TALLINN - Until just a few weeks ago, any cafegoer looking for a slick, international, Starbucks-type experience in Tallinn had just two chains to choose from 's Robert's Coffee, a well-established Finnish brand, and the more American-style Wayne's Coffee, based in Sweden. Now a new player, Riga-based Double Coffee has exploded onto the scene, turning this dynamic market segment on its ear.
On Sept. 7 the firm opened its second cafe downtown (a smaller outlet opened at the Viru Center six weeks earlier), and it hopes to have two more locations up and running before the end of the year. The plan is to eventually open as many as 12 cafes in the capital, according to Max W. Dozortsev, CEO of the Double Coffee Estonian branch.
Double Coffee's gambit in Estonia is part of the company's overall expansion plan. In addition to the 11 cafes it opened in Riga since launching operations in early 2002 and two outlets in Vilnius, it is beginning operations in Kiev and Minsk and now even has its eye on Stockholm.
For Dozortsev, having the same success in Tallinn as in Riga was a given.
"We were sure that this idea would gain the same popularity as in Riga and in Vilnius," he said, "and we were wrong, because it's much bigger in popularity here. We're also [showing] better results than Riga, in which [the company] has been working two and a half years already."
Dozortsev attributes the business's relative popularity in Tallinn to Estonians' strong coffee-drinking tradition and higher purchasing power than in Latvia and Lithuania. Robert's Coffee and Wayne's Coffee cited the same reasons for why they believe Estonia is fertile ground for stylish, gourmet coffee houses.
Erkki Makkonen, managing director of Tercot OU, which operates the two Robert's Coffee franchises in Tallinn, said he entered the gourmet cafe business in 2000 because he saw that the market was maturing and that Estonians have a strong tendency to spend their new-found wealth on minor luxuries.
"If they can afford it now, they are living it," he said, adding that, for the last 30 years, Tallinn residents watching Finnish TV have seen what they were missing. "Now they can have a piece of it, so why not? It's normal," he said.
The fact that coffee shops are now a world trend is also a positive influence on the local market, Fazil Alakbarov, managing director of Wayne's coffee franchisee East West Foods OU, said.
"If you go to London or Stockholm or Helsinki, in the central part of the city you have a coffee shop literally every 100 or 150 meters. Sooner or later it will be the same here. At the rate Estonia is developing, it will be sooner rather than later," he said.
This doesn't necessarily mean that all three chains have immediate plans for expansion. Unlike Double Coffee, which operates as a single company with a large amount of private investment, Robert's Coffee and Wayne's Coffee outlets are franchises, whose managers have to proceed with caution. Depending on the size of a new outlet and how much remodeling is required, the cost of opening a new cafe is roughly between $50,000 's $200,000. Makkonen estimates that it will take 12 's 30 months to recover this investment.
Real estate also limits expansion. The small size and compact nature of downtown Tallinn means that the demand for suitable locations, where there is a critical mass of potential clients, far outweighs the supply. Both Makkonen and Alakbarov waited a year before opening their first cafes simply because viable space was so hard to find. The same limitations apply to Tartu, which all three companies consider a possible new territory due to its large student population.
But to what extent these three businesses - or any newcomers for that matter - will carve up the Estonian market remains unclear.
Dozortsev said he hopes conquer his two rivals with Double Coffee's "visually interesting" interior (in contrast with competitors' more minimalist designs), as well as by offering full service and a much wider menu. The new Kawe Plaza location offers everything from club sandwiches to sushi.
Makkonen, who doesn't consider Double Coffee as a competitor because of the latter's same emphasis on food, nevertheless said he believes the Tallinn market is already saturated with cafes and that many newcomers might not be prepared for the highly seasonal nature of the city's restaurant business.
"Some might find it very tough this winter," he said.
Taking a more philosophical view, Alakbarov welcomed the new, healthy competition brought on by Double Coffee. "You always worry about competition, but I think it's a relatively untapped market in Estonia, and I think there is room now for three players," he said. "If you compare us to matured markets like the U.K. or the U.S.A., there's a lot of room for us to develop."
