The coffee business is as enticing as the aroma of freshly ground coffee beans. Coffee shops pull in a sum north of $25 billion every year just in the US. Not just that, the average gross profit margin is around 85 % for a coffee shop. Even though the overall success rates of coffee shops is high, as the title suggests it is not at all easy to survive in the café business, those numbers seem very appealing but let’s peel back the onion.
The keystone why coffee shops are difficult to open and run is because coffee shops are majorly service-oriented businesses not product-oriented. Unlike your typical coffee bottles or grounded beans that sit on the shelf of a supermarket and consumption is mostly at home, products in coffee shops are generally consumed at the coffee shop, the place of sale and customer interaction. Even in cases of takeaway, the consumption is, more often than not, outside the home.
So keeping in mind that coffee shops are mainly service-oriented, let me delve into the 7 reasons why opening and running a coffee shop is harder than you think.
1. Perfecting Product for Your Market is Extremely Difficult
The product is coffee itself. There’ll be no business if the coffee itself is not up to the mark. No one wants a bad cup of joe right?
So extreme care has to be taken in deciding the blend, texture, taste and any other characteristics of the coffee. Not just that, customer preferences may change according to many other factors like seasons for example. All these have to be kept in mind. At the same time, you have to be agile enough to keep up with the new customer demands like syrups or sweeteners. You can read about the most popular coffee syrup flavors here.
2. There’s More to Pricing Coffee Than You Think
Price essentially has to be the highest amount a customer is willing to pay for your coffee at your shop. It is not a very easy task to determine that. So as a starting point price can be set at the prices the competitors are charging.
Price cannot vary between customers at a shop as it will lead to chaos. So to figure out the highest price that can be charged at your coffee shop, constant testing is required. Test the change in revenue at the new prices. Calculate whether the gross profit increases or decreases due to the change. In accordance with the result of that test, make a decision about the price.
Also, the price cannot remain a constant there will be a lot of external factors which will drive up or down the cost to produce coffee, like the price of your coffee bean source or how weather affects the supply (therefore price) of your coffee. So the determination of price is a never-ending process. Price has to be tested constantly and compared against past data to make for promising forecasts. There are many programs that will help to do that. Both online and offline ones.
3. Just How Important is Location?
Three things are very important for your coffee shop: location, location, and location. Unless it is the elixir of life, very few people are going to drive miles to your coffee shop. So it is essential that your coffee shop be easily accessible to the customer.
But the problem with the location is not that simple. In places which are easily accessible to a large number of customers, the rents will be through the roof, think NYC rent or lease prices. When the rent is lower there will not be enough foot traffic to sustain a business. It is like a see-saw. It is very difficult to balance between the rent and foot traffic. So you will have to do the extra legwork to find a place which has a good balance between rent and foot traffic. Innovations in the layout can bring about a huge difference in this respect though.
4. The 2nd Most Important Aspect After Operations: Marketing & Branding
Promotion is the way in which you reach out to the customer. Everything from physical promotional methods to your online presence is part of Promotion. Earlier physical promotional methods were important. But now in this connected world, it is easy to reach your customer at a very low cost. Don’t be fooled though, it may be easier to reach customers in today’s digital age but it’s even more difficult to grab their attention. Knowing those two different aspects is key!
Another problem with that is that your competitors also can reach the same customers at a lower cost. In addition to staying on top with your online presence, innovative strategies have to be implemented to reach the customer and make your brand stand out among the competitors. The minimum online presence to be had: listing on Google maps and Yelp, having Instagram/Facebook pages, a presentable website with sufficient information. On top of that, you can use advertising platforms of Google and Facebook to deliver targeted promotional content to your potential client.
The platforms mentioned above are only the base foundation that should be considered, you also have to be thinking bigger to make a larger impact while using those platforms to your advantage!
As a thumb rule, the next three factors make or break coffee shops. Essentially these three elements are the main reason behind whether a customer returns to a coffee shop or not.
5. A Smile Goes a Long Way for Your Coffee Business
A smile makes the coffee sweeter (if that’s your taste).
A coffee shop will have to employ people. Else there will be no difference between a coffee shop and a coffee wending machine (that might be too specific but you get the point). But people are not produced in an assembly line so that they all will act the same way. So extreme care has to be given in selecting and training employees. Employees, especially the ones that directly interact with your customers, are the torch bearers of your brand. So without a doubt, they will have to act in accordance with the ethos of your coffee shop brand.
6. Operational Success is Crucial to How Your Coffee Business Performs
This refers to the backend and front end processes of your coffee shop. A process like cleaning (crockery, cutlery, floor etc) is a backend process. The customer does not see a backend process happening but the experience of the process is in front of the customer.
Whereas, processes like serving, billing, payment process, the flow inside the shop etc is directly experienced by the customer. Both these kinds of processes play an important role in forming a perspective or opinion about your coffee shop. So it is important to take a good survey of the processes involved in your coffee shop and make a decision on whether these processes help in generating customer satisfaction or harms the same. Cut down or alter the processes which harm customer satisfaction and try to introduce processes which will increase customer satisfaction.
7. Atmosphere & Customer Experience
Here’s an example
This element can be given more clarity by giving an example. A chef prepares two portions of the same dish, using the same ingredients, following the exact same recipe, in the same kitchen. Let us imagine that there are two doors to this kitchen, one leads to a typical looking American diner and the other door leads to a Michelin rated restaurant, yum! The number customers will be willing to pay for the same food will be different in the two settings. The difference in these two settings are the difference in customer experiences.
The ambience, the music, the lighting, the furniture, the furnishing, the crockery, the cutlery, all those are part of the customer experience. These are the elements that consumers consider to be valuable for the level of service. So it is of paramount importance to get the coffee vibes right! Herein lies the difference between a coffee shop that thrives and a coffee shop that shuts down.
Why it’s important
It is evident that the willingness to pay for coffee is directly correlated with the experience a customer encounters with at your coffee shop. This is everything the customer encounters starting from the signage of your shop to even the receipt given. Customer experience is a significant element in the amount a customer is willing to pay for a coffee. Also, more importantly, it is the factor that keeps them coming again and again and again. When a customer thinks about coffee it is the more so the experience that brings the name of your coffee shop to the top of his/her consideration alternatives or to the last, not so much as the product as you might think it does. Maybe not even in the alternatives considered.
Hence it is of paramount importance to get customer happiness right. So your coffee shop brand has to be present everywhere the customer is going to remember about. Let’s take the example of a customer taking away coffee from the shop. Even though the customer has been inside your shop only for a couple of minutes, she will be holding and interacting with the cup an amount of time that is in multiples of the time she spent at your coffee shop. This is an opportunity for you to link the coffee she drinks to the identity of your shop. A run-of-the-mill takeaway cup will not remind her of your shop. You need a cup with the name and identity of your coffee shop in her hands.
The same goes for other elements inside your shop. With the crockery, cutlery, furnishing, even the receipt you have to send a uniform idea to the customer which will help her link the experience of drinking coffee to your shop.
You’ve got good coffee, great. Focus on the customer experience 10 times more and your shop will be extremely profitable. Cheers!
Brand My Cafe helps small & medium-sized businesses, cafes and foodservice brands grow their identity through custom coffee cups, coffee sleeves & more. Join our exclusive Facebook group Restaurant Brand Builders to brainstorm ideas with passionate other passionate owners!