Peet's experiments with faster format in downtown San Francisco amid changing customer patterns

Peet's Coffee has experimented with a new format of retail in its downtown San Francisco location. According to President Eric Lauterbach, this is an attempt to reach consumers in an area where purchasing habits have changed.

Berkeley Coffee is closely monitoring its tiny store on 155 Montgomery St., to see if the new format based on speed and quantity can prove resilient. It could also serve as a model for similar stores, which have been struggling with office occupancy and attendance that are only a fraction of what they were before the pandemic. Lauterbach stated that about seven to eight downtown stores, mainly, have closed since Covid.

Peet's has recently completed a remodel, and introduced a new format. The usual cashier setup was replaced by ordering kiosks. In place of the view behind a counter, there is now a wall with screens that display rapid-fire numbers. This store also has no seating, as it did not have any before the remodel.

Some observers believe that the experimentation is a reaction to the recent unionization of a Starbucks store, as well as a measure taken by Starbucks to deter homeless customers. These moves may also be linked to the increased popularity of mobile orders, which have been a big hit during Covid. They could also relate to a desire for a higher turnover rate in stores that are limited on seating.

Lauterbach said that, aside from the convenience factor, the main driving force is a change in consumer behavior: they're less likely to interact with staff today than they were a few short years ago. He said that customers are increasingly ordering via mobile apps (apps exploded in Covid, and now make up one out of four orders) and may not look up on their way to the pickup station for online orders.

It's easy to link the masking-up and minimal contact tendencies in the past few years with the erosion of the smile-and chat aspect of service that some organizations, Peet's among them, take pride in maintaining.

Lauterbach said, 'We believe we are best when the managers and baristas of a store know our names.' But we need to move away from the idea that a format which worked in Lakeshore or Chestnut will work here.

This format may allow Peet's to make small locations work where before they couldn't. For example, this store is only 660 sq. ft., as opposed to the average 1,600 sq. ft. of their 23 San Francisco stores. It also produces more volume, and makes it easier for customers replicate a similar experience.

This could also save labor costs. Peet's, like restaurants in San Francisco are used to bringing extra staff early to clean up the parklet and sidewalk areas where garbage has accumulated over night. Lauterbach also said that labor reliability has been a constant challenge ever since the pandemic peaked. Kiosks could mean that there are three fewer people to hire, and no possibility of a sick day at the last minute.

Peet’s was able to survive the pandemic thanks to its ability to reach customers in multiple ways. This included wholesale grocery stores, which was the 'biggest part of our business' over the past few years.

Lauterbach stated that he was always amazed by the price consumers paid for convenience. He said that he prefers a workplace where'someone is coming in and engaging staff', but that 'we have to meet the consumers where they are'. We are trying to achieve this without taking away choices.

Lauterbach stated that one of Peet's best-performing stores, located at 2080 Chestnut Street in the Marina district, is doing approximately 30% less sales than it did pre-pandemic. The store format puzzle includes figuring out how you can get those sales back.

What's the best way to use capital? Is it something brand new, or reinvesting into an existing location in order to make it more relevant for consumers? He said. "My bias is towards the latter at this time."

New leadership is also responsible for the experimentation with a different format, including a recent shuffle of executives, and new leadership within marketing, consumer insights and operations.

Lauterbach explained that the new approach is deliberate, unlike the previous attempts by Peet's to implement the "design of the moment" in too many places, too fast.

The recent success of three drive-ins in Hercules Alameda Roseville does not mean that a drive-in assault will be launched around the South Bay's car-centric areas as it would have been a few decades ago. The results of the first half-year on Montgomery Street will not warrant a knee-jerk reaction across all San Francisco stores, including those in the Financial District or SoMa. Some store locations may require more investment to create a relaxed atmosphere and spacious seating.

He said: "I would like Peet's in the future to be more agile, learn faster, and more risk tolerant." The coffee business is highly competitive.