Coffee glut

"There are eight times more cafes per person in the State of Israel than there are in Manhattan," said publicist David Tamir, one of the owners of The Coffee Bean & Tea Leaf chain here. "There is a blurring of identity today between cafes and restaurants. What happened in the past with [the chains] Kapulsky, Apropo and Alexander will happen today as well, and from my perspective, that's a warning sign. A chain that wants to be in coffee needs to focus in the direction of coffee. [Howard] Schultz, the founder of Starbucks, sent a letter to each of the 14,000 branches around the world saying he's worried that they're starting to sell more food and are losing their distinctiveness."

Once all Israel had was Kapulsky. Then came Alexander and Apropo, which led Israel's cafe culture. There you sat with a cappuccino, a calorie-laden piece of cake and a small meal. During the 1990s, these chains exited from history and were replaced with espresso bar chains laying claim to quality coffee, like in Italy, with some small snacks on the side, self-service and a nouveau riche atmosphere.

Arcaffe was the pioneer. Then came Coffee Bean and Starbucks, which never managed to put down roots here. Aroma left the borders of Jerusalem, Cafe Joe raised its head, and now we run into a coffee chain wherever we go. Some stick to self-service and keep the emphasis on the coffee, while others, like Cafe Joe and Cafe Cafe, give us the chance to sit down, relax, order a meal from a waiter and eat schnitzel with mashed potatoes or pasta along with a cup of coffee.

The mall slated to open in Modi'in in 2008 will include Aroma, Cafe Hillel, Cafe Joe and Roladin, all of which will be competing over whose coffee shoppers will drink. And Tel Aviv residents encounter dozens of options, including branches of coffee chains as well as private, local cafes. Or they can stop at a kiosk to get a cup of coffee, a pastry and a sandwich.

Retailers like to talk about "location location location," but with Israel's cafe density, it's not at all clear that location is the most important factor.

"Everyone's in the same place. Location doesn't really matter, and no one will go another 100 meters for one coffee or another," said Tamir. "When Coffee Bean got to Herzliya Pituah, we came in addition to Arcaffe. Now Aroma, Hillel, Max Brenner, Ben Ami and others are there. We're in a period of economic prosperity and sales are increasing, people will continue to open branches, Coffee Bean will continue to try to spread to the Hadera-Gedera area. But in the long run, I expect there to be mergers here, and what happened to Kapulsky will also happen to those restaurants. There's room for three or four chains, certainly not 20 like there are today."

The owner of the Cafe Cafe chain, which expects to increase its 27 branches to 40 by the end of the year, doesn't agree with Tamir.

"We learned from Kapulsky's mistakes, and it won't happen to us," said Ronen Nemni. "The problem was old menus that weren't developed and branches that weren't updated. With us, we're constantly working on changing the menu, we got into the health trend, we'll market organic coffee, and our branches are designed in the most up-to-date way. Our franchisees are contractually obligated to renovate the branch every three years, and we offer a different experience."

Cafe Joe's management is also not convinced that the market is saturated.

"In Tel Aviv there is a much higher concentration of cafes, restaurants and bars than anywhere else in Israel, and we primarily see a turnover of businesses and not the opening of new locations," said Ofer Gvirtzman, Cafe Joe's deputy director of marketing. "The rules of the market still work well. Not everyone succeeds, and the people decide what's good. I personally think we haven't yet reached saturation. On the northern border of Tel Aviv there actually aren't a lot of cafes because there isn't a lot of commercial property."

Gvirtzman said location still plays a major role in a cafe's success. "Location was and remains one of the first concerns," he said. "When we examine places, the first thing we look at is where's another branch of Joe, then we look at the supply in the area, what similar businesses there are, what the demand is and what need we're meeting. I believe that someone will agree to go another 100 meters for Cafe Joe."

The cafe is currently setting up a new sub-chain called Joe Take It Away, which will mainly sell coffee, small sandwiches and muesli. The sub-chain will be found in busy areas such as Tel Aviv University. Cafe Joe plans to open another 12 to 14 branches by the end of the year, including a mix of regular branches and takeout venues.

Aroma, the largest and best-known chain in Israel (see box), and just about the only one represented throughout the country, can be described as a hybrid. On the one hand it has self-service and is designed like an espresso bar. On the other, it offers sandwiches and salads and is branching out in other directions now that Aroma Israel has acquired the Karnaf tortilla chain.

"Aroma's distinction stems from the distribution [of its branches] and from the change the company made in consumer habits," said Noam Berman, Aroma Israel's deputy director of marketing and one of its partners. It was very important to us to provide boutique coffee and fresh, healthy food. People used to eat fast food for lunch and dinner, and we gave them a healthier option at comfortable prices."