Tag Archives: coffee shop start up

Green Coffee Prices Are Up; Are You Adjusting Your Prices Accordingly?

Whether you are opening or starting a coffee shop business, you must maintain a certain margin in order to be profitable.  Even if you are new to the coffee business, you probably know the reasons behind the green price hikes these days in the specialty coffee industry.  Right now we are in a tough economy there is no doubt.  The coffee market is up so high the price of green coffee in most cases is double what it was a year ago and in some cases triple. It’s hard to imagine paying more for fresh roasted gourmet coffee beans as well.

Being in the specialty coffee business is a lot harder than most businesses since the margin is small to begin with.  Couple that with here and now in 2011 and I think more shops and roasters will close.  I don’t want to think that but unfortunately I believe it will happen.  As a lot of us struggle to make payroll, rent and the rest of our overhead we need to be sure that we are on top of our game and hit the cost increases from the get go.

A few weeks back I wrote a two part article series about how to stay profitable that without a doubt are words to not only consider but implement if possible.  However we must not forget about our pricing structure.  I cannot tell you how much to raise your prices; that is only something that you can do.  Sometimes it’s a nickel, sometimes it has to be 10 cents or even a 25-50 cents.  However I can urge you to do it for business sake.  If you are just starting a coffee shop business then you must price your menu and coffee beans correctly from the start.

Increase has hit everything however: not only coffee but sugar, milk, grain, paper, transport, rent and other overhead.  We are faced with a dilemma:  buy cheaper products or increase prices.  I think we know what needs to be done if we want to remain in the quality game.  We must, however be prepared to educate the public as to why because we will hear some negative things about it.  I think they will be minimal though.

We must also remember to be sure we raise prices to be profitable and not just to cover the increases.  Most of us are passionate about coffee and look at profit last, however  profit makes being in business seem much less risky.  To not raise prices will be harmful to our business.  The increase must be all around however, not just on whole bean coffee or brewed coffee.

In my small artisan roasting business I am very careful to not take on much more wholesale business. Seems odd I know but my reasoning is that since wholesale green prices have increased (we pay 2 or 3 times what we paid a year ago) that we can barely double our wholesale prices and make much of a profit after costs.  I am focusing on retail, but I have that option being a roaster as I can roast my own coffee; most retailers do not.  The summer season is coming upon us in my area and we’ll be hitting the farmers markets retailing our fresh roasted coffee beans again.
I think it’s plain and simple whether you are open for months or years, or just starting a coffee shop business:  If we do not raise our prices in accordance with our costs then we will inevitably not be in business for the long term.  Some customers will understand this and some will not. The ones that do understand will be our loyal customers and will gladly pay the increase as long as they keep getting the same high quality product and service we have always provided. Those customers that leave for a ‘cheaper’ product will most likely be back when they want quality again.

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 coffee beans.

Picking a Roaster for Your Coffee Shop

You are opening a coffee shop.  Customers will want coffee.  You plan to have customers buy your gourmet coffee beans online.  You have everything ready to go except beans to brew!  That means you need to find a roaster.  You should give yourself at least a few weeks to sample several roasters.

You should consider finding a roaster that is relatively close to you.  My advice is to find one within a 50-75 mile radius of your shop (or thereabouts) or one that will deliver freshly roasted coffee beans within a few days after it is roasted.  A lot of roasters will deliver (for a fee usually) if you are within a certain distance from them.  This is not always practical however so you may have to get the closest roaster where you can buy the best quality gourmet coffee beans.  They should be able to ship it and enable you to get it within a few days, fresh and smelling great.

However do not pick a roaster based solely on closeness to your shop; they must carry a quality product.  Trust me there will be at least one roaster that is nearby AND has great coffee.  It’s going to be your job to search them out.  Enter the artisan micro-coffee roaster.

Every artisan roaster is usually (hopefully) committed to supplying you with a compelling product.  After all, you will pay a slight premium for this specialty but it is well worth it in the end.  Why?  Because this is where your competition fails by comparison.  They may be buying roasted coffee for $6.25 per pound on average, but they are not any better than the other guy down the street that is buying the same or similar average coffee.

You on the other hand are paying $7-9 per pound but your product is superior and your customers will taste it.  You also get a much better customer service experience with an artisan roaster as they are selective about who their customer is.  Of course, the final proof is always in the cup so taste and enjoy!  Pick the coffees that you enjoy.  With the help of your roaster you can serve an array of awesome coffees that will have your customers spreading the word and coming back time and time again.

Before I started roasting my own coffee, I used to buy from a small artisan roaster that at one time had five coffees from El Salvador alone.  And three were from one farm alone: there was a wet processed, a dry processed and a pulped natural all from the same trees.  So try to seek out a roaster that can get you something unique and compelling for at least the entire season.  What happens next year is another story and an adventure on its own.

This will help you to be unique as well because the next harvest will hopefully bring you another round of Estate grown farm-specific coffees.  Maybe this time your focus will be on Kenya or Guatemala.  It can constantly change based on the roaster’s green buying contacts with farmers and/or reliable green coffee brokers.

Once you find some artisan roasters that meet your criteria, call them up and introduce yourself.  Tell them what you are doing and that you’d like to have some samples to cup.  Some may even invite you to the roasterie for a tour and cupping.  Some will ask to do a cupping at your shop.  Both are great opportunities but if I had to pick off the bat here, I’d pick to go to the roaster that invited me to their roasterie first.  You do, by the way need to see how coffee is stored and roasted, as well as the roasterie operations first hand.  It is a great experience.

As you prepare to start a coffee shop business, get your roasters picked to get samples from and ask them what type of gourmet roasted coffee beans they have.  All top notch quality roasters will carry several varietals and maybe even a few custom blends.  They should talk to you and get a feeling for what you are looking for and make recommendations to you.  There are a lot of roasters that are small, artisan roasters such as myself that limit the amount of stock they carry for several reasons but mainly because they guarantee quality and a compelling product.  I would suggest getting coffees that are single origin farm specific or estate grown coffees.  What this means is single farm lots are just that:  from a single farm (estate grown; both are really the same).  These coffee beans are not ‘pooled’ from several farms and sold in one package.

You can even work with your roaster to develop one or more custom blends specifically for your shop.  That is always nice.  Then you have a blend that is only available at your shop.

So when you are opening a coffee shop, be sure you get the best coffee you get and charge accordingly.  You and your customers will thank you!

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 coffee beans online.

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.

On the Road to Retailer Profitability, Part 1

Let’s talk about how to be profitable.  Simple concept but for some it is difficult to attain.  There are so many areas to look at whether your shop is already open or you are just about to open a coffee shop.  This will be the first of a two-part article on the subject.

It all starts with an excellent location because all the marketing, cost control and working your arse off in the shop are not going to help if customers cannot find your door and get to it easily.   Furthermore if you fall into the bad location dilemma, even if you iron out all of your costs and increase sales it does not mean a thing if you yourself are still left working 150hrs a week from now until the end of time because you can’t afford to pay more employees.  It’s physically not possible.   Ask me how I know this.

What is particular is that if your rent is way out of line, there is not much you can do unless you renegotiate your lease, complete it, get out of it or buy it out and move. This is often the biggest $$$ issue before COGS and payroll.  Having said all of this presuming you are in a good location (A or B tier), let’s look at a few areas that can give you more profit as a coffee retailer.

Pastries and food are almost always a problem area.  When opening a coffee shop this can be the toughest area to control until you get some sales history.  Then you can base purchasing on historical figures. Fact is sometimes it is the waste factor (amount tossed at day-end) or the cost of the ingredients if you are baking in-house.  You should watch your ordering closely and track all the waste.  That goes for everything.   As well, your staff should always be trained properly to be consistent.  Anyone that cannot do what you tell them needs to look for a new job. That is just the way it is.

Unfortunately theft is also easy for some and a way for you to lose revenue.  Be on the lookout for free coffee drinker friends of employees and employees helping themselves rather than buying.  You can weigh your coffee beans and measure your products to know what you actually use each day.  Match that up with your sales figures and you can see what you should have in cash vs. inventory used.  This is where a POS comes in handy to achieve this much faster.

Be sure to keep a log of everything that is thrown out.  You also need to keep a log of any comps as well so you know where it is all going.  In the end, your waste should not be more than 2.5%, max.  Even that is a little high.  Of course lower is always better.  However, your waste should be accounted for in your pricing.  Retool your menu prices if need be; once a year is not uncommon to raise prices.  Sometimes just increasing your items a nickel will show high on the bottom line.  I try to keep COGS at a high of 33% and a low of 28%.  For the smaller operator the lower is harder especially since saving sometimes means spending more cash.  However if you are only saving 50 cents on a bottle of syrup is it necessary to spend more cash for the entire pallet?  Probably not.

Another area of concern is payroll.   When starting a coffee shop running high on staff hours can spend through your cash fast, but running too light may make customers leave if the wait is too long so finding the balance is key here.  It will take some time but if you keep on it, you will get the right balance.  I have always budgeted 30% or lower for labor, including my salary.  This would include manager salary as well if you are not managing hands-on and working elsewhere (pronounced ‘not taking a paycheck’).

I wish that this was a finite list but no such luck.  Next time we will dive into a few other areas to watch as well as increasing sales.  Try to think outside of the box when it comes to watching costs.  With a little practice however you should see an increase in your bottom line.

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 I wrote 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 coffee beans.

Social Networking for Your Coffee Shop, Part 3

So let’s get to part three, the final page of social networking for your coffee shop.  It’s exciting to break into new areas of marketing.  It has never been easier to market a business since the online world arrived and has evolved.  Here are some more ideas for you:

LinkedIn

LinkedIn is geared more toward professionals or business networking but it should be considered to be included in your social networking group.  You never know if there is a business looking for a local coffee house to supply coffee and pastries for its monthly meetings.  Or better yet, if you roast coffee you could just connect with another shop looking to buy coffee beans wholesale.  Maybe they are not happy with their current supplier or are just about to open a coffee shop.

MerchantCircle

This is kind of like LinkedIn but for your business and on a local level.  Where you have the profile on LinkedIn, MerchantCircle focuses on your business profile, not yours.  I would say it’s a glorified Yellow Pages ad.  I have had good experiences with MerchantCircle because they help local businesses connect with new customers through referrals based on online advertising.

Manta

Manta is the largest free source of information for small companies.  Your company can be among profiles of more than 64 million other businesses and organizations.   Its emphasis is on small- and medium-size businesses.  Business owners and sales professionals use Manta’s huge database and custom search capabilities to quickly find companies, easily connect with prospective customers and promote their own services.  You can list your company details such as company name, address, number of employees, estimated annual sales and more.

What I like most about Manta is the fact that you can add key words and terms that describe your business and services and your information will be listed in the major search engines.  It is an added feature to go with your SEO marketing.

This is only the tip of the iceberg. There are numerous other social networking sites making ground like Digg, MySpace and others.  My advice is to keep it simple but have enough diversity.  If you are planning on opening a coffee shop this is a great way to have a ‘media blitz’ (of sorts) because you are tackling your marketing on numerous levels.  If you plan to customers buy coffee beans online from you, this will only reinforce your internet presence.

A word about social networking on the internet:  The more followers and people in your networks you have the better your marketing will be.  Where else but the internet can you write about your business and have it immediately available to the public?  You can do it all in-house but it’s pretty time consuming.  I have always handled this and continue to do so in my roasting and consulting business because I enjoy this end of it.  It is also a lot cheaper.  You just need to set a schedule and stick to it as it is a daily event.  If you have a lot of irons in the fire, you can also hire a company to do it for you; most of them are local, really good at it and it is well worth the money if you think your time is better spent elsewhere.

YouTube

Yes, broadcast yourself.   There has been a rise in businesses making videos and posting them to their YouTube account.  You can produce latte art videos and even how-to videos.  If you roast your own coffee beans and sell wholesale it is a good way to give your future customers a ‘primer’ to see your operation in action.  You can even upload videos taken by you and customers at events right there at your shop.  There are so many possibilities.  Again, remember to stay on subject.

So that is it for our time together talking about social networking for your coffee shop.  If this is done properly and with consistency, you will see good results and an increase in traffic and sales.

My name is Tony DiCorpo, and I am a coffee roaster, coffee shop business consultant and barista trainer.  I have written 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 coffee beans.

Social Networking for Your Coffee Shop, Part 2

So let’s get to part two of my social networking series for your shop or if you are starting a coffee shop business.  It’s exciting to break into new areas of marketing.  It has never been easier to market a business since the online world arrived and has evolved.  Here are some more ideas for you:

Facebook

How can I leave out Facebook?  Today, there are so many people and companies using it to keep in touch and their name in front of people.  I cannot think of a better way to do this.  Some companies are opting to put more emphasis on Facebook rather than their company website as the latter is so limited now.

You can elect to build a ‘friend’ page or a ‘like’ page.  The friend page will require you to approve anyone wanting to be friends while the like page will not require approval.

It is a good idea to keep personal and business as separate Facebook pages.  This is good for obvious reasons but really a good idea as it increases your chances of circulation (you post, friends comment, their friends see it and comment) but also shows a level of professionalism as well.  The best part of this is that friends will repost your post and if it’s interesting enough so will their friends.

Facebook is a great place to also promote your shop so customers can know when you have fresh roasted coffee in so they can buy coffee beans.

Twitter

Of course, (to tweet is sweet!).  Twitter is basically a short version of blogging because it is 140 characters or less to type.  A popular thing is to tweet within your 140 characters enough information to redirect followers to your blog where the full story is.  You can also redirect them to your website or Facebook.  You can essentially post the same information to all places; your blog, Facebook, Twitter, and your website if you set it up right.  There are ways to allow each site to collect and distribute the same information to the other.  This is another area to stay focused on your business and its doings.  Of course this works great even if you are about to open a coffee shop.

I recommend using your website as a base and when you update the site, then blog about what you did as well as a few other relevant things.  Then update your Twitter and Facebook so all of these social networking platforms get the information on what you did. This will redirect people to your blog, and also to your site making a circle of marketing.  As long as you create compelling information on all of your posts and sites, you will gain a network of followers.

What is great about Facebook is when you post, and one of your friends comments on it it will show on their friends pages and you have great potential to gain new customers this way to buy coffee beans or beverages so be relevant and stay on topic.

Foursquare

Foursquare is a location-based social networking service, mostly used via smartphone applications, though popular on the web.  It allows registered users to connect with friends and update their location. Then, points are awarded for “checking in” at venues and users can choose to have their check-ins posted on their accounts on Twitter, Facebook or both.   Users can also earn badges by checking in at locations with certain tags and eventually become mayor of the venue.

So why is Foursquare a marketing tool for my coffee shop you ask?  Well, many businesses are now offering special deals to people who check-in via Foursquare.  Starbucks recently inked a deal with them so customers can earn a “Barista badge” by checking in five times at a Starbucks location.  The independent can do something similar by signing up as well like extra points for frequent buyers, free refills on drip or something else equally of value.  If you are going to open a coffee shop this is a great way to promote grand opening specials.

Social networking is almost limitless and for the price (usually FREE!) you cannot afford to go without it.  Next time we will round out the social networking talk with a few more ideas for your marketing strategies.

My name is Tony DiCorpo, and I am a coffee roaster, coffee shop business consultant and barista trainer.  I have written 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 coffee beans.

How to Start a Coffee Shop

I get asked if I know ‘how to start a coffee shop’ a lot.  My answer to this is always a simple ‘Yes’.  However the short of it is that is really is not an easy task.  In theory it is, but reality paints another picture.

You see, it’s a complex series of correct moves:  writing a business plan, coming up with a concept, finding a location, obtaining funding, a marketing plan, equipment planning, supplier choices, menu development.  I wish it were a lot easier but it is not.

When I started in this business in 2004 I opened my first shop and had not a clue.  I went into business because I had been in business before in an industry I knew nothing about.  I learned as I went and it all worked out pretty well.  However this time around I figured since I did have a business plan it would be even smoother.  WRONG!

In all reality I pretty much was shooting from the hip.  Had I known how to start a coffee shop, I would have done it right from the beginning and avoided a lot of mistakes, grief and hard-earned money spent unwisely.

Do yourself a favor and use a professional in some way.  Experience comes in many ways and this is one way that it will work to your advantage.

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 I wrote on how to start a coffee shop.

It is worth more than what your investment is in it, and in more ways than one!