COLUMN ONE : Designer Coffee Is Hot Stuff : Sales of gourmet varieties, as well as beans and drinks, soared in 1992 to more than $1 billion, a fivefold increase from 1983. In the Southland, the trend has created a new class of entrepreneurs.

From a ritzy carwash in Orange County, to a drive-through kiosk near the beach, to a lunch stand outside Los Angeles’ busy courthouse, Southern Californians are dropping fistfuls of change for steaming cups of what we used to call coffee.

Now it’s caffe latte or caffe mocha or espresso con panna or espresso macchiato. The business of buying a cup of coffee is so complicated that Starbucks, the large coffee store chain from Seattle that has arrived in the Southland, gives customers a brochure complete with pronunciation key (caf-ay mo-kah) to make sure they get it right.

“Let me put some chocolate powder on that,” says the clerk over at Pasqua’s Coffee Bar in downtown Los Angeles as she prepares a low-fat, double iced cappuccino. From its strategic location at the County Courthouse, Pasqua’s is the unofficial dispenser of designer coffee to the newly divorced, the soon-to-be married and the L.A. County Bar.

At lunchtime, clerks sell drinks by the dozens, frothy concoctions of steamed milk and syrup--coffee is in there somewhere--testimony to a simple truth as clear as the cube melting in your iced cappuccino: Fancy coffee is big business. And it is getting bigger.

The Specialty Coffee Assn. of America reports that sales of gourmet coffee, beans and drinks exploded last year to more than $1 billion, a fivefold increase from 1983. Meanwhile, sales of other coffees--the kinds that come in round tins with plastic scoops--stood still.

Coffee processors predict that by 1999 Americans will spend up to $3 billion a year on gourmet coffee beans or drinks, accounting for about one-third of all coffee consumed. A good chunk of the growth will come at the expense of Maxwell House, Folgers and other commercial varieties as consumers go upscale.

The significance of the trend is not lost on Nestle or General Foods, the corporate kings of all that is canned, instant and freeze-dried. Nestle, in partnership with Coca-Cola Co., has been developing a chilled coffee drink. And General Foods has produced an instant cappuccino--it foams when you add hot water--and a ready-to-drink cappuccino set to hit grocery stores this summer.

Fortune 500 companies are not the only ones paying attention. Supermarkets are expanding their selection of gourmet beans. Vons Pavilions, for example, has recently added a second line of gourmet coffee beans, which consumers can grind and pack themselves.

Baskin-Robbins, the Glendale ice cream company, is transforming a chain of 38 sandwich shops it owns into stylish coffee cafes. Executives at La Mirada-based Winchell’s Donut Houses, those havens of Styrofoam and Mocha Mix, say they are very seriously thinking about putting cappuccino machines in some of the company’s 200 shops.

And throughout Southern California, the thirst for gourmet coffee is creating a whole new class of coffee entrepreneurs: the adventuresome, the opportunistic, the unemployed. At the Learning Annex in trendy West Los Angeles, “How to Open a Coffeehouse” is the most popular course.

Serving as role model for these budding coffee merchants is Starbucks--the Michael Jordan of the coffee business--a symbol that anyone with an espresso maker can make good. Six years ago, Starbucks had 11 stores in its hometown of Seattle and a nice mail order business among types who read the New Yorker magazine.

Today, Starbucks is to coffee what Haagen-Dazs is to ice cream. It has 170 company-owned stores around the country and is opening new ones at the rate of one a week; three opened in Los Angeles County during March. Annual sales topped $93 million last year. When it sold its stock to the public in June, Starbucks’ owners became instant millionaires.

No wonder Robert Holo quit stock brokering last year, sinking $15,000 into an espresso cart. A heavy coffee drinker, Holo figured he knew how to prepare coffee--until he triggered the smoke alarm in his San Pedro flat trying to roast coffee beans in his popcorn popper. “I couldn’t see a thing,” Holo said. “But it smelled great.”

Now Holo buys beans already roasted, brewing them into coffee he sells to the doctors, nurses and relatives of sick people who visit his cart at UC Irvine Medical Center. After eight months of long hours--often from 4:30 a.m. to 7 p.m.--Holo is making a profit. “It’s a good business,” he said.

No one is exactly certain why gourmet coffee is suddenly hot stuff. Executives in the industry cite the taste--”everything in the supermarket is stale,” said Starbucks boss Howard Schultz, its chairman, president and chief executive--and a trend away from alcohol.

The president of Baskin-Robbins’ Cafe Classico chain believes that a poor economy is driving sales of gourmet coffee, even though it costs twice as much as pour-and-go coffee sold at convenience stores.

“People are scaling back, but they still want their treats,” said Keith Frohreich, as he samples a new formulation, an iced raspberry mocha coffee, in his Brea office. “You can’t have the Ferrari, but you can have a great cup of coffee.”

Gourmet coffee drinking is on the rise despite conflicting and often confusing advice about its health effects. Though some medical researchers have linked coffee--both regular and the less popular decaffeinated kind--to heart disease, cancer and high cholesterol, other experts contend that moderate coffee drinking is not harmful.

Scientists who study coffee drinking habits say that a secret of coffee’s success is caffeine, a mild stimulant some believe has addictive qualities. Roland R. Griffiths, a researcher at Johns Hopkins Medical School in Baltimore, says habitual coffee drinkers need to keep up their consumption to avoid headaches and grouchiness associated with caffeine withdrawal.

Griffiths said gourmet coffee provides caffeine with a dividend--”a sense of connoisseurship,” as he put it--a double lift.

Take Juan Escobedo. A student at Cal State L.A., he happily pays $3.75 for a cappuccino and a scone at Starbucks, even though a nearby Winchell’s charges $1.20 for its version of breakfast. “Coffee is like food,” he said. “I don’t mind paying more if it is better.”

Executives at Winchell’s wince at such talk. Winchell’s brews its coffee with arabica coffee beans, a more flavorful variety preferred by Starbucks and other specialty coffee companies over the less-expensive robusta variety used for many mass market blends.

What is more, Winchell’s offers muffins, as do specialty coffee shops. Yet Winchell’s has closed or sold more than 100 stores over the last few years while gourmet coffee shops appear to be thriving.

Mel Allison, director of special projects at Winchell’s, muses about what is missing: “We have some locations where cappuccino would do nicely. We’re thinking about it.”

Why not? Californians are taking their designer coffee in less likely places. In Tustin, there’s AutoSpa, a combination carwash and cappuccino bar. In Huntington Beach, there’s Team Caffeine, a Fotomat-style coffee shop. In Carson, at the Arco refinery, there’s a vending machine that for 35 cents spits out French vanilla flavored coffee in addition to regular brew.

And in South Pasadena, the owners of Papa Don’s sandwich shop plunked down $4,000 for a countertop cappuccino maker, hoping it would bring in business from nearby factory workers. Manager Pat Harrington says that after three months he is selling 10 times more coffee than he used to, at higher prices. “It really worked for us,” he said.

Even as gourmet coffee drinking catches on, some people say they see trouble brewing as the business struggles with success:

* Some Southland coffeehouses have closed amid complaints that the business is getting too crowded. Among those recently shuttered was Java, a La Brea Avenue coffeehouse popular with the 30-something set--until four competing places opened nearby.

* Los Angeles is preparing to regulate coffeehouses, a sure sign that the business has come of age. The City Council is considering an ordinance that would require coffeehouses open past midnight to obtain a license, a response to complaints about rowdy patrons of a Sherman Oaks coffeehouse.

* Coffee bean prices are at near-record lows, but analysts say they will almost certainly rise, squeezing profits for coffee merchants. The world’s coffee producing countries are negotiating with the United States and other nations for higher coffee prices, so far without success. But analysts expect coffee bean prices to rise anyway because coffee farmers are switching to more profitable fruit and vegetable crops, reducing the world’s supply of coffee beans.

There are also signs around town that competition is causing some coffee shops to resort to gimmicks. The Cow’s End in Venice boasts an “international newsstand”--essentially a smattering of European magazines and newspapers--and an upstairs poolroom. Big and Tall Cafe in the Fairfax district sells books and rents videos. A sign offers: “Two cappuccinos and five free rentals with $9.95 membership.” Co-owner David Erikson says he receives more than half his revenue from books and videos.

Los Angeles beverage consultant Tom Pirko, an adviser to General Foods on its Maxwell House brand cappuccino, sees no reason to fret. He predicts that specialty coffee will take its place among the other “natural” drinks of the ‘90s: sparkling water and flavored teas. He is encouraged because people in their 20s who rejected coffee as the boring drink of their parents are choosing specialty coffee drinks.

“The category is real,” he said. “It will be a very considerable business in the ‘90s.”

Would-be coffee entrepreneurs are counting on that.

Ron Lancaster, 52, is seeking his fortune in Canoga Park, a working-class community in the San Fernando Valley short on coffee stores. Laid off in a wave of cutbacks at Hughes Aircraft, the lifelong cost analyst is gambling his $50,000 severance check on Storyteller, a combination used bookstore, coffeehouse and minstrel show.

The first week is quiet and Lancaster is worried; it is noon on Friday in Canoga Park and the place is empty. But it is too late to look back. The lease is signed. The used books, cafe tables and piano are in place. The pink flamingos are stationed near the coffee counter.

A customer wanders in, and L.A.’s latest coffee entrepreneur swings into action. Another cappuccino coming up.

Tracking Growth

Specialty coffee continues to increase its share of overall coffee sales, in terms of retail dollars and tonnage, buoying the market as sales of regular coffee stagnate.

Year Gourmet All Gourmet coffee Coffee Coffee market share * 1990 $1.01 billion $5.3 billion 19% * 1991 $1.07 billion $5.1 billion 20.8% * 1992 $1.15 billion $4.9 billion 23.3 % * 1993* $1.22 billion $5.0 billion 24.5% * 1994* $1.3 billion $5.1 billion 25.5% * 1995* $1.39 billion $5.2 billion 26.6% * 1996* $1.47 billion $5.3 billion 27.8% * 1997* $1.55 billion $5.4 billion 28.9%

* denotes projections Source: Find/SPV marketing research company