Why Philz Coffee is Silicon Valley's cup of choice

When Mark Zuckerberg and Priscilla Chan got married in May 2012, they did so discreetly. Hoping to avoid the media frenzy that would come with official invites, they opened their Palo Alto, California backyard to 100 guests for what Zuckerberg said would be a surprise medical school graduation party for Chan.

Everyone who arrived that Saturday afternoon, including the couple’s parents, was taken aback when they saw Chan in a lace gown and the Facebook chief in a navy-blue suit. Everyone, that is, except Phil and Jacob Jaber.

As the purveyors of Philz Coffee, San Francisco’s alternative answer to Starbucks, father and son were among the few entrusted with Silicon Valley’s biggest secret. On the day of the event they served their signature drinks, which were such a hit that Zuckerberg invited them to the postnuptial brunch the next day.

“I told Mark everything I did was a gift,” says Phil Jaber. “He was touched. … I could have got $10,000 or $15,000 out of him.”

For years San Francisco has kept Philz its own secret. It started from a single coffee station in the Jabers’s Mission District corner market in 2002 and is now a Bay Area institution whose coffee blends have kept their populist appeal in a rapidly gentrifying city. As super-premium local coffee brands have popped up in urban America, Philz is positioned both to challenge Starbucks and to avoid the snobbishness often associated with the so-called ‘third wave’ of coffee. Today at Philz, businessmen brush elbows with firemen and plumbers waiting in a 15-minute line for their fixes of Jacob’s Wonderbar or the iced Mint Mojito.

The company has no espresso-based drinks and is known instead for highly caffeinated blends like medium house roast Tesora, which Phil spent seven years developing. At Philz you won’t find the fancy brewing equipment of an artisanal coffeehouse. Beans are ground to order and then splashed with water at 205-degree Fahrenheit in pour-over funnel brewers. The coffee is good, but not cheap—a small coffee costs almost twice as much as Starbucks’ equivalent. Philz proponents say the value lies as much in the experience, or in what father and son call ‘Grandma’s House’, as in the coffee.

Unlike the corporate uniformity of Starbucks or the manicured hipster haunts like Blue Bottle, Philz has an informal charm that can be found in the mismatched couches at its original location and in the cup-by-cup approach of its baristas, who load drinks with heavy cream and brown sugar to each customer’s preference. “Taste it and make sure it’s perfect,” a barista says before handing over a beverage. Details like that foster “an emotional connection” for customers, says Jacob, 29, the CEO. “We think of ourselves as more in the people business than the coffee business.”

Now 60, Faisal ‘Phil’ Jaber opened San Francisco’s Gateway Liquor & Deli on the corner of 24th Street and Folsom in 1976, seven years after emigrating from Ramallah on the West Bank. For the next three decades, with his iconic fedora and thick moustache, he was a Mission fixture, hawking Marlboros, whiskey and eggs in a largely Latino neighbourhood.

Throughout, he maintained a passion for coffee. As an eight-year-old in Palestine he had sold coffee beans door-to-door and had often spent afternoons at family gatherings where his grandma shared Turkish coffee. On slow days at the store he’d taste-test blends and brewing techniques. He began serving java to customers in 2002. As word spread of the personally brewed coffee that used three times the amount of grounds of a typical cup, lines began to form. By 2003, in the aftermath of the dot-com collapse that decimated grocery and alcohol sales, Phil transitioned his store into a full-fledged coffee operation.

Jacob, the youngest of three children, joined his father full-time in 2005, somewhat reluctantly. Having dropped out of community college after a few months, Jacob didn’t want to mop floors. “The store was only 1,400 square feet, and I wanted something bigger,” he says. He encouraged his father to expand, and by early 2009 they had opened three new locations in San Francisco and one in Palo Alto.

The push was timed perfectly. Tech was transforming San Francisco, and Philz became a gathering place for students and coders. As artisanal coffee brands like Blue Bottle and Stumptown spread, Philz offered coffee drinkers an escape from Frappuccinos. “We’re not super-excited about Starbucks here,” says Trish Rothgeb, owner of San Francisco’s Wrecking Ball Coffee Roasters. “Philz is really in that wheelhouse of ‘This is our San Francisco vibe, and this is our San Francisco thing’.”

Other peers and competitors are not so generous. Blue Bottle CEO James Freeman calls Philz “interesting”, noting that plenty of other shops (including his) are offering pour-over coffee. Peet’s CEO Dave Burwick, whose company recently purchased artisanal roasters Intelligentsia and Stumptown, says Philz is short on “coffee credentials”. People in the business, he adds, “think of them less for the quality of their coffee than for the way they brand and deliver their drinks”.

It’s clear that techies have fuelled the company’s growth. Jacob has taken his father’s concept and expanded it into a business Forbes estimates brings in $50 million a year. That translates to average annual sales of over $1.7 million per store, far better than the average Starbucks’ $1.2 million. The company had sales growth of 60 percent last year and says that all 29 current Philz locations in the Bay Area and Los Angeles are profitable individually. Overall, however, the Jabers say Philz lost money last year, though they won’t say how much, because of investments like a new $4 million bean-roasting facility in Oakland.

Philz wholesales beans to Twitter and Salesforce and has placed stores near companies like Apple, where employees have an acronym for coffee breaks: WFP, or ‘working from Philz’. Zuckerberg built a store on Facebook’s campus and charges the Jabers no rent. Jacob acknowledges that Philz is hardly a tech company, but he has been known to direct-message Twitter CEO Jack Dorsey for advice. He’s also hired one person away from Apple to develop employee-training programmes, held company-wide hackathons and raised $30 million in venture capital.

This year Philz plans to open two locations in Washington, DC, the first test of whether the company’s service-oriented approach can succeed outside California. Ultimately Jacob has visions of expanding into New York and Boston, with 1,000 stores nationwide, and “disrupting” the coffee industry. He chose to start in DC because of its relatively cheap rents and growing Millennial population, and he’s personally overseen operations for the two stores.

So far the company has interviewed more than 300 people, and Jacob has hired 30. That obsession with finding the right staff is important, he says, because these workers will shape the first impressions of East Coast customers. All will go through the company’s Apple-influenced Philz University training programme, where they’ll be taught not to ask for customer names the way Starbucks does when taking orders. Doing so, Jacob says, is impersonal, because it suggests you’ve never met, and there’s a chance you’ll get it wrong.

But just as Starbucks once did, Jacob sees Philz completely changing the way people drink coffee: “It’s much bigger than an ­improvement.”