The U.S. recently entered another economic recession-but this time it’s very different.
There was no boom and bust, industry house of cards crashing down, or major war. Instead, it was a pandemic.
The recession will make or break many companies. Making wise decisions about your coffee business will keep you afloat, and even propel your business to new heights.
Things Won’t Go Back To Normal
The fact that this recession was caused by the novel coronavirus is unique because it hasn’t necessarily just created a rift in the job market, but changed consumer behavior–for good.
Being aware that consumers will behave differently from now on means that you can make smart decisions to meet the “new normal.”
One of the biggest mistakes I saw early on is some business owners (coffee and otherwise) thinking consumer behavior and the economy will go back to normal “once this is all over.”
The truth is the pandemic and the recession will have lasting effects on how consumers behave and what they want in a coffee experience. We can see proof of this historically. The question is: What effects will this have on the way people buy and consume coffee?
I lost my crystal ball a long time ago, and my magic eight-ball isn’t as reliable. But, looking at recent trends we can see that:
Consumers will be less interested in the “third place” coffee shop model
Demand for to-go orders will increase
High-quality coffee at home will become more important
Demand for mobile ordering and contactless service will increase
Online presence will be absolutely necessarily (no long a “nice to have”)
Pivot Your Coffee Shop
One of the things you can do–or already have done–is pivot.
A recession could last several years. If you’re operating in a “duct tape and bubble gum” fashion because you think consumer behavior will “pick up soon,” you might end up burning out before the recession ends. This sort of operation will have you spinning your wheels without making significant progress. If you don’t have a viable strategy to get through this long-term, it’ll end up costing you time, money, and customers.
How Else Can You Pivot Your Coffee Shop?
You’ve probably changed up your open hours, and some operating procedures, but what about your product offerings or business model? How about your value proposition or brand?
Minor changes result in minor results. Think about how you can radically shift into something that isn’t just a band-aid, but actually works better than your old model would in the new economy.
Cut Coffee Shop Costs
This is one piece of advice that most business owners don’t need. Unfortunately, they often don’t consider where to cut the costs to have the most impact. They often look at all their costs and try to cut where they’re spending the most. Or they’ll cut costs in areas that will provide long-term customer loyalty.
For instance, most of your customers probably care about the taste of your coffee. They’re interested having an expected routine with coffee they like and people they recognize. If you start changing things like what coffee you provide or your menu offerings, then your customers won’t remain loyal. Your loyalty to them lies in providing them something as close as you can to their expected routine. This, in turn, earns you their loyalty.
While you should run your business in a lean way, don’t sacrifice the customer experience at the expense of cutting costs. Doing so will end up ruining your brand and driving away customers.
Insource Where You Can, Outsource Where It Makes Sense
This is really where insourcing becomes your friend. Take a look at the tasks your business needs to run. I’m sure there are some tasks that you outsource to professionals like bookkeepers, and there are some that you do yourself, like scheduling.
Take stock of your currently outsourced tasks and see if you can bring any of the back under where your responsibility to save money. Obviously this will add time to your workload, so be aware. However, you can balance that by taking some of the tasks you currently do, let’s take scheduling, and offloading them to an assistant manager.
Keep in mind that you can insource many things that service professionals can do, but it’ll cost you time. Then consider offloading anything that doesn’t take skilled labor to your staff. This could also include making orders from vendors and running social media.
Yes, if you ask your staff to take on more responsibility, you should pay them more, but you can realize an ultimate cost savings by trading those tasks for the more expensive tasks you are currently outsourcing.
Increase (Smart) Spending
Yes, you can increase spending in some areas during a recession. In fact, you should.
Yet, you have to know precisely where to increase spending and do so with attention to detail.
For instance, let’s say the average coffee shop was seeing about 400 customers per day. The coffee shop ordered a daily pastry delivery from a local bakery. They ordered 40 $1 pastries and marked them up to $2.
However, in the recession, the coffee shop is most likely serving less customers. The coffee shop should recognize that the customers that continue to come in are the ones with disposable income. They put a priority on either convenience or their coffee experience. Shops might realize better net profit not by reducing their pastry order number, but by offering more expensive pastries.
Let’s say this coffee shop is now only serving about 300 customers. Instead of simply reducing their order to 30 of the $1 pastries, they order 25 $2 pastries and mark them up to $4. In their original situation, their net profit was $40 on their pastries. Now, expecting fewer people coming through the door and fewer buying pastries, their net profit has not taken a hit. If they sell out of pastries, their net profit is even higher than it was originally.
They keep less inventory, which makes sense since there are fewer customers coming through the door, but more money is spent on cost of goods sold. Of course, this is making the assumption that the remaining customer base are those still willing to spend more money. It’s not 100% foolproof, those spending money on convenience luxuries likely have disposable income.
Maintain Loyal Customers
Survey Your Customers
Surveys are something I don’t see enough small business owners do. I understand the reasoning that the business owner often interacts personally with the customer and feels like they know exactly what they want.
However, there are two missing components here:
Customers appear content because they are shopping your offerings, but would purchase more.
Customers appear content because they purchasing something, but are actually just settling.
In both situations, the customer appears content, but their full needs are not met. This represents a missed opportunity for the business owner.
Of course, everyone has their own opinions and not every one should be taken seriously. Survey enough people to get a decent sample size (most researchers recommend 7-15% of your audience). Evaluate survey results by looking at common threads, not just an opinion of one.
I recommend sending out surveys via email or text message. If you keep the survey short enough, you don’t even have to offer an incentive. Though, doing so will encourage more people and more diverse perspectives as well. Offering no incentive might only attract people who already love everything you do. This will provide little insight into what you can do better (I recommend a dedicated survey over a “suggestion box” for this reason).
You should be able to identify at least a few things that you can improve in your coffee shop through surveys. Change doesn’t have to mean incurring more costs, though.
Identify the “Needs” Gap
If you conduct surveys, you should be able to identify some needs gaps in your coffee shop. Even if you don’t conduct a survey, take an objective look at your coffee shop through these three lens: offering, service, and experience.
It is likely that your shop is lacking in one or more area. Try to identify what area that is and work to improve that area. This could mean doing some research to find better quality products, conducting more or better customer service training, or adding pleasant decor to your space.
Improving these three areas will increase the overall customer experience and earn you customer loyalty. It’s tough to measure the exact return on investing time and resources like this, but this is what successful coffee shops do.
Just like before, improving these needs gaps doesn’t have to be expensive. At my previous coffee shop, I hung up pictures of the baristas with their names near the condiment bar for customers to check out while grabbing some milk or napkins. This helped put a name to the face that served the customers and built relationships with them.
Customers could then have conversations with baristas and feel like part of the community when they visited. These relationships earned buy-in from customers and built loyalty and return business.
Get New Customers for Your Coffee Shop
Try Programs With No-Risk Factor
Finding an opportunity with no risk sounds impossible, but they exist. Many of them center around providing a fun, but inexpensive experience or creating content. Consider organic social media campaigns or sending emails to your list to keep your coffee shop top of mind.
Other ideas include offering paid brew classes, creating videos about your products and putting them online, using social media and email to highlight the unique aspects of your business, etc.
Seek the Untapped Market and the Easy Switchers
This tactic requires research external to your coffee shop. Check out what other coffee shops around you do and don’t offer. Then cross-examine that with major industry trends and see what is lacking.
For instance, keto is currently a popular diet. Do other coffee shops offer a “keto coffee?” Have they created a drink that is popular in the cultural trend, but surrounding coffee shops don’t offer?
Capitalize on trends by being the first to offer something that meets the unique desires of a niche community. With this tactic though, you need to make sure you find and communicate with the community that you have an offering for them.
Don’t put a program like this into place without a clear communication strategy. Simply putting up a sign in your shop won’t communicate the idea until people get into your shop. By default, only doing this won’t attract new customers. In fact, depending on what your unique new offering is, you could end up cannibalizing some of your other product sales.
If you choose this tactic, make sure you pair it with a distribution strategy that reaches the niche community you’re targeting. Otherwise, it’ll fall flat.
Get Started with Coffee Shop Business Strategy
I hope this post helps you to recession-proof your coffee shop. I recommend putting these ideas into action before a recession hits–it’ll be much easier than afterwards.
Looking for more coffee shop strategy? I offer consulting by phone or video chat. I can help you work through some of these ideas and plan out how to put them in place in your coffee shop. Visit my contact page or send me an email at tom@coffeeshopkeys.com and let’s make your coffee shop thrive in a recession.
