Coffee shops are trendy, they’re popular and they’re profitable – that’s why there are over 20,000 of them nationwide. From mom-and-pop stores to chains and franchises, the coffee shop is something of an American icon.
However, the coffee shop isn’t truly a restaurant and it isn’t strictly a retail establishment. As such, it faces unique challenges that these types of businesses don’t. There really is only one product – the coffee – and unless that’s superstar quality, the “feel” of the coffee shop has to do the heavy lifting as far as marketing, customer retention and brand building are concerned.
There are also several real business issues that are somewhat unique to the coffee shop industry as a whole. While many of these are similar to problems other food service stores might face, coffee shops must address them in creative ways, lest they risk potential failure.
If you own or operate a coffee shop, you already know all of this. But do you know what to do when your coffee shop slips dangerously out of control? Below you’ll find a handful of common coffee shop problems and solutions that will work to keep your shop open and your java jivin’.
Rising Supply Costs
Profit margins in the coffee industry are relatively hefty (about 85%, give or take), but the overall profit per cup is small. There really isn’t much room for forgiveness. That’s part of the reason why companies like Dunkin’ Donuts and Starbucks monitor their production so rigorously. And making margins is even more difficult as the price of beans goes up. The Small Business Development Center reports that the average cost of the coffee itself has increased roughly 25% since 2007.
Unfortunately, you can’t do much about the price of beans. Instead, focus on cost-savings measures around the shop. Regulate your inventory religiously and ensure you’re not over-ordering. Also, be sure that little (if any) product goes to waste. Search for alternative cup and lid options, and don’t be afraid to ask your customers to join in the cost-savings as well. By encouraging less waste, your business will appeal to those who know “going green” isn’t just a passing fad, but a necessity.
Young employees are also often impulsive employees, unruly employees and sometimes unreliable employees. Using Starbucks (one of the most popular coffee shop chains in America) as an example, the average age of employees is just 26 years. That opens you up to a whole host of problems, from employees using cellphones on the clock to customer relations and even personal grooming concerns. Add to that the average salary (between $6 and $13 depending on region) and you could have a recipe for disaster – high turnover, low employee engagement and disciplinary dilemmas.
You can avoid this by hiring the best possible employees and keeping them happy. Most coffee shops rest somewhere along a continuum of professionalism and familiarity. While some shops create an air of competence with skillful employees, crisp uniforms and gourmet drinks, others go for homey, comfortable and friendly. Most fall somewhere in between. You can use any of these attributes to keep employees engaged with the company and, therefore, reining in their wilder habits.
For instance, by investing in training, encouraging career growth and promoting from within, you can create deep-seated feelings of trust, respect and value in your employees. Additionally, by engaging with them on a personal level, using team building exercises and really caring about their personal lives, you can create a family feeling which engenders a whole other level of commitment.
And how important are your employees? Very. The SBDC shows that “the labor intensive nature of the coffee shop business places a premium on friendly, high energy teams which generate about $50,000 in annual revenue per worker.” That’s right; each employee is responsible for roughly $50,000 in income per year. So how do you keep those excellent employees once you find them? The short answer is to “keep them happy.” But how do you do that?
One major selling point is accurate scheduling. Multiple studies have found that good scheduling is the key component to employee happiness, retention and productivity. Not only that, good scheduling means your shop is always staffed properly and rarely has to rely on overtime in order to meet your customers’ needs.
Sure, you can do it the old fashioned way with paper and pencil, but web 2.0 applications are so much easier. These solutions (like the one offered by When I Work) give you ease of use and portability. Not only that, employees can keep track of their schedules on their PCs, tablets or mobile phones – no mixed signals there. Software programs like these also make scheduling seasonal employees (such as high school and college students) easy, allowing you to track their variable availability and leading to happier workers overall.
According to the National Coffee Association, 75% of adults in the U.S. drink coffee at least once a day. That’s led to a dramatic increase in the number of coffee shops, with the total nationwide topping out at over 20,000 in 2011. However, 70% of coffee sales are generated by the top 50 shops. That means the other shops have to scrap it out for the remaining 30%.
And how do they do that effectively? Carve out a niche. You don’t necessarily have to go to the extreme (like lingerie coffee shop Natte Latte did), but you have to do something to set your shop apart.
Create an atmosphere in which your customers will want to linger – this encourages repeat sales and customer engagement/attachment. Also, stay active on social media sites, such as Foursquare and Yelp. And don’t forget to reach out to other local businesses in order to build a co-operative marketing network. Complementary businesses such as bakeries, chocolate shops, tee-shirt printers, art studios and more can all give you that extra edge in a small community or a large city neighborhood.
Too Popular, Too Fast
But even if you do everything right, you still might find yourself in trouble. Becoming too popular, too fast presents a whole new set of problems – what Karl Stark, chief executive of Avondale, calls “catastrophic success.” For instance, take the case of online-only clothing retailer American Giant. After a single mention in a national magazine, they suffered half a million dollars’ worth of orders in under two days, which the company was unable to fulfill effectively.
There’s really not much you can do in that case but ask your customers to be patient – as Bayard Winthrop, owner of American Giant, did. In order to maintain the quality of your service, you’ll also have to increase your staff, adjust your ordering, and grin and bear it. It’s a good problem to have, but it’s one that needs to be addressed.
Your Coffee Shop’s Success is About the Experience
What all of this boils down to is the customer experience. People can get coffee anywhere – even without leaving their houses. You have to offer them something more than just the bean. You have to give them something they can’t get anywhere else – an excellent experience.
Whether you offer an upscale gourmet feel or a laid back homey vibe, you have to stay on top of things in order to do that. You can’t afford to let your shop get out of control. Manage your employees, manage your inventory and manage your customers’ experience in order to stay in command of your growing business.Is Your Coffee Shop Out of Control? Chad Halvorson