How Gregorys Coffee is taking the craft coffee business to scale

0:04Hello, everyone, and welcome to the Modern Retail Podcast.

0:30CEO of Gregory's Coffee. I live in New York. I've lived in New York for over a decade. And I think Gregory's Coffee is kind of iconic, at least for me. It was just on many corners. I went in Manhattan. If I needed a hot drink, I would go there. And it's one of those just companies that I've seen for my entire time that I've been in New York. The company's been around since the early 2000s. It's been opening up some locations recently. He can correct me if I'm wrong, but I'm pretty sure you just opened some in Washington and also some in New Jersey. I believe over 40 locations. Is that right you have right now uh 51 i'm here today in nashville tennessee on an opening this morning so wow 51 stores including nashville tennessee is the latest 51 well that's so exciting and nashville's fun so that sounds fun but i want to get into all of that we're entering into the start of the year and so i want to just talk about how the overall business of coffee shops has changed and how gregory has approached it especially being in the business for such a long time we'll get into all that but how are you doing fantastic as i just mentioned it's a new store opening day.

1:29So definitely as energetic as I can be, being an extremely caffeinated coffee pro, you get a little extra jolt from a new store opening, getting to meet new folks for the first time. All right. So you're going into your 50th store opening. Do you go to every single store opening still? I do. This year, there was more than we've ever done. So it was a big growth year for us. And it was one that I couldn't be there on opening day just because I was double booked with another opening. So I do my best. So I just about every single one. So something a big source of pride for me and also just sort of being boots on the ground, meeting folks, interacting with the community and sort of getting a store up and running group effort.

2:11It kind of all starts with me, I think, at the end of the day, making sure everybody feels that that right kind of momentum from day one. Makes sense. Well, let's let's first just for those who don't know, start at the beginning. 2006, is that when you first launched? Correct. So did you have a vision that what, 20 years later, you would have 51 stores, one in Nashville? What was the idea in 2006 when you launched it? No, I don't think Nashville was anywhere on my radar in 2006. That's a certainty. I think there was not a grand vision per se, as far as I thought I would have X number of stores or be in these states or whatnot.

2:50I was pretty young at the time. I had just sort of graduated law school. I grew up in the food business working for my father. He had fast casual concepts in New York City my entire life. So sort of that Malcolm Gladwell 10 ,000 hours concept, growing up in the business, working alongside him. I had a lot of experience, though, as you just may have guessed, going to law school. I didn't think I was going to be a food and beverage operator. It wasn't until about halfway through law school, I realized I didn't have a real passion for what I was doing. I wanted to do something that would get me more fulfilled than just a job that I thought I was doing because I could make some money and be pretty good at it.

3:32So I pitched my father with the idea of doing something on my own in the food and beverage space. And he being an entrepreneur thought it It was an interesting idea. So we were thinking what I was excited about, the sorts of products that I enjoyed or gave me pleasure. So coffee was something that was sort of central to my father and I's connection. We would always meet at a local coffee shop, drinking our macchiatos at the time. And this is around 2004, 2005 when we were having these conversations. It seems crazy now, but at that point in time, there really weren't very many options for specialty coffee.

4:10in the majority of New York City. So if you were in Midtown Financial District, the sort of locations where my father's business has always operated, the options were just the national chains. If you wanted a great cup of coffee, you had to go to sort of the edges of town or into the outer boroughs. And for me, this seemed like a great opportunity to take something I was really interested in and blending it with all this experience I had growing up in the business. so the original thesis was I just want to open something of my own I want that I want that I want to have my own coffee shop wanted to pour myself into it my father had operated chains that I'd grown to maybe eight or ten locations at their peak so you know maybe I thought we could grow this at some point in the future I had no idea when I was just really excited about getting to do something on my own building something creating a concept from the ground up and I think that sort of passion and organic nature of way it developed is what was exciting where I didn't have a plan.

5:09I had to have X amount of stores with X amount of time and raising money and focusing on all these things. I was just focusing on building a great business, having some fun while I was doing it and trying to build something I thought was going to be a sustainable and exciting thing for me for my future as a career. Yeah, no, you're totally right about like in the early 2000s, that was sort of the pre times of specialty coffee, like in New York where lower Manhattan had like a few, but like, I would say it wasn't until like really 2010, 2012 was when you saw sort of the influx of all of the individual, like really small, especially coffee shops going more so into Midtown though, maybe not as many, but anyway, was it just sort of the idea that we're going to open one location, see if it works and then go from there?

5:53Like how many years into it did you realize I can open many locations and maybe this can be a repeatable sort of business? Well, definitely in the first year, I wasn't running out of the door and saying, this is going to be a multi-unit chain. I was really just focused on how do we get this right? You know, while I had all this experience in food service, you know, I went into this thinking I was going to be great at coffee too. And admittedly, it was harder than I had anticipated. Coffee is very specific. It's a unique sort of experience and a lot that goes into it to make it an elevated sort of feel for the guests.

6:29So it probably took the first 12 to 18 months to get a little bit into that groove as to what I could do and start to expand our vision as to the quality of coffee that we could serve. It's also sort of dovetailed with the third wave of coffee, as they called it. So, you know, people focusing more on things like latte art, pour overs, single origin coffees, you know, more information and knowledge about the types of coffees that you're purchasing, a lot of equipment upgrades. So a lot of the tools we're using are getting much, much better. So it allowed for an elevated coffee experience. So as we were seeing all this new and interesting and innovative things happening in the coffee space, I was able to weave them into the operation almost immediately, just because, again, we had one store.

7:17I was highly motivated, and I really was excited to make what we were doing better. So it was about midway through year two where the business started to improve and take off enough that I thought we could justify doing another location. So we found a second location truly in Midtown. It was on 44th Street and 6th Avenue. and that store was pretty much a hit from the beginning. So I think the minute we saw that we could open a second location, we could do the level of business we could at two different spots. I think that's when I felt we had something special and that's when we sort of went on a run and we opened a store per year from 2009 to 2013 going from the one store to six at that point in time.

8:01And then again, as we continue to grow, So getting more and more experience. 2014 was probably our biggest year. We went from six to 12 stores that year. So we opened six stores in 2012. This is all sort of bootstrapped. I didn't have a corporate team. I didn't have layers and layers of help. This was myself and a few key family members pulling up our sleeves and making sure we can get six stores open in a year. And it was interesting, let's just say that. And how long was it only New York? Because I feel like I've always thought of you guys as primarily New York. And now I'm reading about these other locations.

8:38You have Nashville. You just opened one in Tacoma. Is that right? So we were Manhattan only until about 2016. We opened our first store in Brooklyn. And then also in 2016, we opened stores in Jersey City. So we jumped into New Jersey. 2017 was when we opened in DC. so we were able to expand into four locations in washington dc starting in 2017 and into 2018 so at the time going back into 2016 2017 rents in new york had become more and more cumbersome and at the time we had a significant amount of locations in the city we were doing really well and we wanted to try and test another market so we had seen some success in jersey city also So although Jersey City is sort of adjacent to New York, so still on the path train, while it is New Jersey, it didn't feel as cumbersome as jumping into a Boston, Philly or D.C., something like that.

9:38So we wanted to do something that was drivable, something that was not too far, still on this sort of 95 corridor. And so we visited the three different major cities, Boston, Philly and D.C. And when I saw all the opportunity in DC, how much development was happening there, also sort of what seemed to be at the time a real lack of quality coffee options, we chose DC and jumped in there and been really, really happy that we made that decision. We love DC. Got it. And so has the, I guess, the overall thesis of the business changed over the years as you've been scaling? Like, it sounds like the focus has been like going with the quote unquote third wave focus on the product, essentially, where it is like you have good beans.

10:26People know how to make a good drink. People expect a certain level of good coffee-ness, I guess you could say. Is that always been through or like have you changed how you've approached the in-store setup? What has evolved? I think certainly if we talk about what hasn't changed, I would say, you know, in that year two, when we started to weave in those, you know, elevated specialty coffee concepts into the program, that's when I think the niche and the position that we strategized upon and we wanted to hone in came to take hold. And again, that's when we start to see the biggest gains and the most amount of momentum around what we were doing and people choosing us as sort of that go-to option over any of our competitors.

11:09And that was with the mindset of, or the mission, let's say, of challenging the status quo by seeing coffee differently. That's sort of what we've been all about. So how do we take all these expectations that people have and flip them on their head and do it our own way? So probably the easiest and most common way we can answer this is blending quality and quantity. So folks do not have to make sacrifices. So what do I mean by that? There's plenty of places at this point in time where you can find a great cup of coffee. There's also a lot of places that mostly on the national chain side where offer a significant amount of convenience, great apps.

11:46You can find them at every corner, you know, wide breadth of menus, but often are lacking when it comes to quality or the premium feel. So it seemed to me that most folks were either in one camp or the other. We said, look, well, why? Why not do both? Why not offer the convenience? Have a great menu with innovative forward-thinking products and creating LTOs while also focusing on quality in a real way. It's really hard to do it in a volume setting. That's why not too many people have even tried, but I don't really see anybody else really operating in our space after all these years that can focus the way that we do on throughput as well as sort of giving them all those bells and whistles that they're expecting from the convenience factor.

12:28So that sort of niche that we've created has been a great place to play in. So that has not changed. And I think it's all the decisions we make, whether it's on menu, developing product, thinking about customer experience, all sort of start and end with that mindset is, is this something we believe is raising the bar, is elevating the experience, but something we believe we can do without having to cause sacrifice for our guests. So asking them to pay a significant amount more than what they would at other locations, slowing down wait times, all those sorts of things. So that has not changed. What has changed is sort of the aesthetic.

13:09So, you know, moving from more of a rustic, dark and sort of what restoration hardware sort of feel to maybe something a bit more, a bit more modern, lighter color palette. So it feels a bit fresh inside and plays in nicer with the menu that we're serving, which has a lot of like kind of upbeat, punchy sort of items, you know, whether it's our coffee program or what we're balancing it out with some of our food or other great offerings. So the aesthetics has changed quite a bit, I think from day one, I think our approach to menu building. So we obviously still have our core coffee menu in place, but now we've added so many amazing ancillary products that we believe are sort of part of an expectation of what people have when they come to a cafe these days.

13:55So went from a sort of a smaller pastry case to a much more robust offering of pastries that we bake fresh every day. Hot food was not something we even offered until 2019. And now that's a much more significant part of what we do in the stores. refreshers you know these are sorts of things that you know playing on the balance of menu to offer the right kind of mix that we believe customers are really looking for these days when they're coming into a cafe got it uh i want to dig into a lot of that one one thing i'm going to ask you about this later but it's something that i've been thinking about is where it seems like this year in the coffee space especially the national coffee space we've reached an inflection point in terms of convenience and experience.

14:38Or like, you know, I feel like you're seeing headlines where there are companies not doing as well specifically because they were so focused on creating sort of a seamless experience, but to the detriment of what the customers actually wanted or like sitting down and hanging out. And I feel like you operate sort of in both of that where you're doing both. But I guess my question is when you're trying to do sort of have your cake and eat it too, you're providing a lot of products, a lot of premium products, but also trying to make it so that it's quick, all of that jazz. What are the metrics that are most important?

15:09Like, are you looking at the average ordered time? Are you looking at dwell time? What are you thinking about so that you know that the experience is good and the product is good and you're hitting the benchmarks financially? Well, we have a few internal metrics that we use. So we have an internal QC team that's solely measuring things like the customer experience, presentation, cleanliness, customer service, speed and efficiency. And another metric that only measures coffee quality. So it's going around not only for the coffee quality, but also coffee knowledge. Our team members able to adequately explain our program, speak to our coffees, understanding how to manipulate espresso as needed.

15:51If something's wrong with the taste, how do we adjust to make sure that's going to taste the way we want? So we have internal metrics that we use to measure what you're talking about, coffee quality, speed, efficiency, all those pieces. Obviously, we can use customer reviews and other sort of third-party or non-Gregory's feedback as well. But I think the most critical ones for me are quality, speed, and customer service. So how can we make sure we're delivering great quality in a reasonable amount of time while also making sure people feel really great about the experience? So sometimes it's hard to put a true number on that.

16:29Like, how do I rate customer service? It's a bit subjective, but we sort of develop some internal measurement tools to understand how do we feel we're delivering a customer service experience? I think that's sort of a never-ending aim as to how do we tighten that up and get better and elevate that experience and making sure our team is fully bought in to what we're trying to do there. So customer service is probably the most challenging to kind of really pin a number on. I think coffee quality also can be somewhat subjective, but I think a lot of it can be very black and white. Either our espresso is being calibrated to our spec or it's not.

17:06Either our coffee is being calibrated to a spec or it's not, so we can measure that. But customer service speed can change from time to time depending on part of day, time of day, day of week. So we do our best to try and capture those metrics, but those are the things we're focusing on day in, day out. This is something that I find so fascinating. Just like when I was in my early 20s, I worked at a coffee shop and getting trained at this place was like a five-month. It took a very, very long time to get me to understand how to taste it, how to dial an espresso. How do you do that at relative scale?

17:41You have 50 locations now. So when you see a chain as big as yours, often they go to another side where they can just push a button or something like that. You have some places that have coffee universities like Blue Bottle or Stumptown, but it sounds like they are not expanding at the clip that you are. And so it's difficult to scale that. How do you approach that? So I will say we have started to incorporate some tools that I think years ago I would have thought were sort of sacrilege to think about using an automatic espresso machine. And I think what happened was it had to be about four years ago, maybe it was post-COVID where we were thinking about some of this expansion.

18:22And obviously we had used semi-automatic sort of the traditional espresso machine you would see in stores out of all of our fleet. And as you know, it is a challenge to keep espresso within the range. I'm an espresso enthusiast. I drink a significant amount of espresso every single day, so I take a lot of pride in how our espresso is being produced and delivered every single day in our stores. And the issue is to do it perfectly or, quote unquote, like as tight as possible, you probably should be weighing every single dose, measuring every single weight of every shot you're pulled at the time, and also understanding like drop time, total brew time.

19:02There's a lot of different metrics. It becomes extremely challenging to do that in a volume setting. So people make certain sacrifices. You could do some of those steps, but not all of them. And then how do you make sure that's happening all day, every day at every store? It was tough. So I was introduced to a few companies that were doing some more forward thinking on the automatic espresso machine front. And what they've done is they took sort of the mindset that a lot of the companies have used when they think about doing like a higher end espresso grinder, incorporating that along with AI and tools into the software.

19:38So that way the automatic espresso machine that most people think of is you press a button, it grinds coffee, it spits it out, that's it. But as we know, as baristas, we're constantly needing to manipulate the grinder to make sure that we're brewing to spec. So what these new wave espresso machines are doing is they're using a computer and a system that they're literally measuring every single shot. I don't see any specialty coffee shops that are doing this at any kind of volume anymore. They'll measure every single shot and they'll measure the last three. If any of the last three are within out of a certain range, it starts auto calibrating the grinder.

20:12And it'll start, it'll tell you not to use the shots until it's ready. It'll just prepare and it kind of does it for you relatively seamlessly. So I went to one of these facilities to try the machine for the first time, going in extremely skeptical. I brought a bag of our night vision espresso, gave them our general brew parameters. They plugged it into their software. The machine started auto-calibrating. And within 10 minutes, it had never touched our espresso before. Within 10 minutes, it said it was ready, tasted it. It was better than any of the espresso I had tasted in my stores all that morning.

20:45So I was pretty blown away that this tool could take something that's such a challenge and do it at such a high level. So I sort of sold at that point as something that could really help flatten the line as far as consistency. So in specialty coffee, there's a few different mindsets people take about approaching coffee. Some is like, how do I get the best possible coffee every single time? For me, there's a blend of that with how do I raise the floor? How do I make sure that, you know, if I could say like maybe seven out of every eight shots are going to be in that, what I would call it like 90 to 100 percent acceptability range.

21:21but there might be one out of every eight shots that's at a 70 % or 80%. It's going to be really bad. I don't like that. As you know, with traditional grinders, there's always that possibility of that happening or somebody opens the door for a lot of time and you get a lot of moisture or changes the air, the density of the air. So that could also cause your stress to start clumping and create challenges there. So how do I make it so that my worst shot is not very bad, right? So that's what these machines do is they're not as volatile as the traditional setup. They're much more stable. So I might not ever get to a 99 or 100 % shot, but I'm going to be pretty consistently at that 90 % range.

21:57So the customers get a much more consistent experience. And it does take a lot of the stress out of the baristas that are focusing on customer service interactions, balancing what we're asking them to do on a day-to-day basis. And the machine can take care of a lot of the challenge that folks have when it comes to keeping espresso dialed in all day, every day. So it's been a pretty interesting journey over the last couple of years. How do you buy into a tool that just kind of seems to fight in the face of specialty coffee? But I think we were one of the first to really buy into that. And now you're seeing others that are starting to really adopt these tools as part of what they're doing.

22:34Many in the specialty coffee space, I should say, because they're seeing the same thing. It really helps when you are trying to expand. And for me, it sort of takes a huge element of fear away in that, how can I ensure that in Nashville, Tennessee, team members are going to be dialing in our espresso all day, every day, when I can't just hop over and go check it out or go drink an espresso with them? The machines we use give me a huge sense of comfort knowing that there's software and AI and a tool that is sort of mitigating that risk that the espresso won't be prepared in the way that we would expect.

23:10So it's been pretty interesting for us. Yeah, I can imagine there was probably some resistance from specialty coffee people about even the word AI in something I imagine they would balk at. I was probably number one hater. I certainly was, it took multiple conversations to even get me to interact with these groups. And even going over there, I was probably a smug face on feeling like, why am I wasting my time with this? But then it went from like a frown to like, wow, I was pretty impressed. Obviously, to say the least, we've now been rolling out all of our new stores and specifically the ones across the country with these newer tools that have done a great job of expressing our coffee in a way that we're going to do.

23:54that does us proud. Got it. Well, almost running out of time. I have a million questions, but I want to get into this year because this year has been a big year. You said you opened many new locations over the last year. Why this year specifically, was there such a ramp up and have you coalesced on targets for where you aim to be going and where you think the business is going? So this year was unique. I mentioned a lot of stores, but today where I'm at here in Nashville, This is the 15th store we've opened this year, and we have a few more to go before the year comes to a close. But the majority of this growth has come through a strategic partnership we did with Simon Property Group.

24:32So they had a number of opportunities to backfill previous coffee operations in some of the best properties across the country. And we were able to do it in a much quicker fashion than it would normally take us. So to penetrate some of these markets would have taken us years, if not longer, where many of these were able to get in the door and be ready to start serving coffee within a matter of weeks. This Nashville store was probably, I don't know, not even kidding, probably a 12-day turnaround from when we got the key to start serving guests. So it was a unique opportunity and something we were excited to take on and something we felt confident in our approach, what we stand for, what we do with connect with people across the country.

25:15And, you know, it was nice to be here in Nashville and having a line wrapped around waiting for us to get open and serving great coffee all day to people here in Nashville, Tennessee. again, 2006, if you would have told me that I would have thought you were, you know, you're crazy. But now it seems amazing to me that this is where we're at. And I'm excited to keep doing keep going. So were these like, predominantly or somewhat Simon tenants who closed during the pandemic or something like that? Like they just had a coffee bar built out and you could just go in and kind of add your tools? No, actually, it was it was a national chain that Simon was actually a licensed operator of.

25:52So they were operating them and made the decision that they no longer wanted to be in the coffee operation business. They're a property owner. I think over time, they realized, wow, this coffee business is a huge endeavor and it's not just something you can sort of snap your fingers and make work. So it was taking a lot of energy from them and they were seeing that they'd rather just have a more traditional tenant operate these and pay them rent and they could be the property owner and focus on their core business. So it was a unique opportunity, as I said, because they were the licensed operator.

26:27Most of what they had was like a second gen operator. So we could come in with most of the pieces already in place and we could just put our sort of proprietary equipment, give it the cosmetic update that would make it feel like a Gregory's and then work with local folks to get it up and running and operate like especially the coffee company we are. Got it. With all these openings, and I sort of alluded to this earlier, but I feel like there's been a lot of headlines about other coffee companies, you know, Starbucks, Dunkin', et cetera, just like dealing with that tension of scale and customer experience.