Of course your business is doing well. Everyone needs coffee. We hear it from customers every day as they enter our bustling coffeehouses. Although it is true that specialty coffeehouse sales have outperformed overall US foodservice operations (according to the most recent SCAA Quarterly Sector Report, specialty coffeehouses are growing 5–10% compared to flat sales in foodservice), selling coffee has become more difficult. The cost of doing business has increased significantly, with menu price increases that are not able to keep up with the cost of inflation. Even though relief appears to be on the way in 2012 due to moderating coffee and dairy costs, many coffee retailers are playing financial catch up while exploring ways to diversify their product offerings and expand sales opportunities throughout the day. Yes, coffee has survived, but not without retail making some necessary changes. What does specialty coffee retail look like now, and what does it take to succeed?
As the co-owner of Coffee By Design (CBD), a small specialty coffee roaster/retailer company, I’ve often struggled with how one defines success. Opening the doors to our first coffeehouse in Portland, Maine, in 1994, we began a community coffee company as a husband/wife team and one part-timer with the belief that a great cup of coffee can change the world. Today, we employ 45 people in four retail locations in Portland and Freeport, Maine, and a coffee micro roastery, which roasts over 30 specialty coffees. We are having our best year yet—both in sales and profitability—but it’s been a journey, especially since the financial crisis began.
Having opened our business during a recession, we knew well that coffee was a luxury, but felt that it was a relatively reasonably priced indulgence, that brought joy. Over the years, we have experienced our share of highs and lows. But at no other time in our business as a coffee retailer have we been more challenged than when the most recent recession began and coffee prices (along with everything else) reached historic highs. We, like many others, were faced with a multitude of decisions regarding which direction to go in order to grow. Many people we know shuttered their doors; others continue to struggle.
What we have found throughout 18 years of business is that times like these give us the opportunity to dig deep inside (not bury our heads), rediscover why we are in the business in the first place, and remember what makes our coffeehouse(s) unique in a highly competitive marketplace. Many of these points are basic….but it’s amazing how often in the busyness of business, we forget them. Whether you are new to specialty coffee or have been in it for some time, you will hopefully gain something from the lessons that we have learned that have allowed us to enjoy continued success (yes, success) as a specialty coffee retailer.
Be true to who you are.
As you were planning to open a business, you wrote a mission statement. If not, write one now. We have found it to be an invaluable tool when making choices about what as a business we choose to do and what not to. We revisited our original statement, which had been tweaked over the years, and strengthened it. Where before we spoke about our core values, the new document details what those values are. We put in writing our belief that now more than ever, how we conduct our business makes a difference. Everything we do from our staff t-shirts to Facebook postings reflects our culture. A major revamping of our employee handbook is in the works, so there is no mistake that this could only be Coffee By Design’s. Our mission is simple: provide the best quality coffee, educate our community about specialty coffee, and use our power as a small business to support our environment and our community – locally and worldwide. We are committed supporters of the arts and social change. We view sustainability in our business holistically. We are stewards of the health of our planet and of our fellow humans.
Knowing who you are extends to customer suggestions. Many of us have the good fortune to have customers who feel so invested in our company that they share ideas about how to improve what we do. Well-intentioned folks will offer ways in which you can grow your business: with everything from expanded product offerings to which events you should sponsor. Diversification can be positive as long as it truly reflects your business. Change is good, but we have lost money by trying things that just didn’t feel like us. Don’t be afraid of taking baby steps when exploring new ideas until you have some indication that you will succeed. There is a program called Innovation Engineering, which says it best: “Fail Fast, Fail Cheap.”
Don’t be a cookie cutter company. If you have multiple locations, don’t feel that you have to make each one look like the others. Decide on key elements that make each store reflect “your brand” but allow each to explore opportunities, which may be specific to that location. Our goal is that each of our coffeehouses be identifiable as Coffee By Design while reflecting its own identity, so that our customers may enjoy a different experience in each of our locations. For example, we added live music to our coffeehouse located inside L.L. Bean’s flagship store in Freeport. The space is large enough to accommodate this addition, plus customers who frequent L.L. Bean are used to special events happening at this outdoor clothing and recreation equipment retailer.
Our Origins Bar, which opened in 2005 as part of our micro roastery, is a good example of how we diluted our original vision, as it became more of a coffeehouse (like our other locations) than was intended. What was meant to be more of an information-driven location with displays about farms and regions from which we buy, as well as frequent customer tastings, turned into shelves filled with mugs, other retail products and a wide selection of impulse food offerings. Although it was experiencing double-digit growth, it was unclear to customers what the Origins Bar was. We’ve spent the past few months streamlining product offerings and reworking the store’s layout so that customers are not faced with abrupt changes as we prepare to re-launch the store this fall.
Know your numbers.
Review your numbers on a regular basis (not just during tax time). If you don’t, you are out of business. Analyze how your sales are trending year to date and what your profit is on those sales. At the end of the day, it doesn’t matter how great your sales are if you’re running your operation inefficiently and there is no money left in the bank.
We found that our sales were strong once we adjusted our menu board pricing but were still not realizing the profit we needed to support the business. We chose to focus on two areas in order to improve profitability: the cost of goods with key product vendors and the loan structure with our bank. A review of our dairy provider led us to meetings with two other companies while asking our current vendor to review our pricing and delivery structure and present an updated proposal. We chose to move our account due to better pricing and, surprising to us, better quality dairy elsewhere. This one change will result in $6,000 in savings, conservatively. During this time of economic uncertainty, we felt we had worked hard to stay fiscally strong. We were in the process of consolidating several of our business loans and felt our current bank did not recognize what we had accomplished. They did not take the time to meet with us to discuss options and offer any incentives to stay with them. We met with several banks and gave our current bank the opportunity to work for our business. The deal our current bank presented will save us close to $100,000 during the life of the loan. With these savings, we were able to borrow more money without increasing our monthly loan amount, which has resulted in many long delayed improvements to infrastructure companywide.
Less is more.
It is important to keep on top of what is new in the industry. Making changes and adding new products is beneficial, as long as they fit within your business model. But first review what you have in place. For example, we were offering between six to seven brands of energy/granola bars and anywhere from four to eight different flavor options for each brand. When we looked at what we were actually selling, we found some bars that sold rarely were taking up valuable shelf space, not to mention tying up money which could be used restocking products which were selling.
We revisited the strategy we had when we first opened our doors. Every inch of shelf space is real estate and must be paying its rent. Counter space was prime real estate and needed to be paying more. We did a major purge and found that not only did our cash flow free up due to the decrease in money being spent to keep the shelves looking full, profit increased as what we did stock sold more frequently. Customers also felt less overwhelmed by too many offerings. The feedback confirmed what the numbers were showing. Make your business easy for people to understand and for your staff to implement and you’ll be more profitable.
Implement smart marketing strategies.
It’s important to get the proper credit when you give, whether it’s sponsorship dollars or a gift card donation. Continue those things which are important to you and don’t be afraid to ask for acknowledgement for what you do. It’s all part of your marketing budget and it is critical to building customer loyalty. Be consistent in your giving and view it as long term.
With regards to sponsorships and attendance at events, it’s important to carefully select events and opportunities that reflect the right audience for your offerings. Take the time to research and make certain you choose sponsorship opportunities based on packages that include the amount of recognition you are hoping to gain—and that are within your budget—and develop partnerships with events and organizations that are the most aligned with your values and mission.
Analyze events soon after attendance in order to determine whether or not the event was worthwhile in promoting your business. As a result of this analysis, we have expanded our involvement in some events whereas we have decided to pass on others moving forward. We are in the process of developing a pre- and post-event form so that we are clear internally about why we have chosen to participate in a particular event and review afterwards whether or not we accomplished our goals.
The elements of our marketing strategy could be an entirely new article. Needless to say, it incorporates a balanced mix. Since the recent recession, we have also increased the frequency with which we review our overall marketing to at least 4 – 5 times throughout the year to ensure the mix is meeting the needs of our business.
Show me the money.
There is money available to grow your company. We felt that being a for profit entity meant that there were no financial opportunities for us other than traditional bank financing. As we looked at improvements we wanted to make to our various locations, we discovered that grants were available to make these dreams a reality. The façade improvement we did at our original coffeehouse was partially funded by the City of Portland’s Façade Improvement Grant/Match Program. This spring, we expanded our environmental efforts and installed solar panels at our roastery building with the help of an Efficiency Maine Grant. The system is expected to produce about half of the power used in the facility, offsetting roughly 18,000 pounds of C02 emissions from conventional electricity sources. When one of our coffeehouse’s HVAC systems ceased to work during the first of this summer’s heat waves, we were able to install a better system, which although not inexpensive, had incentives available due to its energy efficiency. There is money out there. Talk to your local economic development department. Contact your State’s small business and environmental agencies. There are funds available for those who spend the time to search online and ask. Don’t be shy about looking for money that can help your business grow. You are not only helping yourself but your staff members and community who depend on you.
Hire the right people for you.
Just because someone was the shining star at your nearby competitor doesn’t mean that particular barista is the best choice for you. It is important to hire people who share your company’s values and believe in your mission. We have hired people who during the interview expressed their dissatisfaction with the structure and impersonal nature of larger corporate coffee companies where they had experience, and yet seem surprised when they joined us when told that we don’t have a cleaning crew to clean the toilet (we all clean them) and yes, you are expected to abide by our dress code. It is important to check references and make sure that you are clear about the interests an applicant must possess in order to consider hiring. I have had lovely conversations with potential new hires without them once mentioning coffee or my company and why they want to work with us. I want employees who love coffee and have taken the time to learn about CBD. It’s easy to go online and find out about a company before arriving for an interview. I want people who are problem solvers and thrive on information. If they aren’t willing to take the time to learn about us for the interview, they probably aren’t going to take the time to learn what our customers want.
Strive to be a lifelong learner.
I’ve often told those around me that life would be boring if we weren’t faced on a regular basis with new challenges. The experience I have gained over the past several years in the specialty coffee industry has resulted in great opportunities for Coffee By Design, which will carry the company into the future stronger than ever. There are new things to learn each day that should be embraced. Whether the economy is weak or strong, how you operate your specialty coffeehouse business should be viewed through the lens of what makes your business unique utilizing the range of information and skills available—from financial to proper staffing—to succeed.
Mary Allen Lindemann co-founded Coffee By Design, a Maine owned and operated artisan coffee roastery/retailer, with her partner, Alan Spear, in Portland, Maine, in 1994. Beginning with a single coffeehouse, Coffee By Design consists today of two Downtown Portland coffeehouses, an Origins Bar, a Coffeehouse inside the L.L. Bean Flagship store in Freeport, a thriving wholesale business, and a coffee micro roastery where they freshly roast the finest specialty coffees from around the world. Coffee By Design has received numerous awards for community work, business practices and quality coffee. The company was recently recognized as one of the top ten coolest coffee shops by Zagat.com. Mary Allen is dedicated to ensuring that Coffee By Design maintains its commitment to giving back to local and international communities.