The Turbulent History of Tully's Coffee
The Turbulent History of Tully's Coffee
What do Stormy Daniels and Patrick Dempsey have in common?
“Patrick Dempsey Beats Starbucks, Will Pay $9.15 Million for Tully’s,” read a January 2013 headline in the Los Angeles Times.
“'Grey's Anatomy' Star Sues Partner in Tully's Coffee Purchase,” announced the Philadelphia Inquirer in August of that year.
These two headlines give a snapshot of just one strange chapter in the peculiar, tumultuous history of Tully’s Coffee, a Seattle-based upstart that at one point seemed poised to rival Starbucks as America’s favorite coffee shop.
Today, Tully’s is merely a name, a phantom brand owned by Keurig Dr Pepper in North America and franchised into a chain of cafes across Asia, with no real substance or purpose in and of itself.
The story of how Tully’s went from the dream of a real estate developer who saw an opportunity in the lack of competitors for Starbucks to the pawn in a dispute between the actor who played Derek “McDreamy” Shepherd and Stormy Daniels’ future lawyer Michael Avenatti and on to its sad, shadowy present, is a long one. But it’s worth sticking with.
A Tully’s Across the Street
We begin in 1992, when Tom O’Keefe was asked to lease retail space in Seattle to a local cafe chain called Starbucks. Noticing that the young company had little in the way of competition, O’Keefe decided that he would take on the challenge, and set about launching a coffee company he branded after the middle name he shared with his Greek uncle.
Early Tully’s marketed itself explicitly as an alternative to Starbucks, with a lighter roasting style and comfier, more welcoming interiors. It was even described as specialty by numerous outlets including Coffee Review.
In its early days, the company made a show of opening locations right next to existing Starbucks cafes. “My original approach was, wherever there's a Starbucks there should be a Tully’s across the street,” O’Keefe told me.
By the mid-90s Tully’s was growing steadily, opening dozens of cafes around Seattle and looking to expand overseas. In 1997 it opened a store in Tokyo and three in Beijing and went on to form a separate company to gain further ground in Japan—today the Japanese entity has over 700 Tully’s locations. In 1998 the company bought California’s Spinelli Coffee Co., giving it locations in the Bay Area as well as in Singapore and Taiwan.
At this point, Tully’s stores numbered 50 across the US west coast, but the company had yet to make a profit—although sales were in the millions each year, losses were too. O’Keefe raised money using private placements, funding rounds where shares are sold to individual investors rather than publicly. This investment allowed the company to expand even more rapidly, with the ultimate goal of going public quickly, but also led to headaches down the line.
An IPO was planned for 2000, with the company opening a new store every six days that year in preparation. But something else also happened that year, something that put a damper on the company’s whole high-growth approach.
Double Bubble
“The end game for us was to take the company public in 2000,” O’Keefe says. “We built extensively and grew extensively to get to at least 100 stores, to have that mass to go public. And then of course what happened in 2000, right when we're ready to go, is the dot com bubble burst.”
So the IPO dream was dead, and the company was still hemorrhaging cash after its growth spurt. But a lack of profit was just one of the many, many issues that Tully’s faced over the next few years. Because of the large number of investors—combined with O’Keefe’s penchant for handing stock to employees—Tully’s became a public reporting company according to federal guidelines and had to hire a securities firm, costing millions.
Around the time of the IPO failure, O’Keefe decided to step aside from running the business day-to-day. This led to a succession of CEOs, picked seemingly at random from across the corporate world, each of whom left the company after only a short stint at the helm. While domestic expansion paused, internationally Tully’s continued to grow with new licensing deals in Asia bringing in much-needed revenue.
Tully’s had still failed to make a profit in any year since its inception, but as the 2000s wore on the momentum started to build for another attempt at going public. “We were ready to go again in ‘06, ‘07, and then we had the ‘08 disaster,” O’Keefe says.
That’s right. Gear up for the first IPO: dot com crash. Take some time, decide to try again and boom: 2008 financial crisis.
After presumably deciding that the IPO plan was cursed, O’Keefe began negotiations with Green Mountain Coffee Roasters to sell Tully’s wholesale business and brand. The deal was announced at the end of 2008, allowing Tully’s to remain a separate company and focus on retail while licensing the brand back from Green Mountain.
The move was worth $40.3 million, enough to pay off the company’s debts and give a return to its hundreds of shareholders, and allowed O’Keefe to step away for good.
Enter Avenatti
At this point we’ll skip ahead a few years. Tully’s, now mostly debt-free but still struggling financially, filed for bankruptcy protection in 2012. One of the potential buyers at the bankruptcy auction was none other than Starbucks, but the winning bid came from Global Baristas, LLC, headed by Michael Avenatti and the actor Patrick Dempsey.
“It was a brand that needed to be preserved. There were 500 jobs at stake and it just felt right,” Dempsey told CNN. “I’m really excited about this.” The ‘Grey’s Anatomy’ star’s excitement lasted all of six months before he left the project, suing Avenatti for borrowing millions against the company while claiming to be funding the purchase himself.
Avenatti, a brash lawyer who would go on to find fame, of a sort, representing Stormy Daniels in her suit against Donald Trump, stayed at the helm of Tully’s and proceeded to run it into the ground. Global Baristas failed to pay suppliers and landlords, ending up on the wrong side of more than 45 lawsuits.
Let’s quickly run through some more highlights from Avenatti’s reign. All 12 Tully’s locations at various Boeing sites around Washington closed abruptly in 2017, with each side blaming the other. In 2018 alone the company was sued by the Daytona Speedway for… some reason; was served with multiple eviction notices for failure to pay rent; almost lost the rights to the name Tully’s (not for the first time) after a lawsuit by Keurig Green Mountain claimed half a million dollars in owed royalty fees; and literally ran out of coffee.
All the company’s remaining stores—15, down from 40 at the time of Global Barista’s purchase—closed suddenly in March 2018, with signs on cafe doors claiming a lack of coffee. Global Baristas said the company was “rebranding”.
Eventually Keurig entered into a permanent injunction with Global Baristas that prevented the latter from ever using the Tully’s name again. Avenatti’s legal problems were just beginning, however: a federal grand jury indictment accused Global Baristas of failing to pay millions in payroll taxes, and Avenatti of siphoning off millions more to his personal bank account and accounts associated with his law firm.
A Real Dirtbag
Coincidentally just this month, in December 2022, Avenatti was sentenced to 14 years in prison after pleading guilty to four counts of wire fraud. In one case, the celebrity lawyer embezzled nearly $4 million from a client with paraplegia which he then used to fund his race-car team and Global Baristas.
“I've never met the guy, I have no idea who he is,” O’Keefe tells me, unprompted. “But he was a real dirtbag, and what goes around comes around.”
O’Keefe remains proud of the company he built—it does still carry his name, after all, on Keurig boxes and hundreds of Japanese storefronts. You just have to ignore what happened after he walked away.
“I’m pretty proud of what we accomplished up until that point in time,” he says. “The emotional side of me is still filled with pride that we paid thousands of people over the years, trained thousands of people, sent a lot of kids to college. So despite all the heartburn, I’m still pretty proud of the history of it.”
Oh, and those retail spaces he was asked to find for Starbucks back in 1992? “All the locations they wanted to lease from me, I opened up Tully’s in.”
This is amazing