April 06

Move Over Starbucks: Israel’s “Upside Down” Coffee Saga
by Esther Solomon
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3. Take that, Seattle!

Some coffee insiders suggest that the wannabe factor - and the Israeli gift for imitation – is the secret for why Israeli coffee has hit the heights. Lacking any ‘native’ Jewish coffee tradition, Israelis headed straight to coffee’s heartland, Italy, to learn the ropes. It is Italian-style coffee that fuels the coffee scene here, and it is Italian gourmet quality to which the locals have become accustomed.

Hence the derision with which Starbucks’ coffee was received when they opened up in Israel in 2001. As an Israeli food critic wrote, they offered a drink that was only ‘one step up the evolutionary chain from water used to mop the floor’. Starbucks arrived with much fanfare: it planned to open 20 outlets a year to reach 100 branches across the country; but despite being a multinational industry giant, the local venture was a pitiful failure, losing about $5 million in its last year of business alone. Starbucks closed up shop in 2003, an astonishing failure for the chain that has become an icon of U.S.-led globalisation.

As Café Joe’s Ofer Gvirsman notes, Starbucks failed to adjust to the Israeli preference for a more acidic, stronger, yet sweeter taste. They also spectacularly underestimated the core Israeli demand for a selection of food with their drinks that is broader than a symbolic sandwich counter. And Starbucks' self-service ethos – in a country where even humble diners and cafes have waiters to bring food to tables – smacked of chutzpah, especially bearing in mind the chain’s pricing which positioned it at the most costly end of the market.

Indeed, the failure of Starbucks may be a symptom of a wider phenomenon. Israeli consumer demand has matured in recent years, and not just for coffee. The instinctive adulation of American brands that was a firm feature of the Israeli landscape from the '60s onwards has dissipated as home-grown everyday and gourmet brands have multiplied. Last month, in Jerusalem's fashionable German Colony neighborhood, the Pizza Hut just closed, defeated by local favorite Pizza Rimini. Kentucky Fried Chicken made a much-publicized exit from the Jerusalem market, while Israel's Schnitzi chain continues to expand. And the local coffee shops are not quaking in their boots at the current rumors that Starbucks is prepping itself for another go at winning Israelis’ hearts, taste buds and wallets.

4. Good Enough for Export?

The confidence that Israeli coffee chains have in their product – not just the coffee, but also their café concepts – is solid enough that several of the major Israeli players are launching branches in New York and Europe, with one firm, Arcaffe, opening up an outlet in the Parisian style temple, Galeries Lafayette. But is this national confidence in its cafés anything more than a caffeine-fuelled dream? Can elements of the Israeli coffee culture be exported to another setting? Is this simply another expression of the Israeli, macho “can-do” attitude, or does Israel’s coffee really stand out in a world coffee market already saturated by products, brands, and enormous marketing budgets?

The skeptics would say that Israeli coffee chains have little chance of breaking into overseas markets, claiming that success in such a small market like Israel is hardly a recipe for global conquest. But the coffee-house entrepreneurs argue that a demanding clientele, a densely competitive environment and skilled management have resulted in a high-class experience that is not only proliferating at speed throughout Israel but is also nudging the international scene as well. The chains that are considering going abroad are well-placed to do so: they have developed a location-neutral, stylized design lexicon which is easily replicable, their food and drink offerings would easily cover mainstream tastes abroad; and, assuming they keep to their current pricing regime, they offer a reasonably-priced venue for low-key eating out whilst offering premium coffee. They are fully aware of the power of marketing, extending the reach of their brands to cover take-home beans, other coffee-making paraphernalia and, like Starbucks, CDs of their in-house muzak.

Whatever their eventual success, it’s clear that none of the firms will be emphasizing their Israeliness much. Mildly understated, an Israel association is not generally seen as marketing asset in Europe. Whereas Israeliness could be hyped up for the Israeli-expat and Jewish New York crowds, this would confine the coffee shops to being niche players rather than accessing the broader coffee-drinking population. The larger Israeli café chains have entered into the spirit of the globalised, culturally non-specific product. And most potential customers would be hard-pressed to identify the national origins of chains with names such as Aroma, Arcaffe, Cafeneto or Espresso Bar. It’s probably no accident that no one has yet written a business plan for a chain of Café Goldbergs.

Personally, I have a vision that one day I will be able to use the coffee shop loyalty cards bulging out of my wallet in the London branch of an Israeli café chain. And with great satisfaction I will be able to be able to order a café barad. Did I say barad? Hafuch, I meant, honest. Well, some addictions are harder to break than others.



Esther Solomon is an international relations analyst, book critic and freelance writer. Lower image: Art. Lebedev Studio

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