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Anna Healy Fenton

Pacific Coffee founder Thomas Neir left Tandem Computers to open an espresso bar in 1992 and sold the chain for $205m

Thomas Neir looks surprisingly glum considering he just sold the company he started from scratch almost 13 years ago for $205 million.

He hands over his business card with undisguised sadness. 'Chief Executive Officer Pacific Coffee Company', it reads.

'That's out of date now, and it's probably the last time I'll give it to anybody.'

Chevalier iTech Holdings has just paid $205 million for the 49 shops in the Pacific Coffee chain that Seattle native Mr Neir grew to be the only serious local rival to the omnipotent Starbucks.

When he first tried to open an espresso bar here in 1992 Hong Kong landlords did not know what think. 'They said 'coffee yes', and 'what else will you serve, rice, spaghetti?''

The idea of selling coffee solo did not compute until he found a sympathetic Japanese landlord in Central's Bank of America Tower.

'Coming from Tokyo he understood coffee culture and was willing to give it a try,' says Mr Neir.

He and his wife Sally arrived in Hong Kong in 1990 when Tandem Computers transferred him  from Silicon Valley.

He quickly found his entrepreneurial urge and decided to do act on it before he got too old.

Noticing the lack of coffee shops, he resurrected an old idea of opening an espresso bar and took  leave of absence from work.

His wife, who worked for Bank of America, 'kept the family alive until I was making enough money - which took about seven years'.

The first Pacific Coffee shop opened on an unforgettable date.

'It was October 26, 1992, our first son, Joseph, was born that day and immediately afterwards I ran off and signed the lease,' Mr Neir, now 47, explains.

He raised the US$100,000 start-up capital from his parents and siblings, stressing: 'It was a lot to us; we [were] not a wealthy family.'

First, he mastered the basics at a coffee-roasting and tasting course in San Francisco.

Pacific Coffee was no overnight success.

'It was successful enough, but you couldn't get the margins you thought you could get. But it was clear it could be done and I believed in it enough to continue.'

Initially, headquarters was the family flat, with stock stashed under baby Joseph's crib. Pacific Coffee finally got an office when coffee fumes overwhelmed the family flat.

Bank of America Tower was not the best location when it opened in 2003. But the second outlet - in Dorset House, Quarry Bay - did much better when it opened six months later.

The chain grew steadily, with local private investors helping to fund expansion to 47 branches here and two in Singapore. Immersing himself in the business was one thing, but Mr Neir soon realised he could not be everywhere at once.

He quickly discovered the key to the brand's quality was consistent coffee and service, so he devised staff-training programmes.

'The real secret of our success has been good company systems that don't rely on people - or me! These take years to build. The organisation can function without leadership - to a degree.'

To grow beyond the reach of its founder, every shop needs to be kept clean and neat without an ever-present boss, he explains.

'I can't be in 50 stores all at once. Retail is 24/7 - once you're doing it, it  doesn't stop.

'You also have to learn how to operate in Hong Kong, which is very expensive and unforgiving - if you make a mistake, it's a big one.'

Keeping staff in 1993 was a headache. 'People would leave for an extra dollar an hour,' he recalls. 'Staff are important and we had to learn how to retain staff.'

Customers do not just come for the coffee, he adds, they come because the staff say hello.

Still, the coffee must be good. 'The secret is to buy the really good stuff. The difference between average and really good coffee is 50 cents a cup. But for some people that 50 cents is worth saving.'

The rest of Pacific Coffee's appeal is that, unlike a restaurant, customers can surf the net, sit in peace, chat, or meet for business.

The sale to Chevalier iTech was prompted by a boardroom impasse last year.

'Several board members wanted to expand into China, but others had a fear of China, so we agreed if we found the right offer, we would all exit together,' says Mr Neir.

Mr Neir believes there is more than enough demand locally for Chevalier iTech's plans to double Pacific Coffee's outlets to 100.

But the big opportunity is on the mainland.

'There is no No2 there, only Starbucks, and we know how to compete with them.'

Since Pacific Coffee started, he has seen 20 to 25 smaller coffee rivals come and go.

'We've competed very strongly by staying alive in the retail crucible,' he says laughing.

The 'S' word is not mentioned at Pacific Coffee. 'We refer to them [Starbucks] as 'the green guys'.'

Mr Neir was well-prepared for their invasion: 'We always pushed our model against the day they would come.

'But when they teamed up with Maxim's - which is half owned by Jardines - we knew we couldn't get near Hongkong Land sites.'

After a fortnight's trepidation, he knew the 'green guys' could be conquered when his own staff came to him, saying: 'Is that all they can do? We're better than them. We can kill these guys.'

Starbucks' arrival had a profound effect on the morale of Pacific Coffee's staff.

'They suddenly realised they were pretty good,' Mr Neir says.

Once they saw they could beat the biggest and best, confidence soared and Pacific Coffee has been growing ever since, he explains.

However, he concedes, it could have gone either way.

'The green guys are tenacious, good competitors and kick your butt. But basically it's been good for us, because they keep our standards up and have knocked everyone else out of the market.'

Mr Neir declines to reveal how much he made from the sale or the size of his sake in the company, except to say that he and his family were the largest shareholders.



Techie wins with caffeine rush