Dean & DeLuca, Inc.

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Dean & DeLuca, Inc.

560 Broadway
New York, New York 10012
U.S.A.
Telephone: (212) 226-6800
Toll Free: (800) 221-7714
Fax: (212) 334-6183
Web site: http://www.dean-deluca.com

Private Company
Incorporated: 1977
Employees: 795
Sales: $59.6 million (2000)
NAIC: 44511 Supermarkets and Other Grocery (Except Convenience) Stores; 722211 Limited-Service Restaurants

For the ultimate American gastronome, there is just one place: Dean & DeLuca, Inc. Whether shoppers seek leek pie and candied flowers, white truffle oil or black truffle cream, Scottish salmon or Sevruga caviar, they can find it at Dean & DeLuca’s large emporiums in New York, Washington, D.C., and North Carolina, or sample smaller selections at three Charlotte, North Carolina restaurants or seven Manhattan espresso bars. From spices to chocolate, stainless steel to mother of pearl, Dean & DeLuca’s high-end stores carry everything necessary to create and eat gourmet meals. On the verge of going public in late summer 2000, Dean & DeLuca hoped to expand its presence both nationally and internationally, through additional locations and increased electronic business with its online catalogue and gift services.

Gastronomic Dreams: 1970s–88

The story of Dean & DeLuca begins in a Greenwich Village brownstone where Giorgio DeLuca lived in the basement apartment and Joel B. Dean lived on the top floor. The two became friends—more of a mentor (Dean) and student (DeLuca) relationship in actuality—and shared a love of the finer things in life: excellent food, wine, and the arts. Along with other friends of Dean, they had long discussions on quality—quality in its most esoteric terms, whether in literature, performance, or business, and how many had forsaken quality in their busy lives. The discourses altered DeLuca’s life; he soon gave up his job as a history teacher in New York’s public school system and pursued his passion for cheese by opening a small shop on Prince Street in SoHo (the region south of Houston Street) in 1973.

DeLuca, whose father was a food importer, was an expert on cheese and wanted not only to bring exotic cheeses to the neighborhood, but to educate his customers on the proliferation of cheeses available from around the world. Freshness and quality were his mainstays and soon the little store was a success. Dean, who worked as a business manager at Simon & Schuster, was buoyed by DeLuca’s accomplishment and wanted to open his own retail store selling cookbooks and kitchenware. They considered collaborating, and when a 2,500-square-foot storefront across from the cheese shop became available, a partnership was born. This store would be a haven of taste, an emporium of excellence—where customers found unusual cookbooks, stylish housewares, exotic fruits and vege-tables, dozens of cheese varieties, savory vinegars and oils, freshly baked breads, and aromatic coffees.

DeLuca, Dean, and the latter’s friends, chef Felipe RojasLombardi and artist Jack Ceglic, selected the decor and products for the upscale market and “Dean & DeLuca” opened its doors on the lower west side of Manhattan in the fall of 1977. Among its wondrous fare was the little-known radicchio, sun-dried tomatoes, 175 varieties of cheese, balsamic vinegar, and DeLuca’s cherished gastronomic raison d’être—extra virgin olive oil. As DeLuca told Jesse Kornbluth in a 1981 Metropolitan Home article, “Olive oil is pivotall The Greeks prized it, the Romans prized it—today, in France and Italy, cooks still examine oil with the same care they bring to wine.” Decades before such items were in vogue on the East and West Coasts, Dean & DeLuca spawned trend after culinary trend, and the store be-came the “in” place in not only SoHo, but in Manhattan as a whole. Locals and visitors alike flocked to the market with the funny name, and its purveyors introduced New Yorkers to a growing array of enchanting victuals by insisting customers sample their wares.

Food As Fad and Fashion: 1980s

Customers who delighted in Dean & DeLuca’s edibles, however, paid a premium for their habit; the store’s prices were high-end, though patrons did not seem to care. By the early 1980s Dean & DeLuca’s retail flow had helped revitalize the SoHo area, and it became an arts-related oasis filled with galleries, boutiques, eateries, and lofts. To capitalize on their growing brand recognition and reputation, Joel and Giorgio decided to increase sales through a mail-order catalogue. The first catalogue was produced in late 1981 and a fulfillment center in Wichita, Kansas, was later added to process the orders. Eugenio Pozzolini, a former Rizzoli Bookstore clerk who happened to speak three languages, was a native Italian, and had tastes similar to DeLuca’s in specialty foods, came aboard as a partner.

Ever increasing demand soon forced the gourmands to search for additional space, and in 1986 Dean & DeLuca found nearly 10,000 square feet of retail space after an army/navy surplus store and a manufacturer were persuaded to move else-where. The corner of Broadway and Prince Street became the new epicurean hot spot when Dean & DeLuca opened its doors on October 6, 1988.

By the end of the 1980s Dean & DeLuca parlayed its success into smaller cafés around Manhattan and were followed by seven Dean & DeLuca Espresso Bars. With Starbucks coffee bars the rage on the West Coast, Dean & DeLuca rode the crest of the wave with its own brands of coffee served with exotic breads and pastries. Coffee craze naysayers, who refused to believe Americans would pay premium prices for a cup of coffee, were effectively silenced by the phenomenal success of Starbucks, Dean & DeLuca, and a slew of imitators.

Bigger and Better: 1990s

By 1993 Joel and Giorgio were ready to take another step, to open another large market like their flagship store in SoHo—this one in the Georgetown neighborhood of Washington, D.C. Like its iconic sibling, the D.C. hybrid flourished and plans for additional Dean & DeLuca satellites were under way. These newer outlets were not large emporiums like the SoHo or Georgetown markets, nor small espresso bars, but medium-sized cafés. The first cafés, in Philadelphia, were built at prime locations within the city, with hopes of opening as many as ten additional cafés over the next few years. This marketing strategy, however, did not pan out and the Philadelphia cafés were closed. Speculation was rife as to why the cafés closed, and Dean & DeLuca management remained mum, though analysts argued whether sales, quality, and/or timing were issues. A former employee told the Philadelphia Inquirer in October 1995 the company was restructuring, and the closures were part of a new plan to keep cafés in areas where Dean & DeLuca emporiums already existed and were thriving.

Despite problems in Philadelphia, Dean & DeLuca had grown to 450 employees and brought in sales of $30 million in 1995. At this time company founders Joel Dean and Giorgio DeLuca had decided to retire from the daily grind (though each held substantial stock and remained on the board of directors). The founders sold a controlling interest in their company to Midwestern entrepreneur Leslie Rudd, who was well known in the restaurant industry for his successful expansion of the Lone Star Steakhouse chain, which then went public. Both Dean and DeLuca had high hopes Rudd could transform their company into a national powerhouse. Part of the new regime included Dane Neller, who joined Dean & DeLuca, Inc. as president and CEO, to spearhead expansion plans.

Dean & DeLuca celebrated its 20th anniversary in 1997 with its two large emporiums in New York and Washington, D.C., and new gourmet stores in North Carolina (Charlotte), Kansas (Kansas City), and California (St. Helena). The occasion was touted in the media, including a backhanded tribute in Washington Monthly by Pilar Guzman, who had actually gone to work in the Manhattan flagship. Guzman called Dean & DeLuca one of “New York’s most flavorful institutions—the Vatican of Vichyssoise, the Pantheon of Porcini, the Alhambra of Arugula.” Guzman’s article covered everything from the correct way to preserve cheese in Saran Wrap to the emporium’s exorbitant prices. Yet taste and image were a perfect blend, as reiterated by Guzman: “With its signature medley of marble slabs and crusty breads, stainless steel and Moroccan trout, wooden crates and runny Stiltons, Dean & Deluca has pioneered an overall aesthetic that is more lifestyle museum than mere food Mecca.” Or as Kornbluth said in his Metropolitan Home article, “Somehow your basket is full, your bill astronomical. You don’t care: you have bought the best-quality foodstuffs available in America.”

Two new Dean & DeLuca satellites were opened in Char-lotte, North Carolina, while its original 9,000-square-foot emporium was still going strong. The new 4,000-square-foot outlets represented a format change, from store to restaurant, with salad and sandwich bars, bakery, wines and beer, and prepackaged “fresh” meals for takeout. These particular locations were even baking their own bread (nearly 30 different kinds), a departure from the larger markets who bought from scores of local bakeries. By 1998 annual revenues had slowly climbed to $33 million, but the company had yet to show a profit. Customers were buying and product was selling, but the costs of maintaining fresh and exceptional food items was high.

Company Perspectives

Our Reason for Being: Dean & DeLuca’s mission is to lead the marketplace in the exploration, discovery, and celebration of food from around the globe. Through intelligent and tasteful merchandising, we offer a wide selection of food and kitchenwear from the commonplace to the extraordinary. Our Vision: Dean & DeLuca will become the preeminent purveyor of food and kitchenwear worldwide. With international brand recognition and a reputation for excellence in retailing, we will set the standard for culinary taste and quality in the marketplace.

In 1999 Dean & DeLuca had a total of five gourmet emporiums (a few with wine selections), eight cafés, and burgeoning exposure on the Internet. Not only were Dean & DeLuca products offered through sites such as the San Francisco-based BravoGifts.com, but the company had its own online shopping service for corporations and individuals. This was also the year the specialty marketer began selling only California wines in the few stores selling wine, at the request of majority owner Leslie Rudd. Yet despite a healthy jump in sales to $51 million for the year, the company experienced its fifth straight loss since 1994. To remedy the situation and staunch the flow of red ink, John Richards, who had run Starbucks Coffee Inc.’s North American operations for two years, was offered a top slot at Dean & DeLuca to work alongside Dane Neller.

Morsels and Millions: 2000 and Beyond

In a January 24, 2000 press release, John Richards commented on his appointment as president: “Joining Dean & DeLuca provides me with a rare opportunity to directly oversee a sterling consumer brand at a particularly exciting point in its growth cycle.” Having doubled the number of Starbucks stores during his stint, Richards knew more than a little about national expansion. Part of his incentive to jump ship was a six-figure salary and reportedly 450,000 shares of Dean & DeLuca stock in the company’s planned IPO sometime later in the year. In addition to hiring Richards, a $20 million infusion of venture capital came from Silicon Valley’s Hummer, Winblad Venture Partners for a 25 percent stake in the company. Founding partner Ann Winblad gained a seat on the Dean & DeLuca board and told Michele Leder of Grain’s New York Business, “When we find a company that makes sense, we want to give it a lot of fuel.”

Hummer, Winblad had been approached by other specialty food start-ups but turned them down in favor of Dean & DeLuca. Hummer, Winblad Venture Partners, primarily known for its interests in Internet and software companies, seemed like an odd fit for Dean & DeLuca, but in addition to opening new gourmet food stores, the foodsmith intended to expand its online catalogue (especially wine) and electronic business services. “Dean & Deluca offers the kind of opportunity we prize because of its innovative integration of the Internet into its strategy,” Winblad commented to Clifford Carlsen of the San Francisco Business Times.

With a $20 million investment, a dynamic new president, and an upcoming IPO, Dean & DeLuca aimed to go where no gourmet foods marketer had successfully gone before. Dean & DeLuca was not only going large, but going public. Rudd, Neller, Richards, Dean, and DeLuca hoped the bold move would give the company the financial stability and cash to expand into ripe markets in California, Florida, Georgia, Illinois, and possibly overseas. Dean & DeLuca was not just looking to survive—but to thrive. Yet despite the more than $35 billion spent annually on gourmet and specialty foods at the end of the 1990s, analysts doubted even a company with the brand recognition of Dean & DeLuca could maintain the high quality necessary to sustain national, much less international, stores.

The management at Dean & DeLuca begged to differ and were determined to prove it. Not only were there plans for two or three stores during the year, but several more each year for the foreseeable future. Sales for 2000 were barely less than $60 million from its 12 locations, and overall employees had leapt to nearly 800. Pilar Guzman, in her 1997 Washington Monthly feature, summed up the attraction of Dean & DeLuca for its many patrons: “The genius of Dean & DeLuca is that it strikes a balance of the bountiful and the minimal.... It is reminiscent of the French or Italian central market but done in pure Soho style—epic loft ceilings and all the right stainless steel touches. The store achieves a paradoxical industrial rusticity, at once both inviting like a country-kitchen table and Euro-aloof like the double-cheek kiss of a Soho gallery keeper.”

Chic, inviting, expensive, unique: the 23-year-old Dean & DeLuca was still among things bright and beautiful in the year 2000. Its incredible edibles and café lattes were still so trendy they were featured in the WB television network’s series Felicity, where the lead character worked part-time at a Dean & DeLuca while attending college. With an IPO on the horizon to raise $69 million for expansion, the sky appeared bright indeed.

Principal Competitors

Bloomingdale’s Inc.; Crate and Barrel; R.H. Macy & Co., Inc.; Starbucks Corporation; Sutton Place Gourmet; Williams-Sonoma Inc.; Zabar’s & Company, Inc.

Key Dates

1977:: Company is founded by Giorgio DeLuca and Joel B. Dean.
1988:: Business outgrows original store; new market at Broadway and Prince Streets opens.
1993:: Georgetown emporium opens; Dean & DeLuca Espresso Bars pop up around Manhattan.
1995:: Owners Dean and DeLuca sell a controlling interest to restauranteur Leslie Rudd; Dane Neller is appointed president and CEO.
1997:: Company celebrates 20th anniversary.
1999:: Sales reach $51 million.
2000:: John Richards is named president; company pre-pares to go public.