1. Deadly Myth 1 - “I can save rent.”
In the the retail business you can never “save” rent… period! You need to think of rent as not renting a building but as buying customers. My experience in owning 10+ coffee shops and helping start 100+ is that high rent is a good thing if it is an indication of the value of the location.
THERE IS ALMOST NOTHING YOU CAN DO TO OVERCOME A BAD LOCATION.
Solution: So what is a good location? A good location should have enough of the right customers in the right environment. Let me break that down.
- Traffic or the number of people walking by your shop is important
- Right customer: but is that traffic your target customer? If you are not 100% clear and focused on a customer segment then do that work first.
- Right customer doing the right thing: a large number of the right customers is not enough. They need to be doing the right thing. I once had a shop with 100,000 of our target customer walking right in front of the door but business was bad. Why? Because they were all on their way to and from work. They did go to coffee shops, but they went to coffee shops while they were at the shopping mall not on there way to and from work.
*If you have a bad location and you are making money then it makes sense to keep it open. If you are in a bad location and loosing money then you should close your store.
2. Deadly Myth 2 -“I have a cost or expense problem.”
Most people (82%) tend to be cost and expense focused versus revenue focused. Coffee shop owners need to focus most of there energy on driving top line sales. This is not to say cost isn't important but it isn’t most important. In our 2017 annual survey of coffee shops in China. Only 8% of those surveyed really understand their real problem is number of guests, which is causing revenue problems. If you have a revenue problem then every thing seems like a problem (rent, payroll, coffee, milk, management, labor). If you solve this revenue problem then you have enough money to pay for what you need to pay for and you will not have rent, payroll, coffee, milk, management, or labor problems.
So how do you solve the revenue problem? There is a principle in business that whatever you measure grows. So you need to measure what matters. So what matters?
- NC (New Customers): Number of new customers in the door ( you must have a way to track new customers) This can be as easy as asking people that you don’t recognize if they have every been to the store before and track this.
- ATV (Average Ticket Value) What is the average amount that each customer spends. Your POS system should have a way to follow this
- CF: Customer frequency. This is hard unless you have a member card. But you want to track and increase the number of times your members come to your coffee shop each month.
Everything you do should be to increase one or more of these and measure if they are increase:
- NC (New Customers): is increased by events, social media, coupons, advertising, group purchasing, yelp (or other rating sites),
- ATV (Average Ticket Value) in increased by up-selling at the cash register when done well this can lead to 10-20% increase in revenue
- CF: Customer Frequency is increased by
- New exciting products
- Customer service
- Making sure a customer never has a bad experience
- Consistent experience
- Looking for opportunities for to wow your customer. To give them an experience they will tell their friends about.
*A big part of a successful coffee shop is getting these New Customers to come back at least three times. If a customer comes and has a good experience they have a 41% chance of coming back, If they come a second time that goes up to 42% but if they come three times and have a good experience all three times. The chance of coming back goes up to 70+ %. Now you have earned their trust and become a part of their routine. So the some stores have invented really great programs to turn new customers to keep coming back, like special free items on the first 3 visits. These should be your 3 most popular and special items, but don’t forget simple consistency is also very important to earning this trust.
3. Deadly Myth 3 -“I can serve every customer.”
When asked about who their target customer is, most people are very unclear. Or worse they think wrongly that if they serve more different customers they will make more money. The problem is“when you serve everyone, you serve nobody well.”
Solution: Choose one target customer and do EVERYTHING from product, environment, music, furniture, pricing, color, lighting, opening hours to fit that customer. Ignore all other customers.
4) Deadly Myth 4 - “Their customers care about what they care about.”
Usually what you care about and what your customer cares about is very different. If you give them what you want and not what they want you will fail.
Solution: Assuming you have decided on a target customer, give them what they want not what you want. If you are not in the same demographic as your customer this will require some very intentional learning of your customers. I suggest a “bridge.” At first find customers who are close enough relationally to be honest but not so close they can’t be honest. Be very humble and beg them to be honest. Let them know the goal is not to feel good but to get good in your business.
When you choose a target customer. It needs to be a demographic that there is many of near your shop. For example if you are in a business district you might want to focus on business people. If you are in a shopping area you might want to focus on young women under 40.
If you haven't please read our article about the 5 types of coffee shop customers.
5. Deadly Myth 5 -“If I roast myself I will save money.”
Ok if you have 2-3 coffee shops that have great sales then roasting your own coffee makes a lot of sense. If you are just starting, you will not save that much money and your attention will be divided. When a coffee shop first starts it is like a new born baby. It will take constant work and attention. Your time will best spent on operating stores until you get 2 stores operating well and profitably. Selecting good green coffee, finding the best profile and roasting it well and keeping it consistent is not easy when you are juggling a busy coffee business.
Also a good coffee supplier can be a resource in more ways than you may have known. For example Torch will offer
- Free advice and consulting to it customers
- Discounts on equipment
- Free or Discounted training
- Market insights
*in-fact finding roasted coffee source early can help keep you from making common mistakes
6. Deadly Myth 6 -”If I sell more stuff I will make more money.”
Keep your menu simple. I believe in keeping coffee #1 it should be most of your sales. Then have a strong second. For examples Coffee and waffles. Or one chain store that I owned we focused on coffee and cheese cakes. However most likely the more you do the less consistent and less quality your product will become. The less fresh and you will have more waste.
Solution: How do you decide what you should add? Here are some questions you can ask yourself:
- Is this a product that is special?
- Is this a product that my Target customer will want?
- Can we make it better that anybody else?
- Can I do it with my current employees?
- Can I use the ingredients I already have?
- Does the product stay fresh for some time?
- Can I use the equipment I already have?
- Have the test customers responded well?
- Does it go well with coffee?
- Does it add to the coffee shop experience and not make unnecessary mess, or smell?
A NO answer to any one of these questions is reason to think hard about NOT adding the product. A NO to more than 3 of these questions means it is likely not a smart move and only should be pursued with caution.
7. Deadly Myth 7th -“I can get by without a coffee shop manager.”
There is nothing more important than your shop manager. However most people don’t know how to select or train this shop manager and isn’t isn’t even really sure what this shop manager should do. A good store manager will do three things well:
- Effective marketing to drive customers to the store
- Hire the right people
- Create Consistency
- Set extremely clear standards and processes on
- Customer service
- Service speed
- Clarify these standards
- Train employees to meet these standards (by the way training isn’t “telling” them the standards)
- Inspect to make sure said employees are hitting the standards that they have set.
- Set extremely clear standards and processes on
It is only through this work that managers can create a great store.
The Sustainable Coffee Institute or SCI has developed a training for certified store managers. This is revolutionizing the coffee industry. Because now you can get trained your self or send somebody to be trained to be a proper Shop manager.
If you want to know more about running a cafe class join us for our certified SCI cafe classes.