When you pioneer an industry, how can you continue to stay disruptive for generations to come? Just ask Peet’s Coffee, the 50-year-old coffee company fighting to stay relevant and appeal to craft coffee-chugging millennials.
Fifty years ago today, Alfred Peet opened the very first Peet’s Coffee shop. The year was 1966, when coffee from a can was the norm. From his shop in Berkeley, Calif., the Dutch immigrant began hand-roasting coffee beans in small batches, creating bold and complex blends that were unlike anything in the American market.
That was the beginning of the specialty coffee movement.
Today, the question at Peet’s Coffee is how to keep ahead of that movement while staying true to its brand. As demand for specialty coffee has exploded, so has the competition.
Peet’s CEO Dave Burwick and Peet’s board member Jerry Baldwin, who was one of the founders of Starbucks, have learned plenty of lessons about entrepreneurship, disruption and innovation over the coffee chain’s decades-long existence. The pair recently sat down with Fortune to share five key lessons entrepreneurs can use as they look to grow their business.
1. Seek out the best players in your field and learn from the ground up.
When starting a new venture, entrepreneurs must know every aspect of their business in and out. And what better way to gain insight than to seek out the most respected industry leader to teach you the ropes? That’s exactly what Baldwin and his business partners, Zev Siegl and Gordon Bowker, did before opening the doors at Starbucks. They realized that the way to get close to the “Moses” of coffee was to work in one of his stores. Baldwin started scooping coffee beans at the original Peet’s store in California. That knowledge helped him when he started Starbucks in 1971; he was the coffee giant’s first roaster. “All of my early coffee knowledge came from Alfred and what we learned there,” Baldwin says. “What was clear to us was [how much] he knew about coffee, how credible he was and how lucky we were to have him share that with us.”
2. Don’t be afraid to make the right decision quickly – and move on.
Some decisions require a great deal of contemplation, but when you’re sure you know the answer, don’t be afraid to act quickly. In 1984, while Baldwin was busy running Starbucks, he found out Peet’s was up for sale. “I had to excuse myself, go to the men’s room and dance,” he says. The decision was easy – he bought Peet’s (which was a four-store chain) and then owned two coffee companies he loved.
A few years later, he had to make another big decision: Bowker, his business partner at Starbucks, decided to sell his share of the company. Baldwin turned to his most trusted confidante – his wife Jane. In a matter of 30 seconds, he decided to sell the company he founded to buy Bowker out — and keep Peet’s. “I knew that no matter how good we would make Starbucks, it would never be Peet’s,” he says.
3. Grow big, grow fast, but don’t grow out of your brand values.
Peet’s still has no plans of chasing Starbucks, which now has 22,000 stores and generates annual revenue of $17 billion. With 240 stores nationwide, Peet’s will bring in about $800 million in revenue by the end of 2016. Burwick’s goal is to increase that number to $2 billion in the next five years.
To do that, Burwick says the company must uphold the quality of its coffee, but “do things differently to grow and to reach more people.” In 2015, Peet’s went on an aggressive buying spree, acquiring third-wave coffee brands Stumptown Coffee Roasters and Intelligentsia Coffee. (Interestingly enough, the founders of both companies got their start at Peet’s.) The acquisitions did not go unnoticed, and devoted coffee lovers sounded off on Twitter. To calm the uproar, Burwick emphasized that Peet’s will keep the leadership in place and allow the brands to operate independently.
The chain continues to abide by a vision of staying small and true to its craft. As Burwick says, it’s about “scaling a company’s smallness.”
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4. Give in to the pressure to innovate.
The coffee industry is largely driven by consumer demand for novelty. Right now, cold brew coffee is the hot trend, favored by 24% of consumers (most of them millennials).
In May 2015, Peet’s launched cold brew in all of its locations and remodeled its stores to make them more appealing to a younger demographic. The company later bought Stumptown, what it views as the pioneer of cold brew coffee, to further capture the millennial market.
Peet’s is also capitalizing on another big trend: single-serve K-cups. Right now, more than 1 in 4 households owns a single-cup brewer. Peet’s parent company, JAB Holdings, bought K-cup maker Keurig Green Mountain in December.
Of course, not everyone is fortunate enough to be able to stay on top of the trends by buying up other companies; the larger message is to have a finger on the pulse of the market at all times and embrace the idea of changing your offerings.
5. Don’t forget what made you great in the first place.
In order for a pioneering company to maintain its dominance in the market, it must experiment with new products, but it must never lose touch with its roots. Burwick and Baldwin see Peet’s age an advantage, not an impediment. The acquisitions, the remodeling of Peet’s coffee shops, the cold brew. It’s all part of the plan to adapt. But perhaps the most disruptive thing Peet’s does today is something that dates back to Alfred Peet’s original store in 1966 – the reliance on human precision to brew coffee.
“We’re still using manual espresso machines in 2016, for crying out loud,” Baldwin says.
