Changes Brewing for Tully's, Seattle's "Other" Coffee Chain

(MoneyWatch)  Seattle-based Tully's Coffee has completed the sale of its brand and its wholesale coffee business to Green Mountain Roasters of Vermont, a deal one coffee insider says could make Green Mountain the No. 2 national coffee company behind Starbucks.

Insiders expect the $40.3 million deal -- which was first announced back in September, but not closed until last week -- will result in the expansion of both brands outside their core areas on the East and West coasts. Green Mountain is expected to start selling Tully's darker-roasted beans in stores on the East Coast, while expanding its Green Mountain brand line of lighter-roast coffee to the West.

Green Mountain is also looking to expand its Keurig brand of single-cup coffee brewers. To do this, Green Mountain executives say they'll need a bigger roasting facility than the one Tully's now operates in the old Rainier Brewery, a Seattle landmark. They're shopping for a 120,000-square-foot building south of Seattle, to complement plants in Vermont and Tennessee.

At the same time, the old Tully's company, now calling itself TC Global, says it plans to continue operating its chain of 170 company-owned Tully's stores, and will use some of the cash from the sale to add another 200 licensed stores, including some in locations that Starbucks has abandoned. (There are some 500 Tully's brand stores in all, including those operated under franchise and license agreements.)

Tully's has long struggled in Starbucks' shadow in Seattle. The company has only had one profitable year in its 17-year history, and management warned shareholders last fall that if they didn't approve the deal with Green Mountain, Tully's would likely sink under the weight of an accumulated $102 million deficit. With the sale, Tully's will pay off some past-due notes, and distribute cash to the shareholders.

The deal also gives Green Mountain a coast-to-coast presence for the first time. That could create a real coffee-house rival to Starbucks on a national scale, author Mark Pendergrast, who's written about the coffee industry, told The Seattle Times.

"Coke has Pepsi, but Starbucks doesn't really have a Pepsi," he said. "There's no runner-up in terms of specialty coffee. Now, Green Mountain ... is doing so well, maybe they are going to be the runner-up."