On the Road to Retailer Profitability, Part 2

Let’s talk about how to be profitable again.  Last time we discussed some areas of your COGS.  There are a few other areas to watch as well.

When starting a coffee shop, general supplies are another area to keep an eye on.  This would be non-consumables like napkins and paper towels.  Try to get these items yourself if possible at a Sam’s or other small-business oriented wholesale club for better prices.  Sometimes food service suppliers are not the lowest especially if you need to buy a minimum to make an order.   I have seen some food supplier costs be a lot higher than Sam’s.  Do the comparisons.

Also be sure you are getting the best rates on electric, gas, cable, internet, phone, etc.  Shop around.

In addition, most advertising for the coffee business is not like restaurants simply because coffee is an impulse buy. You should get more business off of your sign outside (i.e. traffic; vehicle and foot) than anything else.  Coupons do not work well at all. Position yourself in the community as the place to go for great coffee.  Being visible at networking and other community events is a great way to achieve this, as has been my experience.  If you are in the planning stages of opening a coffee shop this is an easier change than if you are already open.  However you can make modifications to your existing sign locations if you are willing to implement changes.  You may need to spend some (more) money before you can start to see more money however.

Cost of goods sold are critical and it’s mandatory you understand it all.  However for many, a larger issue at hand is sales, or lack thereof.  Attracting new customers is hard, the visits are not as frequent as they should be and ticket sale averages are low.  So what to do?

There have been some shops selling brewed coffee at a lower cost.  If you could sell a 12oz cup for $1.00 you could outsell any competition and may be able to get a muffin or other pastry up sale in addition.  You should still have a margin of below 50% on the coffee, which is not ideal but doable if you can get a lot of traffic in the door.  The perceived value is now different as the customer is getting two items rather than one for not much more than they were paying before for one.   You will most likely notice that you will be throwing away less coffee from your airpots if you do this.

Just to clarify, I am not talking about cheap coffee at cheap prices; I am talking about great coffee at affordable prices.  However this can have an opposite effect on you as customers may see this as ‘low price=cheap coffee’ so be careful how you align it in your community.  Be sure your marketing reflects the fact that your coffee is fresh, and the freshest possible.  You can up sell your customers by getting them to buy gourmet coffee beans from you too.  Any time you can get more money from a customer and they get a high quality product in return is a fair trade-off.

Another avenue to look at is to try to change up your pastry offerings.  Customers tend to get bored with the same old stuff day after day and especially if everyone else carries it.  You might even be able to get some PR on this and the affordable coffee idea; it is an angle that writers are looking for.  Imagine that, fresh roasted high quality coffee at affordable prices.  That is newsworthy!

As I said last time, I wish that this was a finite list but obviously I do not have all the answers.  Who does?  Try to think outside of the box when it comes to watching costs and increasing sales.  With a little practice and patronage from your customers you should see an increase in sales.

My name is Tony DiCorpo, and I am a coffee roaster, coffee shop business consultant and barista trainer.  I am a coffee shop business consultant and have an eBook on how to start a coffee shop.  I also own Troubadour Coffee Roasting Co. where I sell coffee and espresso equipment and where you can buy gourmet roasted coffee beans.


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