Afc Won't Make Big Changes At Seattle's Best -- Coffee Company To Expand With Capital From New Owner

The planned acquisition of Seattle's Best Coffee and Torrefazione Italia by an Atlanta-based fried-chicken chain will give the Seattle specialty-coffee chain the money it needs to fuel aggressive expansion plans.

With additional capital from AFC Enterprises, Seattle Coffee expects to grow from 66 SBC and Torrefazione locations from Washington to Massachusetts to 300 to 500 spots around the country in the coming years, said Larry McDonald, president and chief executive officer of Seattle Coffee, parent of SBC and Torrefazione.

"This is a growth transaction, not a downsizing transaction," said McDonald.

AFC Enterprises announced yesterday it intends to make Seattle Coffee a wholly owned subsidiary. The terms of the deal were not disclosed.

One question is whether fast-food executives accustomed to running restaurants where coffee is secondary can oversee chains "where coffee has been in the driver's seat," said Ted Lingle, executive director of the Specialty Coffee Association of America in Long Beach, Calif. "You have to have a core commitment, starting at the top, to go out and search for coffee that is really good, and then be prepared to pay the cost."

Seattle Coffee had been looking for strategic investors for about 18 months to help it grow, said McDonald. He said he liked AFC's attitude toward Seattle Coffee: "We aren't broke, so don't fix it. They will let us run with the company."

McDonald will remain as president and chief executive officer, and Jim Clarke will continue as chief operating officer. SBC founder Jim Stewart will remain as board chairman. Umberto Bizzarri, founder of Torrefazione, also will stay on the board. SBC and Torrefazione merged in 1994.

There will be no layoffs, said McDonald. Seattle Coffee has 650 employees.

Diane Daggatt, an analyst with Dain Rauscher in Seattle, said consolidation is on the rise in the specialty-coffee industry. Mergers, as well as franchising, can give a company access to capital for growth, she said.

McDonald confirmed that Procter & Gamble was among Seattle Coffee's suitors. In addition to its retail stores, which Procter & Gamble wasn't interested in, Seattle Coffee distributes beans in supermarkets, hotels, restaurants and other businesses. Clarke said the company would continue to use Millstone, a P&G division, as its supermarket distributor. Seattle Coffee's retail stores will retain their names, and the company will remain based in Seattle.

Tom O'Keefe, president and CEO of Tully's Coffee, said his company probably is approached weekly by companies looking to acquire it. With 39 stores and $15 million to $18 million in annual sales, however, Tully's is looking to acquire chains itself and would consider going public at some point to gain better access to capital markets, he said.

While McDonald's restaurants in Western Washington now carry SBC blends, Larry McDonald said there are no plans for AFC's Churchs Chicken or Popeyes Chicken & Bisquits chains to carry SBC or Torrefazione coffee.

"We don't feel it is the right venue for gourmet coffee," Clarke said of Churchs and Popeyes. However, Seattle Coffee might widen its coffee distribution to another AFC subsidiary, Chesapeake Bagel Bakery.

Seattle Coffee shareholders, who number around 30, will be able to exchange their shares for shares in AFC, said McDonald. Seattle Coffee's four major shareholders include his family, Bizzarri's family, Jim Stewart and Seattle investor Fred Paulsell, said McDonald.

AFC - America's Favorite Chicken - is privately held but may go public in 1999, said Chief Executive Officer Frank Belatti.

Lee Moriwaki's phone message number is 206-464-2320. His e-mail address is: lmor-new@seatimes.com