24 June 2013

5 common reasons why many coffee shops fail

(Photo credit: Wyatt Research)



June 27, 2013.  Exactly three days from today, the missus and I will have run our coffee shop for a whole decade.  How time flies.  During that time, we've seen the opening (and subsequent closure) of a few copycats; coffee shops that did not - or rather, could not - last more than a year or three.  To be honest, I don't like to see businesses fail - competitor or otherwise - because (cruelly) Failure doesn't discriminate and it could so easily have befallen us.  Business guru I'm not; but with ten years' experience under my belt, I feel I can now comfortably speak my opinion on why many - if not most - coffee shop ventures fail.

Before I continue though, UNDERSTAND first and foremost that in this trade, failures far exceed successes.  That's a fact.  Only when people begin to realise this will they be more wary of those oh-so enticing calls "to run our own hip li'l coffee shop".  It's impossible really to come up with an exhaustive list of contributing factors, simply because there are so many variables that determine the future of a coffee shop.  Hence, I'm only going to highlight here some of the more common pitfalls; starting with....

1.  Lack of GENUINE passion.  Problem is, many new operators think that as long as they have a nice setup or are able to make a decent cappuccino, their cash registers will ka-ching incessantly.  NOT TRUE.  Skills and expertise can be acquired with time and training - not so, passion.  To successfully run a coffee shop (and enjoy doing it), one must possess genuine passion and enthusiasm to not only make excellent coffee but also to meet AND serve people.... real people.  Believe me when I say that your genuineness (and patience) can - and will - be tested.  Sometimes severely.  If you naturally lack these attributes, you will in time find the job unenjoyable.  Sooner or later, the disinterest will show; and in this day and age of social media, poor publicity spreading like wildfire really is something us coffee shop operators can ill-afford.


2.  Failure to achieve economic sustainability, i.e. the ability to meet your financial obligations - month in,  month out - and still draw a half-decent salary for yourself.  Without question, this is the primary reason for many coffee shop failures.  Unfortunately, many haven't the faintest idea how to price their products in a way that would give them a sound as well as worthwhile return on their investment in terms of time and money spent.  You may pull the best espresso shots in town but if your prices - and hence your turnover - can't sustain the business, you're going down.  As things are, coffee shops are already struggling with industry prices which make running a sustainable business most challenging.  And that's putting it mildly.  Therefore to ensure viability, a coffee shop's pricing platform must be what I call "intelligent and dynamic".  In other words, base your prices on customer and market expectations - not on costs and margins.  Margins don't pay your employees or the rent; turnover does.



3.  Offering too wide a menu.  This is a common mistake among many newbies.  Either out of impatience or panic, many new operators lose the plot too early and expand their menu (intent on attracting customers) the moment business slows down.  Wide assortment offers are hard to manage and will almost certainly lead to increased overheads, poor quality outcomes and ultimately, lost sales.  A wide menu also draws attention and emphasis away from where these ought to be concentrated, i.e. customer service, to food preparation.  Not wise.  I recently read somewhere that it's better to be "inch-wide, mile-deep" when determining assortment offers in coffee shops.  I couldn't agree more.  The key is to be patient and methodically find out why people aren't coming in - not start selling fish 'n' chips or souvlaki.

4.  Poor staffing.  A coffee shop doesn't just sell drinks and food; it also sells stress relief, feel good, belonging, recognition, release as well as other intangibles that come really with how the owner and his staff engage with their customers.  So regularly train (and re-train) your staff   It goes without saying that a coffee shop whose staff remember customers' names, their "usuals" and last Saturday's chat, for example, has an upper hand over a competitor whose staff do not.  But it's not only the workers; coffee shop owners must also play an active role by being on-scene regularly to "check on things" - 
trust me on this one, if nothing else.  Always remember this: customers will quickly forget what you sold them but they'll never forget how you made them feel.  Fact.

5.  Too obsessed with profits.   DO NOT attempt to screw suppliers on prices or customers on portions at any time.  Instead, concentrate on building the more important aspects of your business such as relationship, partnership and, of course, service standards.  Also, don't even think about reducing your staff count too extremely because service standards will suffer for sure.  The minute new operators start to get obsessed with making profits too much too soon, suppliers' trust and customers' loyalty will be lost.... sometimes forever.  Therefore if you're new to the trade, always endeavour to "make the customer, not the sale".  You can start thinking about recovery after your coffee shop is more firmly-established, which - be forewarned - can take more than a little time.


(Photo credit: Cornerstone International Group)

Like I said earlier, these are by no means the only reasons why many coffee shops fail; I've really only just scratched the surface here.  My advice to newcomers is therefore to NOT worry too much.  Instead, try your best to strike a balance between what you have and have not going for you in your shop's day-to-day operations and from there, seek to constantly improve.  Be patient, get your pricing right and strive for (and maintain) high service standards.  Before you even realise it, you're well on your way towards establishing your coffee shop's good name in your local coffee scene.  Needless to say, the coffee must also be good.






To those of you who either intend to open a coffee shop or are already running one, I'd love to hear your thoughts on what I've written here.  I also look forward to hearing from any coffee shop frequenters out there who may have a tale to tell or an experience to share.  Thank you.

9 comments:

  1. Another enjoyable piece Vincent! Well written & easy to see you passion in your work, make mine a cappuccino please! ;-)

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    1. Thank you, Debi. One must truly have passion to make it work. Ten years for me now.

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  2. I think that this article was right on the money, very informative. our local café is for sale and it looks like this calendar year it will not make a profit, The owners want $85k, last year it made $31k profit and had $240k turnover. This year it will be lucky to turn over $200k. Do you think the owners are asking too much? We can see whats going wrong there but we are thinking that the longer it wont sell the better chance we have at picking it up cheaper as it needs a lot of money spent to keep it running, Everything seems old and past its use by date. About the only thing that has been replaced in the past 5 years that we know of is a microwave. Any advice or help would be great.

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    1. Why dither,decide what you would be happy to pay and offer it, they may turn it down but if you don't ask you don't get.

      If they turn it down you can watch and wait .....

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  3. Nice Read!!! I do agree with your points. These are the important reasons by which many coffee shops fail. Poor staffing, yes this is one of the main reasons. If you avoid this problem, then vending machines are the great option to adopt because in this, we do not need any personnel. With the help of these machines you can get health drinks and save you time and money. For more information visit here-http://www.westwaysvending.co.uk/kenco-millicano-vending-machines-work/

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  4. Thank you, Vincent, for your points. They are very important for newcomers. Using your own words I would emphasize the following: "Seek to constantly improve. Be patient, get your pricing right and strive for (and maintain) high service standard ... Needless to say, the coffee must also be good."
    Thanks again. I will be looking forward to your further points as these are the top of the iceberg only.
    Victor Chernyy, Retropsect Coffee and Tea, Washington, DC, USA

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    1. Thank you, Victor, for your feedback. Most appreciated. What a lovely place you have. I certainly hope to visit one day. Have a very blessed Christmas and happy new year.

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  5. keren lah shop coffenya. nanti kapan-kapan saya main ke sana

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  6. Thanks for the advice. I want to start my own coffee shop next year and the idea is very overwhelming. Your comments have helped me at least.

    Thanks,
    Kelly

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