The Economics of Your Local Coffee Shop
Many folks remember the world before Starbucks came along: coffee was called Joe, a cheap drink you grabbed and finished on the way to the office. Starbucks became many people’s first introduction to a sort of gourmet coffee. It also became the first time coffee-drinkers accepted forking over $4 for a cup of coffee.
It has been a few decades since Starbucks emerged from Seattle to take over the world. As a result, the way Americans drink coffee has changed drastically. According to an article in the New York Times, Americans drink less coffee today than we did in the 30s, but we’re drinking higher quality, better brewed cups.
In fact, according to a 2014 study from the National Coffee Association (NCA), daily consumption of gourmet coffee among adults in the U.S. is up 34 percent in 2014, a 3 percent rise compared to 2013. On the contrary, daily consumption of non-gourmet, regular cups of Joe are down four percent to 35 percent. The NCA study also found a rise in daily espresso drinks: 18 percent in 2014 compared to 13 percent in the previous year.
Peter Giuliano, a 25-year veteran of the coffee industry, told Yahoo Business that he has seen a rise in independent speciality coffee shops and describes the phenomenon as feeling like “a trend.”
“We think there is a slow, steady rise that parallels the growth of the specialty coffee movement,” Giuliano told Yahoo. “We credit the start of the specialty coffee revolution to Peet’s Coffee opening in San Francisco in the 1960s. That inspired another wave with Coffee Bean and Tea Leaf and Starbucks in Seattle opening in the ‘70s and ‘80s. Now the people who grew up drinking good coffee are opening their own coffee shops.”
Today, it’s rare to walk a few blocks without seeing a hip cafe on the corner. It seems everyone wants to get into the coffee business. Donald Moy, owner of NYC’s 12 Corners Coffee, was one of those people. With a long line of family who owned mom-and-pop shops, Moy aspired to open up his own business venture one day and chose coffee as his speciality.
“I went a couple of times all over the city [to bigger brand coffee places] and I didn’t like the way that I was being served,” he told Fundera. “I always said that one day if I ever open one, this is how I’m going to do it.”
That day came in August 2012 when 12 Corners Coffee opened its doors in downtown Manhattan. Two years later, according to an article published on Business Insider in October 2014, 12 Corners Coffee is rated New York’s best coffee shop by Yelp reviewers.
“We’ve been here for two-and-a-half years and for a good one year and three-quarters, [business] was really hard,” he said. “In the last year or so, the block has definitely changed” and with it, so did business for Moy. The entrepreneur recently opened his second location a few blocks away and is currently in negotiation about a third location in Midtown.
To dig deeper into how he built his business, Fundera spoke to Moy about the economics of the alluring coffee shop:
Customer service is more important than anything else.
According to Moy, big chain coffee shops can’t afford to offer good customer service and that’s where small businesses have the advantage. 12 Corners Coffee is known for brewing drinks as ordered and bringing them directly to customers’ tables. It’s also not uncommon for employees to trust customers to pay at the end of their visit if they’re there for numerous hours plugging away on laptops.
“[The customer service] is sincere,” said Moy. “I like to treat people the way I like to be treated. Get to know people. If I can make a friend, that’s even better because you never know where that can lead you. Who knows who’s sitting there in the coffee shop.”
The quality of the coffee is crucial.
Quality in the coffee and convenience are the main reasons why customers accept the uptick in coffee prices. To ensure that quality is maintained, Moy spends a lot of time training his staff.
“Each potential employee goes through about two months of training with me,” he said. “I don’t even let them touch the espresso machine until I feel that they are going to present customers with a great cup of coffee. The people at my store are the top. I have a great bunch of people there.”
Consistency is key.
If you want patrons to walk past all the other coffee shops on the block and go into your’s, consistency better be what you’re offering.
“Sometimes you go to a coffee shop and three days out of five, it’s not going to taste the same or look the same,” said Moy. While it’s tough to produce the same quality every time, this is crucial in the coffee business, especially in a time when people are becoming more knowledgeable about speciality coffee.
A warm, inviting environment.
A coffee shop is never just about a good cup of coffee. Many people frequent coffee shops as a place to do work. The environment is also known to be a good place to do reflective thinking. Some people prefer to have meetings in convenient cafes. Corporate workers use the coffee shop visit as a break from their stressful day.
Moy emphasizes cleanliness and friendliness to his staff as a way to make all patrons feel welcomed. “My number one thing is clean, clean, clean, clean,” he said. “I want the place spotless.”
Adopt a good inventory system.
Overspending is one of the biggest mistakes small business owners make, said Moy. For his own supplies, he does careful inventory and uses local suppliers since they’re closeby and also small business owners. Moy likes knowing where he’s getting his goods from.
Aside from the above tips, Moy stays on top of his coffee game with the following strategies: offering loyalty cards to show your appreciation, selling baked goods to increase revenue, and finding an investor who knows everything you don’t about the industry.
Running a small business is no easy feat, but for all of those who might have dreamed of opening a little, artsy cafe, now might be the time. Consumption and interest in the speciality coffee culture has increased steadily in recent years and doesn’t seem to be stopping any time soon. While competition from bigger chains might have been a problem at one time, modern consumers prefer to support local neighborhood shops — especially if they’re offering what the big chains can’t.
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