Tully's Coffee files for Chapter 11 bankruptcy protection

Oct 11, 2012

The Seattle-based coffee chain Tully’s says it’s going to reorganize under chapter 11 bankruptcy. Tully’s has long struggled to find a profitable niche amid fierce competition from its hometown rival Starbucks. A string of CEOs tried and failed to turn the company around.

Scott Pearson has been at the helm for a year and a half. He says expensive leases signed in the boom years have weighed the company down. Competition has also hurt.

"You see in many cases some other competitor maybe catty corner to our stores and that cannibalizes your business," Pearson said.

Pearson says rising costs have also made it more challenging to turn a profit. He says the company has raised prices, but can't pass through the all of the commodity cost increases because of competition from other coffee chains.

"Coffee prices have gone up for us over 30 percent in the past year and dairy has gone up over 20 percent," Pearson said. "When you have that kind of increase you’re squeezed on both ends."

Tully’s plans to close nine stores this Sunday, including four in Seattle and one in Tacoma. That will bring the number of Tully’s-owned coffee shops down to 48. About 70 more Tully’s stores are run by franchisees and licensed partners. Those stores are not part of the bankruptcy.