New Yorkers drink from bottomless cup of specialty coffee venues - proliferation of gourmet coffee houses in New York, New York

Don Schoenholt remembers when his 159-year-old coffee-roasting company operated five retail stores in New York City.

One day in 1984 his partner turned to him and asked how many more stores the company ultimately could run. Schoenholt's response? "We're saturated."

Schoenholt, president of Brooklyn-based Gillies Coffee, said he got out of the retail business because he saw a tidal wave approaching, "and I didn't want to be swamped."

As it turned out, Schoenholt was right. Fifteen years later, specialty-coffee bars have proliferated. In fact, a recent National Coffee Association study showed the number of nationwide gourmet coffee houses rose from less than 500 in 1991, to about 7.000 in 1998.

Although no specific numbers were available for New York City, roaster-retailers, such as Starbucks, New World Coffee and Timothy's World Coffee, operate a combined 112 stores. Starbucks leads with 65 sites, with all but four in Manhattan; it also has 12 Pasqua Coffee franchises through its recent purchase of that company.

Starbucks expansion, however, has not come cheaply.

Real-estate experts say the Seattle-based company tends to overpay for sites. On the Upper West Side, where Starbucks' first New York City store opened in 1994, Starbucks pays as much as 25 percent over market value, said Faith Hope Consolo, executive managing director of Garrick-Aug Associates, a real-estate brokerage in Manhattan.

"I'm shocked by what they'll [Starbucks] pay," Consolo said. "They'll do anything to get a location." But that strategy has paid off, as the company has developed a loyal following, she noted.

Starbucks' marketing manager, Paul Williams, who oversees the New York sites, said the specialty coffee market in New York City has never been healthier.

"We have a strong base of loyal customers, and we see new customers come in every day," he said. "Our company can continue to grow in Manhattan and the outer boroughs."

Andrew Barish, a San Francisco-based industry analyst who tracks Starbucks, said the company will keep growing as long as it keeps executing and serving a good product. "They can add new things and expand the product line that a lot of independents might not be able to do," Barish said.

A big reason for the success of gourmet coffee houses is that alcohol consumption is down, and coffee bars have become the "in" hangouts of the 1990s, real-estate experts said.

"Yuppies and baby boomers... they're drinking coffee now instead of going to regular bars," Consolo said.

Few places in Manhattan are as populated by yuppies and boomers as the Upper West Side, where specialty coffee bars abound. One of the first New York City coffee-bar chains on the Upper West Side was Cooper's, which was bought in 1996 by Eatontown, N.J.-based New World Coffee.

New World chairman and chief executive officer Ramin Kamfar said people thought he was crazy when he left his investment banking job in 1983 to launch New World.

"They said, 'People will never pay three bucks for a cup of coffee. They're used to paying 50 cents at a deli,' "said Kamfar, whose company has 27 locations in New York.

Kamfar believes the city has yet to be saturated with coffee bars.

"You can put one of these things every three or four blocks," he said.

Becky McKinnon, president of Toronto-based Timothy's World Coffee, which has 20 New York City locations, said consumers would continue to pay premium prices for premium beverages because "some people who won't treat themselves to something else will treat themselves to a cup of coffee."

A smaller, but equally ambitious coffee chain is Xando, based in Stamford, Conn. The chain currently has 15 Xando stores but just two are in New York City. Naturally, one of them is sited on the Upper West Side.

Xando chief executive Andrew Stenzler feels there's plenty of room in the

city for his chain. And coffee, Stenzler said, is a recession-proof product.

"The last thing people are going to give up is their coffee," he said.

Even smaller than Xando is Drip, a coffee bar on the Upper West Side. Owner Nancy Slotnick says survival for a lone coffee bar is almost impossible without a niche: Drip's is a matchmaking service. Still, survival has "practically been a miracle." she said. Case in point: Before opening in 1996. she bought an espresso machine from a coffee bar a block away that lasted five months.

Schoenholt of Gillies Coffee says New Yorkers are hooked on specialty coffees, pointing out that even tiny delicatessens now have cappuccino machines. The wave of new chains entering the market is probably over, though. he predicted.

"A lot of people who opened coffee joints were in it for a fast buck, and the emergence of the big players shook out those that weren't real players. "Schoenholt explained.

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