Executive Chat - October 2020

Executive Chat with Rebecca Patt

Featuring Nick Stone, Founder and CEO of Bluestone Lane

Nick Stone is a Melbourne, Australia native and former Australian Football League player who moved to NYC in 2010 to work in finance and found the Manhattan coffeeshop scene to be lacking compared to the café culture he knew and loved in Australia. Nick was accustomed to a treasured daily escape with sophisticated and sunny ambiance, where customers do not exist, only “Locals,” and where premium espresso beverages, fresh, healthy food options, and a sense of community are the standard.

He opened the first Bluestone Lane in 2013 to remedy the need for an Aussie-style cafe in America, growing the concept to over 50 stores by the end of 2019. Now, he faces the unprecedented challenges of operating during the pandemic.

How did you get into the coffee and restaurant business, after working in finance in Manhattan?

Well, I had never spent a day working in hospitality. It was really, because when I moved to New York, I was so surprised how contrasting the coffee culture was in Australia. It is a very independent-brand market, where the big coffee chains have not flourished. Despite being the 13th biggest economy in the world with a big coffee consumption base, Starbucks failed in Australia, and it is a place where you cannot find a Dunkin’, Peet’s, Costa Coffee, etc.

In Australia, and in particular Melbourne, where I am originally from, premium espresso coffee is the standard, complemented with a sophisticated-yet-accessible fresh food program and a deep commitment to service, establishing meaningful relationships with locals, not customers. Given it is an independently driven market, frequently the owner-operators are working in the café on the floor and have invested in establishing a localized following. It is not just a transaction, rather a reciprocal human relationship.

What I noticed in the States when I moved here was quite different. It is dominated by chains, and the independents were few and far between. Right now, Starbucks owns has 40% of all coffee shops in America. If you combined Starbucks, Peet’s, Dunkin’ Donuts, and Coffee Bean and Tea Leaf, it is probably 60% of all coffee shops. I thought there was a tremendous opportunity to offer something that was more elevated and more focused on service that also could serve as an amenity to a building because it creates community within the building. It provides an escape. It is a way to enhance the proposition to attract and retain tenants.

While working in banking in New York City, I was puzzled to why the coffee culture was less than premium, and I felt a longing for my former twice daily escape that I had in Australia – where they always knew my name and recognized me.  This self-necessity really is what led to the development of the concept and then the growth and scaling.

Nick, if you could indulge me for a moment. This is what I am most excited to ask you because I have never been to Australia, and I would like to go. I know you have tried to bring the Aussie culture and vibe to your coffee shop. What makes it feel Australian?

The first thing is the service proposition. We do not have customers; we have Locals. It is a very social mechanism. A coffee shop really facilitates human connection between the proprietor, staff, and the customer, and then between customers that go together. We see at our Bluestone Lane Cafes that 90% of our transactions are for two or more people. Two people go together, to catch up, and they use coffee and healthy food to facilitate social connection with each other. In addition to that, we are really focused on a very personalized service.

Australia has a universal premium coffee culture, and it is partly because Australia went from a tea-based drinking culture to espresso more than 50 years ago. Drip coffee is not a part of the Australian market. That is because Australia had mass migration of Italians and Greeks pre-and-post World War II, particularly to Melbourne which has a huge population. In fact, the second largest population of Greeks outside of Athens is in Melbourne. They brought their espresso machines.

Melbourne's coffee culture predates the US espresso coffee adoption, facilitated primarily through the success and proliferation of Starbucks, by thirty-or-so years. The common way of drinking coffee in Australia is still quite different for the US. We have a huge emphasis on espresso based drinks and we introduced things like flat whites and the magic and different types and ways of how you could drink espresso coffee.

Thirdly, there was a huge focus on fresh, healthy food. In most coffee shops food is an afterthought. It is primarily pastries, or it is premade, or, in the case of Starbucks, everything comes in frozen. In Australia, it is always fresh food, scratch-made on premise. It is sophisticated yet accessible. If I want to go to a coffee shop, I still wanted to be able to get something nutritious to eat, not just a donut or a bagel.

Finally, with the look and feel, we wanted to convey a sense of escape. We talked about our mission being our locals’, genuine, daily escape. For me personally, the ritual of getting coffee really did enable me to disconnect from what I was doing. And when I walked in, I had that recognition piece where the owner would know my name, face, and order. That would give me incredible utility. That would make me feel wonderful. And that was lacking in a lot of places in Midtown Manhattan where I was working. I just did not feel that that level of engagement. I just felt it should be there because people are so busy, and it is so chaotic, I think there should be a chance for where you can step out of the office and feel recognized.

It is all those elements coupled together. Also, with the look and feel of stores, they feel tranquil. The color palette and the materials invoke that sense of calm and peace. We obviously use a lot of blues and turquoise to represent the ocean and the water. Australia is an island, and all the major capital cities are all based on the water. It is this combination of different elements that brings together that Australian cafe culture.

Tell me more about what makes the coffee at Bluestone Lane so good.

The coffee is sourced from South America, Brazil, and Colombia. We roast our own coffee in New York, and we send it around to our different stores. Making great coffee has multiple elements. Yes, you need a great bean. You need to roast it on the right equipment, which we control. Then you need the right espresso machines. You need the espresso machines dialed in properly, and then the great barista, and then you need great milk, if you have milk in your beverage, and most of our beverages do.

It is those elements altogether and ensuring that you are investing in every part of the value chain that creates great coffee. It is a lot of training, and we spend a tremendous amount of time on training. That is a huge part of the value proposition, and we have a very accomplished education program. We have accreditation to different levels, and I think that that achieves the high quality that we offer.

Putting this pandemic era aside for a moment, your company has had so much momentum since you got started in 2013, expanding to 52 stores in several markets. What is your big dream and vision for the company?

We feel like America and the world needs more Bluestone Lanes because they bring people together. We offer something that is good for you, both physically and mentally. I believe we offer a great employee proposition that can provide tremendous opportunities for growth and skill, not just making coffee, but improving their skills in how they can be part of a team and understand how business works and understand how they can communicate and be more empathetic to our locals. So, for us, I think that there is a tremendous amount of opportunity. If Starbucks has 40,000 stores globally, I would like to think that Bluestone Lane could have 100 or 200 or 500 stores easily.

I think there are lots of challenges. COVID has made it far harder, without a doubt, because there has been a real dislocation between the big guys and everyone else. It is probably really placed in the hands of Starbucks and the big guys because they can access more capital and a lot of them have drive-throughs, the biggest growth channel post-COVID. But I would like to think that there is tremendous growth for us.

So, this year has been a roller coaster ride with the pandemic. How has it been for you and what kind of adaptations have you made?

It has been extremely heartbreaking. It has been the hardest year that I ever had professionally. It has been complicated too, because there are so many variables and dealing with a changing landscape where state governments have been responding in very dynamic ways that have had profound impact on all hospitality businesses. So, pre-COVID, we had over 50 locations, and our revenue fell about 90% in a single week. We have built it back up to a 40% level pre-COVID, and we have about 45% of our stores open.

We are in a highly urban model, so we are in a very precarious position. 50% of our stores are in Manhattan, so we had some really hard decisions to make, with our team. We had limited options so many of our teammates we had to unfortunately make redundant. We had to either let them go through dramatic cost reduction, or there was a material risk that the business may fail. We tried to do it in the most respectful and thankful way possible, but it was extremely hard because the rate of change was so fast. It was not, like, in three months, we are going to wind down. It was literally, one week operating normally, the next week not at all, and that was traumatic for us, absolutely traumatic.

We have pivoted. We invested more in technology. We invested in new ways of reaching out to locals, including through delivery. We went completely contactless on March 16. We pivoted the whole business in 12 hours to be 100% contactless, so the only way you could order coffee was via your mobile phone or on your desktop. And we have really continued that way.

I think we are seeing an accelerated future state, that it will be very much mobile only at coffee shops, and then in a cafe where it was a table service proposition, that has evolved to ordering on your phone. So you are greeted and you may have a concierge type service that takes you to the table and educates you on how to use the app, and then you order on your phone, so you do not have as much interaction to limit the amount of exposure between you and our staff, rather the human connection is re-orientated towards you and your guests. It has been well received because it all went through the loyalty program, and consequently we can learn different things about locals to enhance our value proposition. I think our locals are also empathic and understand that we are really trying to win a fight with one hand pinned behind our back.

We are just trying our best to keep going, and unfortunately, in the markets we operate in, you are already seeing mass casualties, with 20% to 30% of restaurants already gone. I imagine that winter, which we always anticipated to be the hardest part of this whole journey, will be extremely brutal.

We have been agile, united as a team, and I’ve been extremely proud of what we have achieved. It has been unprecedented conditions and, I think for us, as a highly urban model reliant on an extremely high number of transactions because it’s coffee-anchored brand, it has been incredibly challenging.

I understand you are installing new safety lighting in some of your stores to combat health risks from COVID?

Yes, we have in two of our locations. We have partnered with a group called Healthe that installed their UVC light that shoots ultraviolet light that does not penetrate the skin, but it kills pathogens that are floating in the air and on surfaces. It is an investment to reduce the potential aggregation of COVID that may exist in the air that is brought in from customers or from our team. Obviously, the biggest challenge we have is asymptomatic cases where people have no idea that they are positive with COVID, and they are unbeknown spreading it.

With indoor dining now allowed in most markets we operate, though still at a very limited capacity - in New York City it is 25% and a few other markets are 50% - it is a way in which we feel that we can invest in protecting our team and protecting our Locals. It is a very new technology, and we are going to be able to track the performance. It will track pathogens in the air. We will be able to compare before and after, ensuring we have accurate counts of the number of people that are coming in and out of the store.

I do think that it brings a level of comfort to our customer knowing that we are doing more, but all these things are a huge investment. You are dealing with more costs and unfortunately, a lot less revenue, so you have got to persevere, search for efficiencies and continue try your best.

What is it like to be able to offer your hospitality during this time when it is more precious than ever?

I think it has been so vital. I was so focused on not closing all of our locations. If the location could remain open because it was somewhat economically viable, I wanted to keep it open. I knew that people needed a daily escape from their apartment more than ever as I was so concerned about their mental health deteriorating. Getting a coffee was such a big part of having an escape and positive ritual during the day, and I just knew that we had to persist, and if we could save some jobs, if it could make a difference to our locals and give them hope and optimism that that we are going to get through this.

It also enabled us to support first responders and healthcare heroes, and we ended up donating nearly 50,000 coffees to over 35 hospitals in five states by doing daily drop offs to say thank you for the work you are doing in keeping society going and giving us all hope, for keeping loved ones safe and trying your best to keep those who are in really challenged health conditions in comfort and give them a chance to get through it.

I do think that in many cases we have adapted, and we have a stronger business, as a consequence of COVID, from an operational perspective, but it is just a lot smaller business right now because so many of our stores are closed and so many of our stores have 40% of the revenue they had pre-COVID. So, it is economically very challenged but, we are finding silver linings. You have got to hold on to those, and you have to keep looking for how you can you can make it through, and how you can learn and improve and hope that that the conditions to operate do evolve. For us, for every dollar that we can save, we are now evaluating how do we get into some suburban markets or new secondary markets as they are going to continue to see tremendous amount of growth, and there is a concentration of our core customer now living there. So that also gives us some excitement about the future and the growth of Bluestone.

Any details about what markets you are looking at?

Yes – we are looking at a number of commuter markets that have linkage to our urban centers, for example, Westchester County, Fairfield County; suburbs like Summit in Union County and Montclair in Essex County; Orange County, CA; and we are also looking at the potential of entering some new cities, tier-two cities that are seeing enormous growth and millennial migration, such as Austin, TX, Nashville, TN, San Diego, CA, and Charlotte, NC.

As the time of this interview, the new federal COVID relief bill that would provide an additional relief package for restaurants has stalled out in DC. How has the Paycheck Protection Program impacted your business, and what are your thoughts on the new COVID relief bill?

Bluestone Lane received a PPP, and it was an absolute lifeline which enabled us to keep locations open and hundreds of our team employed. However, similarly to most hospitality businesses, we have been very restricted in how we can operate and many of the urban markets in which most of our real estate resides, is highly subdued. More than 75% of our stores are in NYC, SF and DC.

Additional PPP or targeted restaurant support is going to be essential to ensure that hospitality businesses can survive the winter months when outdoor dining becomes very challenging, particularly in the Northeast, and indoor dining capacity is likely to remain at best 50%. Most of our markets are at 25% currently. Hospitality in many senses has been decimated for the good of the public health and safety, which we support, however acknowledging that in the overwhelming majority it has been due to no fault of operator.

Find out more about Bluestone Lane at bluestonelane.com

Need to recruit top talent for your executive team? Or got a scoop on an interesting story? Contact Rebecca at rebecca@wraysearch.com