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Corporate Close-up: Second Cup (chart) CANADA'S SECOND CUP BRIMS WITH HOPES FOR EUROPE, ASIA

By Published on .

TORONTO-Second Cup Coffee Co. isn't satisfied with playing second fiddle much longer.

With 200 stores, mostly in Canada, and sales of $47.6 million for its fiscal year ended June 30, Second Cup, although the leading specialty coffee retailer in Canada, trails clear frontrunner Starbucks in North America. But as the two set out to expand beyond their home continent, they will be competing on a more level playing field since neither name is a household word.

Starbucks, now with 300 stores, mostly in U.S., and $163.5 million in sales, has big ambitions for well beyond North America's borders as does Second Cup.

"We're also looking at some opportunities in Europe and in Asia," said Michael Bregman, Second Cup chairman and ceo. Closer to home, Second Cup entered the U.S. last year by acquiring the five-store Coffee Plantation chain in Phoenix. Over the next few months, Second Cup plans to open at least a dozen more Coffee Plantation stores in southern California and Texas.

Unlike Second Cup's cozy quarters in Canada, where shops seat 40 maximum, its U.S. coffeehouses, which will keep their names, will accommodate up to 250 patrons and many will feature live music nightly, said Mr. Bregman.

Plans call for U.S. stores and new ones in Canada to be company-owned, a shift from the initial strategy, which has resulted in having 95% of the current Canadian stores in the hands of franchisees.

Expansion plans in Canada, where the Second Cup name will be used, include opening stores in more non-traditional locations such as in museums, art galleries, universities and hospitals while increasing the number of storefronts it currently operates. Most are now in malls and offices.

Like the early days of the chain it is trying to overtake, Second Cup does very little advertising. With 600,000 to 700,000 customers in its Canadian stores each week, a lot of growth can come from bigger transactions from this customer base, said Joanne Archibald, director of marketing.

That's why the focus-and most of the chain's $562,500 ad budget-now is geared to in-store materials and promotions.

Promotions, such as "Win a trip to Vienna" to promote European drinks and "Steamy Mondays" offering a normally $1.86 latte for 90 cents, are handled in-house in conjunction with The Bulldog Group, a local agency.

However, the chain is testing this month a 15-minute Bulldog Group infomercial on cable channel Value Plus. Filmed in a Second Cup store before an "audience," a host interviews Second Cup President Alton McEwen.

The menu offers a variety of coffees, such as caffe latte and moccaccino, served both hot and cold, as well as hot apple cider and some cakes and pastries.

Mr. Bregman bought Second Cup in 1988 and added it to other business ventures he owned including three retail bakery chains that he later sold.

"We became enamored with the coffee business," he said.

The business of selling coffee has changed dramatically. "If we operated our stores today the way we operated them in 1988, and we were successful then, we'd be toast today," said Mr. Bregman.

"I like what I see of them, certainly at this stage," said James McLeod, merchandising analyst at Richardson Greenshields. "From a marketing standpoint, they seem to be very active in product development."

Growth over the past six years has seen the chain expand from 130 stores in a few provinces to all across Canada.

The dozen pots of pre-brewed coffee that greeted patrons to Second Cup in 1988 have been replaced with a smaller selection of coffees to maintain freshness, along with individually prepared drinks. And the varieties of take-home beans, which account for 15%-to-20% of store sales, have been reduced as well to ensure quality.

"These places are real, true meeting places and they attract all sorts of people, from students to bohemian types to families to business people," said Mr. Bregman.

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