Bluestone Lane's Nick Stone on building an experiential coffee chain

0:28Hello, everyone, and welcome to the Modern Retail Podcast. world of coffee. Nick has an interesting background, I'm pretty sure, where I think you were a pro footballer, if I'm not mistaken, and then became a banker and then got into coffee, which I'm sure you're going to explain much more correctly than I do when I ask you about your background. But anyway, Nick, how are you? How's it going? Hi, Cale. I'm really well. Great to be on the podcast with you and always exciting on a Friday morning. Sun's out, feeling good. Perfect time to go and visit a Blue Stone Lane for a flat white. So thanks for having me on.

0:59I wish I could have a flat white right now as well. So first, can you give me a little bit of background about who you are? Am I correct that you used to be a pro footballer? You are correct. Yes, I'm originally pretty cool. Yeah, yeah. No, it was many moons ago. No, I was I'm originally from Melbourne, Australia. And I was indeed drafted to play professionally in the Australian Football League, which is an indigenous football code, not commonly found in the US, that's for sure, but it's the most popular football code in Australia and we have crowds of up to 100 ,000 people. So I played in front of 70 ,000, 80 ,000 and I was at three teams, so definitely a journeyman, two years at three teams, all clubs based in Melbourne, which was very fortunate.

1:49So I was able to stay living at home during that period. but while I was playing I went to university at the same time so when one chapter closed in that my first profession being a professional athlete I went straight into banking and did that for a number of years until we launched Bluestone Lane as a little side hustle a little a little experiment to essentially create a coffee shop that emulated what you'd commonly find in Australia it. And from there, yeah, you're exactly right. 10 years ago, from that small hole in the wall to now in nine markets in the US with over 60 locations has been a great achievement, considering we've had an existential retail crisis in the middle being covered.

2:38Yes. Yeah, I was doing a bunch of research and I read about, you did an As Told To in the New York Times about how crazy it was, which was why it was sort of like stepping back in time, remembering just the sheer uncertainty and franticness of when everything closed and especially for business owners like you, like, what do you do? And so I want to get into all of that. But can you first, this is a question I love to ask. I love coffee. It's something that listeners of the podcast probably know we have coffee people on here sometimes and I just like to nerd out about it. But there's something I want to ask you specifically, which is people always talk about Australian coffee culture.

3:15What does that exactly mean? And so like, I have a vague idea. And I know that it like flat whites are generally what I associate with Australian coffee culture. But how would you say a Bluestone Lane, like retail concept differs from a third wave American coffee shop concept? Well, it's a really interesting question, because it is quite detailed. Australia was primarily a tea based drinking society, which is very much influenced from this British Commonwealth influence. We didn't have a drip coffee culture. We still don't. So just getting a cup of joe and sitting on a litre and drinking this coffee that's brewed is not part of the way of life in Australia.

4:02Australia drank tea and then we had mass migration pre and post-World War II from Europe, particularly Italians, Greeks, Maltese, and they brought their espresso machines. So we went from tea-based to espresso coffee-based. So what's so interesting about the Australian coffee culture is espresso became more commercialised beginning in the 40s and 50s, where in the States it really happened in the 90s. And it was Starbucks that commercialised espresso-based coffee. So what's happened is Australia has just been probably a couple like decades in advance on this more artisanal, more specialty way of drinking coffee rather than batch brew, but brew to cup.

4:45And when people ask about what's the difference, well, in Australia, it's the landscape, the coffee consumption is not dominated by chains. Where in the US, people sort of struggle to realize that nearly 70 % of all coffee shops in the US are either Starbucks or Dunkin'. In Australia, there is no Dunkin'. Starbucks failed in Australia. There's no Pete's, there's no Tim Hortons, there's no coffee bean and tea leaf. It is the land of independence. So what that has meant is you've had a very, very fastidious approach on artisanal coffee, more specialty coffee, and combining with that has been this focus on more sophisticated yet accessible healthy food which is leveraging a lot of the natural abundance and quality ingredients that you get in Australia with being a country the size of continental US but only having 25 million people and the majority of the population overwhelmingly live on the coast.

5:45So what's overlapping those both these facets is the fact that if everyone has great quality coffee if everyone if the standard is this third or fourth wave you're referring to how do you really sustainably compete and the most critical thing in Australia is hospitality it's all about having locals not customers so that commitment towards hospitality making someone feel good being part of their daily ritual is more important than the quality of coffee so these businesses down there are led through service they're led through hospitality where I found when I moved to the US that a lot of the coffee landscape was dominated by product not service I don't think it's an unjust claim to say that both Starbucks and Dunkin' are really focused on hospitality.

6:32I think they're very much focused on convenience and speed of getting a product to someone in a really efficient way, primarily through drive-thru or smaller stores, which aren't really built around creating this amazing atmosphere and in-store dining experience, which really is symbolic of what the focus is in Australia. I'd even add something to that, which I really like that answer. And I've never thought about it that way. But like, even if you go to the artisanal coffee shops in the United States and something that I do a lot and I, I kind of like about them, but they're more focused on the product and not necessarily the service.

7:07Cause there's, there's sort of a, a well-known austereness or like coolness or hipness that make that there's sort of a, they're very cold often, not all of them, but some of them. Uh, what, what, do you agree with that? Yeah. Well, honestly, that was one of the reasons why I started Bluestone was I couldn't believe that the more specialty coffee shops came across at times as a little bit pretentious, a little bit cold, that if you ask for milk in a beverage, you're viewed as a second class citizen. And that was very strange to me because you charge more for someone that has a milk based beverage like a latte than you do for straight, you know, for an Americana or a long black.

7:45So, you know, I think ultimately coffee shops should be about driving community and it should be about driving this ritual where people look forward to having the experience on a daily basis where they leave feeling more excited about the world and that they're part of a business, they're part of a community. So we refer to ourselves as a human connection company, not a coffee company. And even though last year, for example, we won seven awards at the Golden Bean Coffee Awards, which is the most prestigious coffee roasting competition in the US. We won seven. We were the most awarded, but we still refer to ourselves as a human connection company that facilitates connections between people.

8:25And that is our North Star. That is our purpose, that we want to be this place where people find real community, have real human connection, actually attack some of these issues linked to mental health and isolation and loneliness and depression. But you can do that without compromising the quality of product you provide. And Australia is the perfect example, because if you have a coffee shop or a cafe in Australia that has the best coffee, but if they deliver it in a way that is cold and impersonal and obnoxious, Australians will boycott because nothing will ever supersede a commitment to making someone feel good and that hospitality ethos.

9:05And that's just the way it is back home. And that's what we've tried to emulate. It hasn't been anything really new. We've just tried to take those quintessential elements and then scale it in the US. So I wanted to ask you, how do you scale that when you're talking essentially about service? So what was different about the first one in terms of, is it about training the baristas differently or is it about telling them to be nice? What did you do then and what do you do now that you think embodies this culture of warmth? Well, in hospitality, you really have no, in my opinion, you really have no intellectual property.

9:43I think that anyone can learn how to make a certain dish. I think everything's about these cultural norms that enable you to execute service really consistently so that people feel that it's an amazing dining experience. And even if it's a takeaway, it can still be an amazing dining experience for that method or that channel or that use case. So there's nothing, if I'm coming in for a takeaway coffee, I could connect with the barista or the team there for under five seconds and still feel amazing. If I walk in and they go, Nick, how are you, mate? Flat white to go? How's your day? How's the kids?

10:24How's the dog? How's your footy team? That is an amazing experience. The music's right. The lighting's right. The cleanliness is right. The speed of service, the fulfillment speed's right. The taste is right. that is an amazing experience and it can be under a couple of minutes for us we try and deliver takeaway coffee in under four minutes right so we've got these like mini mini moments where we can be really impactful so you know how do you do it you ultimately comes down to your culture that is what your intellectual property will be in hospitality it's your ability to execute and bring in people and have them buy into those norms into those values you see it happen a lot in these amazing hospitality groups.

11:06One group that I admire immensely is the Hillstone group. You know, you've got a Hillstone restaurant, no matter where it is, I think you have the same expectation on the quality of service. The food is pretty much always consistent. I don't think the food's remarkable, but it's really consistent. But the total experience, I think, is wonderful. And for us, that's what we're looking to achieve, this concept of boutique at scale where you come in and we can deliver on our promise really, really well and we make you feel like a local, not a customer, not just some homogenous person that is just transactional.

11:47That's not for us. And now I don't think you compromise on speed. I don't think you have to compromise on quality of product to be able to provide something that's more personalized because in this world, everyone loves recognition. And I could see it so profoundly when I moved to New York in these relationships that manny and petty places would have with their customers, that local bars would, that wash and fold places. I lived in West Village and there was like 10 places where you could get your washing done, but everyone would advocate for a particular one because of their relationship they would have with the proprietor.

12:21Same with class fitness. I just think that that's the way it is in Australia with coffee. And I just thought it's got to be this way in the US. It's just a matter of time. If you don't, and like, I think the most critical thing is not compromising on speed. So, you know, you need to still be fast and efficient, but it doesn't, it shouldn't, it shouldn't substitute the ability to know someone's name, face an order or look them in the eye and project some warmth through a smile and just making them feel welcome and being grateful that it is a privilege to provide hospitality and to turn around someone that could have been a terrible evening or rough morning and just give them that energy that, hey, life's okay.

13:04And, you know, you're part of us and it's going to be, it's going to be great. Absolutely. So with the overall business model, because correct me if I'm wrong, but I think you have a little over 60 locations, right? Yes. Is the idea, is it just expansion of locations? Or I feel like when I talk with other coffee companies, they have other ambitions of maybe attempting to go into grocery, maybe doing this, but it seems like you're focused on the hospitality experience. Is that right? I think at some stage, we will definitely push further into CPG, but I think it's incredibly hard to do both at the same time, unless you have enormous resources.

13:39I think a lot of brands try and do both and they get caught halfway. And I think it can be a really, really poor return on intellectual capital and financial capital and i think covid honestly covid forced you to make some really really hard decisions we were we were pursuing a dual track approach uh we launched uh ready to drink two ready to drink uh beverages uh the australian iced lattes one ended up winning best new coffee beverage at expo east so our first entry we won thinking wow this is amazing this is a great you know first entry gold medal but once you sort of peel back the layers you realize like how much capital and how much focus and the skill set required to to build a cpg business while you've got this retail business that's already doing you know 50 60 million at that stage it's hard it's hard to do both unless you just have an abundant resources covid forced you to rationalize and be really strict with what you can commit to.

14:43So for us, we have our growth channels, which are focused on events, wholesale, coffee supply, some CPG, primarily Fresh Direct and Amazon. And then we have licensed stores, which is an increasingly larger part of our business, which is like the airport we just opened in Newark Terminal A, the brand new Terminal A. that's the license store for us we have a license store on the 21st century fox lot which is now the disney production lot um where it's for all the staff they have up to 5 000 staff on the lot there with their production so they have a bluestone light that's um operated by them it's under license so we're interested in those those avenues too but to say like we are gonna try and be in every Whole Foods and every Gelson's or every Sprouts or every Albertsons in the next couple of years.

15:42Not really a big focus for us because we know over time we can always enter CPG if we have amazing tangible connections at our retail stores. And right now we serve 80 ,000 people a week. So I'd be very confident over time if we get retail right, we can diversify into CPG because there's a lot of people that will be locals to Bluestone and very familiar with our product, our brand, our values, and what we stand for. Got it. I want to go into some of those other growth channels you mentioned. You mentioned wholesale. When you say wholesale, do you mean like selling your beans to other coffee shops?

16:17Yeah, we primarily focus on selling our beans to larger hospitality brands, so hotels and larger conference centers, larger accounts. We have steered away from smaller coffee shops. They're very intense. They're a very intense way to manage and grow the business. And we're more set up to support larger brands that have already, they may have 10 or 20 or 30 hotels under the banner. So that's been more of our focus office buildings uh so that's what we've focused on and uh you know we we like the business because it's it's often very stable we we can invest a ton of time into training and support and we're not too fragmented and fractured all over the company uh around the country which then would detract potentially from our retail business and a retail focus can you say how much of your business is represented by that?

17:22Because I feel like that's like, people love that because you don't have to put too much effort into it. And it's a hotel that takes your beans and then makes the coffee. So like, do you want that to be a major revenue driver? Or do you just want that to be a nice supplementary thing? I think for us that, listen, if it became a major revenue driver, that would be terrific. But I don't think it's a real focus. For us, those relationships are so important because they introduce our brand and our coffee to someone new, you know, potentially every minute, which is super exciting. So we'll only partner on wholesale with brands that align with our proposition.

18:00So it has to be premium, has to have a similar core customer overlap, and they need to have the requisite care, quality of equipment, diligence around how they're going to prepare the beverages because we don't want the coffee made poorly. We don't want someone who completely disregards coffee. We wouldn't enter in those relationships. So we're very selective and it works really well. And we're so grateful for the wholesale partners. But, you know, I think that it will never be absolutely massive because we don't want to do anything that erodes our proposition. And we won all those Golden Bean Awards through a ton of effort and time and commitment.

18:43We don't want to have any brand erosion there by partnering with the wrong group and that's our focus. And some of our contemporaries have gone the other way. I see their beans in little bodegas on the corner shop, which could be great, but for us in Bluestone Lane and that we're really focused on offering this differentiated aspirational sort of lifestyle experience and our stores are obviously mean so much to us, we won't find our coffee within, you know, in everyone's hands. It's, it's not our focus. Got it. Got it. Can you talk a little about the, the licensee I want? Cause I add this in my notes.

19:27I know that you're opening up in airports. I didn't realize that it was a licensee instead of you guys owning and operating it. How are you focusing on that service element? Like, Are you worried that when you license your brand out to somewhere else, someplace as anonymous as an airport or some other venue, that they could have a bad experience or it could be run by people who aren't as meticulous about it as you are? Yeah, certainly that can be a risk. Absolutely. But the groups you're primarily partnering with in airports are the most professional hospitality operators. They're specialists.

20:05and we wouldn't just partner with someone who's new or lacks experience. So basically these hospitality concessions are bid out and the big global groups, HMS Host or Paradis or Villa Restaurant Group, they or Sodexo, what have you, they all bid for them and they'll win the bid and then they'll put together an F &B program or part of that bid it would be, hey, we're going to put in a Bluestone, we're going to put in a different burger concept or a different pizza concept what have you so they're very very experienced in hospitality operations and then as part of your sort of agreement you're very clear on the governance you're very clear on the brand standards you're very clear on the expectation around execution and then it's you know we spend an enormous amount of time training the team and we we obviously have a governance review process and audit that happens on a really frequent basis so of course you it's like any relationship you you've got to invest there's always risk but what we've found as the licensed relationships have worked extremely well and if there's ever been an issue we'll come in transparently collaboratively and resolve it I've never had a pushback from a sort of a licensee saying hey we don't want to invest in or training or we don't want to make that change so the experience is better, that has been quite the opposite.

21:36But we're very early in our journey. But for us, we're looking to partner with very large hospitality, institutional hospitality operators, not just someone for the first time that's taking a licence or less of that franchise model. So, yeah, there's a lot of governance, but what a wonderful opportunity to get into an airport we're the first australian brand to open in a u.s major airport yeah outback state outback steakhouse is not australian right it's a it's a concept that's been created here but it's a huge moment a huge acknowledgement between to the coffee culture that you find in australia and obviously a huge acknowledgement for bluestone lane success in New York that we're in a major international airport in a brand new terminal and you know a tremendous achievement and we're looking to open a number of a in a number of other airports we've signed a deal in JFK we've got a deal in Boston Logan we have another deal going in JFK 2 an additional terminal we're signed to go into terminal 5 hopefully we're going to get into terminal eight.

22:52And I think now, once we have one, and then you get two, suddenly, the opportunity start accelerating, because there's proof of concept, there's tangibility. Can you talk a little about the retail strategy for this year? Because you're opening up a bunch of new stores, right? I feel like I can't remember what the target is, but you have some on the horizon. And where are you predominantly opening them? How do you decide what areas to go in all that? Yeah, really good question. Certainly, the real estate footprint has been shaped tremendously by COVID. We had a really precarious real estate strategy going to COVID.

23:31We were so over-indexed in these urban, inner urban business districts. We only had one suburban store and COVID showed everyone that the play was to be in the suburbs. If you wanted to have a business that survived, you've got to go where people were residing, not where they're working. And Bluestone Strategy was kind of the opposite. It was where people were going to work. And we had our cafes in residential areas, but they were primarily urban. So since COVID, we've really, really focused on exclusively residential areas. And we've pushed into a lot of these commuter suburbs. So not deep suburban, more like these commuter suburbs where people now perhaps have moved from downtown Manhattan, now live outside of New York, but they come in three days a week to work because they're now living a suburban life and they can work from home two days.

24:30So that's been the real focus. And the stores that we have outstanding to open this year are all in residential areas. So the next store to open, which is going to happen next week, is in the woodlands in greater Houston area, followed by we have a store in the Marina District in San Francisco. Then we have a store opening in Princeton, New Jersey. Then we have a store opening in Paramus, New Jersey. So, you know, that's sort of indicative of where we've been focusing. And I think you'll see continued expansion into these suburban areas because the way people work and the way people live, I think, has changed.

25:16And, you know, it's our core customer that may have grown up with Bluestone when they lived in West Village or in Tribeca or in Upper East Side. A lot of them now have moved because they've got a little bit older. They might be married, might have kids. They've probably now moved to or considering moving to the suburbs because they have more flexibility with their commute. And, you know, Bluestone is orientating that way, will still remain committed to inner urban, but certainly the growth will be in more of these suburban areas. That's super fascinating, especially when you see, like, I've always been fascinated with the rise of, like, Blank Street, which seems like it's focused predominantly on really small, really urbanized areas.

26:01And this is sort of the opposite of that. When you are focusing on these suburban areas, do different retail concepts work differently than they have traditionally in your Manhattan locations? Are they designed differently? I imagine you probably get bigger spaces just because of the nature of the space. But, like, I think about how I work as a coffee drinker. And if I'm walking around Manhattan, I'll sit down. but if I'm driving somewhere, I might interact with the product a little bit differently. Am I wrong about this? No, no, you're not at all. And I think for us, the coffee shop concept was very much based around people who are time sensitive, a captive audience.

26:36So honestly, it was designed for people in office buildings where they would come down and have a break, they'd have a coffee catch up. It probably wouldn't be 45 minutes or an hour. It was probably based around a beverage and a snack and just a way to facilitate connection outside of a typical office meeting room and that predictability of demand was there until COVID. Now we don't have that predictability because you have half a day on Monday, you have Tuesday, Wednesday, Thursday pretty stable and then you have nothing on Friday. I don't know about anyone on this call but it doesn't seem that anyone here is in an office.

27:15They're working from a home office, but not in a corporate office. And I don't foresee that changing. So what we've really focused on is cafes, which are broader extensions, which are built around a longer type of experience. Now, we have changed the design there. So they work very efficiently for people who just want to come in and grab a coffee and jump in the car. But they've always been larger because they're more suited towards the brunch time experience that you would find on the weekend going out with your family going out with friends but now what we find is people are using our cafes during the week when they're working from home to have a break between zoom meetings or what have you so they might come in now on friday saturday and sunday they might come in monday friday and saturday rather than just sort of saturday and sunday where we would have 55 to 60 percent of the business it's a bit more balanced now.

28:08So that has been the focus on these larger extensions that still has a flexibility to work like a coffee shop. So you can still order ahead via the app, you can still pick up, you can order at the counter and get a coffee really quickly. But if you want to come and have a breakfast, a brunch, a lunch and catch up with someone or do some work, then it's possible because we have that space, we have more seating, more tables. So that's been the strategy. And we'll see, like things are moving and changing. It's been so dynamic the last three years. You just have to keep pivoting and you have to remain agile.

28:46And I thought six months ago, return to work looked really, really challenged. But now every day, I feel more increasingly that people are going to go back because the economy is slowing. Interest rates are starting to have an impact. There's been some job losses. they want the unemployment rate to rise to a more sustainable level which is not putting as much pressure on inflation so I think that will force a lot of people to go back to the office because we're in a bit of a lull and now and and I think honestly the employee had a lot of leverage but I think that is changing and that's why a lot of employers are saying actually you know instead of you having the option to work in the office we now really need you to come back two days and now three days and pretty sure it'll be four days for most soon, maybe after summer.

29:35So, you know, we're just going to keep dancing and see what happens. But it's been tremendously challenging for a small business. We're very lucky that we have some scale and diversification, but I feel so much for these small businesses that weathered, that were in an urban, that weathered COVID, an existential crisis, and now reopen their doors with excitement and optimism, and they find that their demand for their product has fallen 40 % because people are now only in that building three days a week. That florist, that shoe repair guy, that small deli, what happened to them when suddenly people didn't go back to work?

30:18It's really, really hard. I've heard some horrible stories about stress and workplace pressure and these are primarily family-owned businesses and instead of maybe employing people and having a couple of days off a week or now they work every day because they can't afford to employ people because the demand on Fridays is so limited and Mondays are half day. I really feel for them and there has not been much time to adjust and there's been very limited compensation or support for these people who put their hard own money in developing something. And yeah, but anyway, I don't know the solution, but it's been really tough.