the queue. Three minutes after being rung up, the box will turn blue, and after five, it goes red. A machine records these numbers and a series of reds can, at the manager’s discretion, become a disciplinary problem.

Though the system has been in place for a while, Wheeler said he scarcely paid attention to it in his day. But about a year ago the rules changed. Where baristas had previously been instructed to make drinks before the screen turned red, in July 2010, employees say a new edict came down: All drinks were to be made in less than three minutes.

“So really, they changed nothing about how the drinks are supposed to be made” but increased the speed, said a former employee. “You’re pumping out a higher quality product, but faster and with a bigger smile on your face. But at the same time, they’re giving you no incentives in terms of raises or better benefits.” Or in the words of another employee: “We are continually working harder, faster, and with more discipline.”

All the pressure to be fast has some very real consequences for the company’s army of young, often inexperienced, non-unionized employees. Peet’s baristas are now working harder than they ever have before, and many say they’ve seen a commensurate increase in repetitive stress injuries. Though OSHA provides specific guidelines and employees say Peet’s purports to follow them, they also say it’s all but impossible to think about ergonomics when the clock is ticking and lights are flashing.

This is especially dangerous at the espresso bar, where hundreds of drinks are made every hour and the pressure to be fast is thickest. The employee handbook instructs baristas to use both hands while pulling espresso shots, but employees say that given time constraints, they’re forced to jerk the filter holder in and out of the machine with just one hand in a wrenching motion that can easily strain the wrist. “It’s not like they tell you to break the OSHA guideline, but you just can’t do it with two hands,” one employee said.

At her store, she said, about a third of the baristas have repetitive stress injuries so severe that they either wear wrist braces at the bar or have stopped making espresso drinks altogether, while another 40 percent experience less severe wrist, arm, and hand problems on a regular basis. (Many of them opt to continue working through the pain rather than ask to get taken off the bar, which often means a reduction in hours.)

Other employees report a similar preponderance of repetitive stress injuries, and another said he’s seen an increase in other problems — shoulder injuries, slips and falls, cuts and scrapes, burns from hot liquid and equipment — over the past several months, which he attributes to the breakneck speed at which he and the other employees at his store are expected to work.

“These are people who are 21, 22, 23, and their bodies are literally breaking down because of how hard they’re working,” one employee said.

None of this — the aggressive customer service, the increasing focus on speed, the growing pressure on employees — is particularly uncommon among large corporations or in food service, but it’s especially ironic given that many employees and customers still see Peet’s as a small, homegrown operation. Or, as Davids put it: “The thinking person’s alternative to Starbucks.”

“I decided to work at Peet’s — and I think a lot of customers still go to Peet’s — because I thought of it as a really responsible, cool company,” said one employee. “Now, I feel like I might as well be working at Starbucks.”

For a company that started small and was once known for having knowledgeable, well-trained employees, recent years have brought on a big shift in the quality and character of the retail experience. “It just used to be a completely different feel — you could walk in and have the sense that these people were really into coffee and into customer service,” said Bodeanu.

Where Peet’s was once known for its involved and thoughtful training process, spanning several weeks, employees say they’re now mostly left to learn on the fly. “It’s all on the job,” one employee said. “We’ll have a new featured coffee or something and the manager will come over and talk to me about it for thirty seconds. Customers ask me stuff and I don’t know.”

Moreover, the employees say, dissatisfaction within the company is palpable — and growing. Many of the people interviewed for this story said they knew people who had become so disillusioned with the changing culture they decided to quit, while others spoke of increasing grumbles among the staff.

“All the stories I’ve heard from people who worked two or three years ago are of this place that was so great to work at and so much fun,” one employee said. “Even when I started [about a year ago], there was a sense of fulfillment from the job, because you felt like you were knowledgeable about something, you were learning something. Now, it’s a constant cycle of complaints.”

In an industry where customer service is paramount — and at a company that once prided itself on knowledgeable and friendly staff — the increasing focus on efficiency and its attendant unrest have consequences on the consumer side. “The idea of a Peetnik — of someone who’s knowledgeable with coffee and tea — is not there anymore,” an employee said. “We just want you to get out the door as quickly as possible. We don’t have the time to sit there and talk to you. There are people who still work for Peet’s — there are very few now — who can talk to you in great detail about different types of coffee. That was a regular occurrence, but it’s fading away.”

“It’s just not the same,” a former employee said. “It’s no longer the place where your barista is trained in every type of bean, growing region, and brewing process. They’re trained to deliver one portion of a product that is streamlined and is supposed to be exactly the same at every Peet’s.”

Given all this, it’s not surprising that rumors about an eventual Peet’s-Starbucks merger swirl nearly constantly. Employees said customers regularly ask if and when the company will be bought, and as recently as this spring, the media lit up with a new (and unfounded) rumor that the two companies were in talks to merge.

For his part, Small doesn’t think it’ll happen. “There’s always been speculation about them buying Peet’s, but I personally don’t think it’s in their business plan,” he said. “At this point, Starbucks has basically bought up everyone except Caribou and Peet’s. If they were to get Peet’s it would be just for the real estate. And I think Peet’s is likely to grow and continue to maintain the value set they have as a public company with lots of stores. Because there is no going back, unless they want to bankrupt the company and start over again.”

Both companies have remained publicly tight-lipped about any possible merger, and employees said they hadn’t heard any rumblings behind the scenes, either. But at any rate, all of this speculation may be insignificant anyway.

“It kind of doesn’t matter if we get bought by Starbucks,” one employee said. “We are Starbucks.”


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