Coffee Shops are Stretching to Reach More Customers
By Mark Bunim, Wok and Run Restaurant Solutions
In the United States the coffee business is saturated with over 30,000 shops nationwide, and it is getting tougher to survive. The major brands are scrambling to find new ways to increase profits to the bottom line. The struggle has been two-fold of high competition for commodities with huge price increases, and the same competition for each customer in every market.
In the last two years there has been shortage of true quality green coffee for the premium shops. The price has continued to grow exponentially. The major players of Caribou, Starbucks, Peet’s, Second Cup and Coffee Bean & Tea Leaf have had to increase the prices by as much as 10% for a cup of coffee. The price for a small of “Cup of Joe” is nearing $2 for just 12 ounces. This has caused more people to re-evaluate where they get their coffee, and the customer is asking themselves is it necessary to spend $2 for a small coffee. The more exotic drinks such as lattes and blended coffee drinks can cost as much as $4. Brands such as McDonald’s and Jack and Box are capitalizing on this by buying less premium coffee, and charging a lot less for their beverages. They hide the inferior coffee taste by adding sugar and flavor to the fancy names such as the Caramel Cappuccino, and charge about $2.50 for a small. The customer feels they are getting the value by getting the premium flavor, and being undercharged in comparison to the coffee giants. The QSR giants are winning the customer back by having a one stop shop with quicker service, drive thru and breakfast options.
The coffee giants are getting creative on how to keep revenues and profits flowing in. All the major brands have involved in some kind of capsule for home use. Starbucks worked with Green Mountain Coffee Company (one of the originals of capsule coffee), and now you can get Starbucks at home in your Keurig machine. Peet’s, Caribou and Gloria Jean’s followed behind with making their stuff available as well. Coffee Bean & Tea Leaf developed their own machine “The CBTL” to have only their customers feel special to getting it at home. Starbucks other method of reaching the traveling customer is making instant coffee in packets for the customer on the go. The “Via” packet is available at any Starbucks location, and during Christmas they gave away a free packet in with their gift card sales.
Food has become another method of competing with other coffee shops, since the QSR companies have always complemented their coffee with hot food options. All of the coffee shops have always offered an array of pastries to serve with coffee, but they are now starting to experiment with hot food as well. Jamba Juice was the originator of offering oatmeal to its customers along with some different coffee options to attract a different customer. They cook a batch every hour, and hold it in cooker/ warmer to maintain the heat. McDonald’s has mainstreamed it by offering an instant product; Starbucks and Peet’s copied the instant process with more unique ingredients in a self-contained packet of nuts and dried fruit. Coffee Bean & Tea Leaf has taken the process to new level by offering an oatmeal bar, and customers can pick their own unique combination of ingredients.
These brands have continued to survive because they have diversified their businesses in a changing world. The customer today is looking for convenience, taste and value in a one stop shop. Brands need to look at line extensions of themselves, and how to stay fresh within the industry. Whether customers want coffee at home or on the road they want something that is completely unique to them, and within their price range.