Coffee Shop Economics – The Secret to Profitability

We recently watched Andrew Tolley’s talk on ‘coffee shop economics’ that took place at Barista Camp a little over a month ago. What he had to say was eye opening, to say the least. The overarching theme of the talk was the importance of profitability and its significance in successful coffee shop ventures. As the formula states: (Revenue – Costs = Operating Profit). So it seems easy, right? The key to a profitable business only requires that your revenues outweigh your costs. The Trezoro team understands that this is easier said than done, so we’re here to expand on Tolley’s formula to give you tips towards maximizing your revenue.

So what is revenue exactly? In its simplest terms, revenue is the income that a business has from its normal business activities. Tolley breaks it down into three main components: (Market Size x Regularity x Basket Size = Revenue). Lets break it down a bit further.

Market Size: Market size is basically just how many customers your shop has. Factors that affect this include location, competition and demographics.

  1. Location: Picking a location is crucial to coffee shop profitability. Some things to think about include: the amount of foot traffic surrounding your shop, distance from public transportation or a residential area v. an area packed with offices.
  2. Competition: How many other shops are within your proximity?
  3. Demographics: Knowing your local market is crucial. Market research can be expensive, but it’s an investment that will yield returns. Results will give insights to shop owners regarding product offerings, pricing and promotional efforts.

Regularity: Regularity is simply how often your customers are coming in. Coffee shop owners can increase regularity in the following ways:

  1. Convenience: Of course this is easier said then done, but as we said before, location is key. A customer is more likely to regularly buy from a shop that is on their way to work than from one that sends them on a detour. People value their time, especially in a buzzing city like London.
  2. Loyalty Schemes: They give customers a tangible reason to return to your shop. Working towards that 5th free cup of coffee will incentivise customers to visit your shop more often. To get further ahead of the competition, go digital and try a mobile loyalty app.
  3. Customer Service: Everyone likes a friendly barista and their cup of coffee in a timely fashion. Pinpoint what’s important to your customers and focus on creating the best possible experience for them. One bad experience can cost you a customer to the shop next door.

Basket Size: This is the transaction value of your customers on average. How much are they spending each time they visit your shop and how can you increase this number?

  1. Menu Variety: It may be easier for shops to simply focus on coffee; however, people are often looking for something to eat as well. Adding food items to your menu can help increase the average transaction value of your customers.
  2. Barista efficiency: An efficient barista will be able to maximize the number of drinks produced. The faster you can make drinks, the faster you can sell them, which ultimately leads to increase revenue. Key elements of attaining full effectiveness include: comprehensive barista training, investing in worthy equipment and proper equipment maintenance.
  3. Upselling: There’s always something more you can offer your customers and a knowledgeable barista can help make this possible. If someone orders a cappuccino everyday, it may be worthwhile to respectfully offer him or her your latest filter coffee, or ask them if they’d like to add on a sandwich or pastry.

To view the full talk visit: https://youtu.be/fCJdI8-kxA0

Picture: Andrew Tolley, co founder of Taylor St Baristas & Harris + Hoole.

Picture from: Barista Guild of Europe

Dominos – The Power of Customer Feedback

Dominos was named America’s favorite pizza brand, according to statistics from the 2015 Brand Keys customer engagement index . When asked what they attributed this recognition to they responded with “by listening to our customers”. Customer feedback has driven Dominos to revamp their almost 50-year-old recipe, expand their menu and implement technological innovations like their mobile loyalty app and the beloved online pizza tracker – don’t lie, we’ve all found joy in watching the cartoon pizza chef prepare a faux order for us while we waited for the real deal.

Anyways, Dominos is a perfect example of a company that successfully utilised customer feedback to create brand loyalty. The Trezoro team excels in mobile loyalty apps so the Dominos case got us thinking. The following are tips that can help businesses improve their customer feedback systems and follow in the footsteps of the much-loved pizza giant.

  1. Acknowledge Feedback: First of all, if a customer takes the time to provide your business with feedback, good or bad, it’s important you get back to them. Take this recent statistic from a UK customer engagement survey for example: 43% of consumers surveyed said that they don’t complain/leave feedback because they don’t think the business cares. However, 81% of these consumers said they would be willing to give feedback if they knew they would get a faster response. By acknowledging customer feedback in a timely manner businesses can generate more of it, as customers will see the value in taking the time to submit.
  2. Put Feedback to Use: We get it; sometimes the feedback we receive from customers isn’t what we’d like to hear. However, its important to remember that happy customers are profitable customers and profitable customers keep businesses afloat. Whiny patrons seem like a pain at the time, but they’re actually doing your business a favor. They’re probably saying what a lot of others are thinking, so it’s important to treat feedback seriously and take action when appropriate.
  3. Identify Best Customers: Customer feedback allows businesses to classify their best customers and to turn them into company advocates. Word of mouth is a hidden promotional gem, as it is both credible and free of cost to a business. Customer advocates with no financial stake in a business serve as a more trusted source of promotion than efforts coming directly from the company. Businesses should therefore identify these ‘best customers’ and continue to keep them happy.
  4. Social Media Listening: Asking for customer feedback directly can often result in sugarcoated responses. Monitoring what people say about your business on social media, however, gives companies the opportunity to see what customers are – for lack of a better phrase – saying behind their back. Today’s digital society allows customer to post whatever they want about a business on social media and reach masses of people instantly. This serves as both a blessing and a curse for businesses so it’s crucial that they oversee it carefully.

Picture courtesy of Dominos website

Loyalty schemes in the age of the ‘Millennials’

2015 was named ‘Year of the Millennial Consumer’ by Forbes magazine, and certainly with good reason. As the largest generation in world history they are soon predicted to have the largest purchasing power in the consumer market – more than the boomers! These are the consumers businesses need to be appealing to, so knowing a thing or two about them is worth your while.

So you’ve got a loyalty scheme – that’s great. But what type of loyalty scheme will appeal to this new generation of millennial consumers? It’s important to lock them into brand loyalty early on so your business can see financial profits later. Here are a few tips from the Trezoro team that’ll help your business do just that:

Go paperless. The Millennial consumers are mobile obsessed. They grew up with technology, so naturally they are mobile experts. Ease of use and convenience is not only desired – it’s expected. You can’t rely on this generation to go fishing through their wallet to find that flimsy stamp card they got two weeks ago – because they just won’t. With the introduction of new technology like Google Wallet and Apple Pay, the mobile will act as a wallet entirely and eventually defeat their purpose. Your loyalty scheme should most definitely be digital to avoid extinction.

Make it fun. This may sounds silly, but its true. Millennial consumers are drawn to loyalty schemes that feature a competitive aspect. Take this statistic for example: 27% of millennials continue using a loyalty program because it features elements like leaderboards, badges or levels. Only 7% of baby boomers feel the same. This is a serious gap and just goes to show how drastically consumer preferences are changing among generations. Consider adding to your loyalty scheme features that let consumers track their progress and give rewards to acknowledge achievement as they reach certain levels.

Add a social element: Millennials are a generation that seeks approval from others, especially their friends. Socializing and consuming are done simultaneously so a friend’s opinion is likely to influence their own. Consider linking your loyalty scheme to different social media platforms so these consumers can share their progress with their followers on applications like Twitter, Instagram and Facebook. This option will satisfy the millennials desire for social approval, while spreading brand awareness for your business. Everyone wins!

Photo from: vicimediainc

The road to becoming one of the best coffee shops in London

Keeping up with the Chains

There is no denying that the UK coffee shop industry is dominated by big brand names. Well-known chains like Costa Coffee (1,821 outlets) Starbucks (824 outlets) and Café Nero (580 outlets) represent a large portion of the market and their presence is certainly growing. This doesn’t leave much room for independent coffee shops, but the good news for new shop owners is that there are plenty of ways to differentiate your business from the big players. The following tips from the Trezoro team will help new coffee shop owners keep up with the chains and guide them towards becoming one of the best coffee shops in London!

Understand where you can’t compete: As an independent coffee shop there is no use in trying to compete head to head with the big brands. To fully understand where you can outdo the chains, the first step is identifying where you simply can’t. Two areas where the big brands inevitably have an advantage are locational convenience and price control. Take market leader Costa Coffee for example. They currently have close to 2,000 stores in the UK and they plan to open even more. With a shop on every corner, it’s clear why chains like Costa Coffee dominate in terms of convenience. The situation is similar for price. The massive output by chain coffee shops allow them the flexibility to control the price aspect of competition. So no, as an independent coffee shop you can’t be on every corner, and no you may not be able to offer to cheapest flat white in town. Leave this to the chains and instead focus on the areas where they can’t compete.

Be good to your customers: There’s no denying that consumers will use chains from time to time. The convenience and low prices are sometimes unavoidable; however, there is certainly more consumer satisfaction associated with shopping locally and supporting independent businesses. As a local business this ‘shop local’ trend should be taken full advantage of, but more importantly don’t fail to recognize what customers may be giving up in order to buy from your shop. Consider things such as, “where can we make up for the extra 5 minutes this customer spent getting to our shop?” or “ how can we justify the 50 extra pence this customer spends on their daily espresso?” Both questions can be answered the same way: stellar customer service. Get to know your customers. Greeting a customer by name or remembering their daily order makes them feel valued and gives them an incentive to buy from your shop, instead of that hectic Starbucks which is on their way to work but always gets their order wrong. The little things matter, and customer service is one of the things that can set your shop apart from the chains.

Image from: costa.co.uk

The road to becoming one of the best coffee shops in London

Coffee Consumption in the UK

It’s no secret that the UK is on the low end of the list when it comes to European coffee consumption. Analysts at Barclays and the International Coffee Association have found that Brits consume only 2.8 kg of coffee per head, just a fraction of the 7 kg per head consumed in countries like Sweden and Germany. What’s surprising, however, is that the UK coffee shop industry is on the rise and there appears to be plenty of room before the market saturates. So what does this mean for local shop owners? The following tips from the Trezoro team are here to help coffee shops manage the consumption habits of their customers and guide them towards becoming one of the best coffee shops in London!

Create an appealing environment: Why is it that the coffee shop industry is able to grow beyond that of actual coffee consumption? The answer lies in the way in which Brits are utilizing coffee shops. They are not using coffee shops only to buy coffee, but also as social meeting points. A tradition once reserved for pubs is shifting towards coffee shops, and pubs are closing at a rate of about 31 per week, according to The Campaign for Real Ale. With that being said, shop owners should increase their focus on selling the ‘coffee shop experience’. Create a welcoming environment with a unique ambiance. A large enough seating area is important in creating a space where people feel comfortable bringing their friends, a wifi connection can serve as a make or break factor for someone looking for a place to get some work done. Getting people into your shop is the hardest part. Once you do that, your products will start to sell themselves.

Consider loyalty schemes: It is less expensive to retain old customers than to acquire new ones, so it is important to treat your current customers well. So once you’ve gotten some customers into your shop you must ask yourself, “how can we get these customers to come back?” or more importantly “how do we get these customers to come back often?” Customer loyalty schemes are a great way to implement a kind of relationship-based marketing and can serve as a thank you to repeat customers while improving your businesses bottom line at the same time. Something as simple as rewarding a customer with a free hot drink for every ten they buy can give an independent coffee shop a competitive edge. While you are rewarding your customers for their consistent business, you are also giving them a reason to buy from your coffee shop instead of the one a few doors down.