Starbucks Case

strong," Mr. O'Dea said, "our Internet, mail order and grocery businesses go up within a five-mile radius of the outlet. We're agnostic about where people buy our product. Retailing is a means to an end, not the end in itself."

Starbucks takes a different approach. Its retail stores were responsible for 85 percent of the company's revenue in the most recent six-month period. Retail operations are "the primary driver of the company's revenue growth," its latest financial report notes.

Compared with Starbucks's 6,605 stores in the United States and an additional 2,656 abroad, the Peet's operation is about as noticeable as a fly on an elephant. Peet's operates just 99 outlets, up from 75 at the beginning of last year. It expects to open another 20 this year.

The company plays on its 60's image, highlighting its Berkeley coffee house roots and filling 2,000 higher-margin mail orders a day to its nationwide roster of committed "Peetniks" buyers.

"The key is Peet's can complement Starbucks," said Matthew Difrisco, who has advised the company for Thomas Weisel Partners, a San Francisco venture capital firm that helped Peet's raise money after it went public. "The Peet's customer is older, more mature and better educated."

Peet's continues to thrive by attracting consumers like Jenna Phillips, a Berkeley clothing designer who says she is "a total Peet's devotee."

The coffee is "stronger than Starbucks's," she said, "and it's not part of an evil empire."

which also sells over the Internet and by mail order, has significantly stepped up its expansion plans. It is opening more retail stores in the West and introducing its brand to a number of specialty and high-end grocery stores across the country, hoping to entice a growing group of coffee iconoclasts.

"Peet's grew out of a passion for specialty coffee," said Kerri Goodman-Small, publisher of Hospitality News, a food service industry journal. "Starbucks focuses on consistency and a variety of beverages."

For all their differences in size and style, Peet's and Starbucks are linked by their past: the current director of Peet's, Gerald Baldwin, helped found Starbucks before selling to Howard Schultz, who built it into the ubiquitous brand of today.

Operating in Starbucks's very large shadow, Peet's is one of several small coffee retailers that are expanding from strong regional bases. These include Caribou Coffee from Minneapolis; Diedrich Coffee, based in Irvine, Calif.; It's a Grind from Long Beach, Calif.; and Tully's Coffee, with headquarters in Seattle.

The passion for Peet's extends to Ruth Reichl,

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