Attracting Customers

Getting Customers In: Successful Techniques

Specialty Coffee Retailing at its Best

A Presentation for the World Specialty Coffee 2000 Conference

Monte Carlo, Monaco – October 2000

By Don Holly, SCAA Administrative Director

 

 

Thank you all for your interest. This presentation, Getting Customers In: Successful Techniques, is especially suited for current or intended operators of specialty coffee retailing establishments. We will survey the important dynamics of successful specialty coffee retailing, supported with factual data and anecdotal insights. Although the premises are basic, the conclusions cannot be too often reinforced especially as the industry begins a phase of maturation that will result in shakeout and temporary decline. Only those operators that remain dedicated to the principles of success for the specialty coffee retailing business will be expected to continue to thrive and grow.

The Specialty Coffee Retailing business is dependant upon generating and sustaining high volume – many customers. With a micro-economic model with usually high gross profit margins, but burdened with the high operating costs of rent, labor, and capital investment, you can make good profits only after achieving a threshold of fairly high sales. And with a typical product mix that yields low average tickets – the amount that each customer buys each time they visit – a successful coffee retailer requires many customers.

 

 

So how do you generate such business? In most cases it is all about doing two things: attracting new customers and then turning them into regular clientele. Although the first is obviously important, I will argue that it is near impossible for most locations to survive on transient clients, and I will argue even more vehemently that if those rare businesses that can generate a sustainable level of revenues off of transient customers did all of the things necessary to make as many of those customers "regulars", they could double their business.

 

So let’s take a look at these two strategies – and I think it is healthy to think of them as separate activities – attracting new customers and building a regular clientele.

 

How do you attract new customers?

 

It is always cited that the three most important things in retail are location, location and location – but that is a simplicity that just begs the question of what makes for a good retail location for specialty coffee. I would like to convince you of two things: 1) Good location is "concept" dependant; and 2) the difference between an "A" location and a "B" location in terms of sales levels is phenomenal. I will define better for you the idea of location and concept interdependence, but let me just show you some data of what I mean by the impact on sales in comparing a "good" location against an "excellent" location.

Critical to drawing in new customers is the image portrayed to potential customers walking or driving by, or from referral or advertisement. You can have a great location that can be seen and accessed by many, but the magnet that will draw them in will be based upon that image that is visible outside of your door. The choice of name, the appeal of signage, the vibrancy and "feel" of the theme colors used and logo designed will be either attractive, repellant or invisible to potential customers.

 

Then, once they have walked in your door, the key to getting them to walk up to the counter, place an order and pull out their wallets will be based upon how clear and persuasive is your concept, menu and the appearance of your staff and interior.

Let me define the way that I use the term "concept." It is meant to refer to the ‘whole package’ of your business: your theme for business and how you have chosen to execute it. Operating a traditional European style coffeehouse with natural craft materials and subdued colors is one concept, running a modern flashy neon metal bolt studded punk noir themed underground café is quite another.

 

All of these things are important, but what should become the best source for new customers is your building pool of regular customers. If you make those new customers happy, they will become regulars, tell their family, friends, associates and occasionally, even strangers, about your place, and you will have more new customers. That is the best way to Get Customers In!

 

How to Build a Regular Clientele

Any spider can build a web that traps flies on their random fatal path, and any well located retailer will get curious customers who fall through their door. A truly successful retailer will satisfy that customer to the extent that a good percentage of those "new" customers become "regulars", and that some of those regulars will become your most reliable source for referring new customers.

 

Now, specialty coffee is a unique retail business in that the definition of a "regular" is much different than that for restaurants or other food service operations and very different than typical retail stores. A regular for a restaurant is a customer that comes in once or twice a month, and a regular for a retail store might be someone who visits as few as four times a year. But for a coffeehouse or espresso bar, the regulars are the ones that come in almost every day, sometimes twice a day. In Europe, and increasingly in America, the coffeehouse is the "third place" besides home and office where the clientele feels proprietary and comfortable. This is their space; and if you want to get in touch with someone, leave them a message at their coffeehouse. Most successful coffeehouses report that the majority of their customers are "regulars", defined as visitors at least 5 times per week.

 

What makes a regular? First contention, especially the one that explains the phenomenal growth of the specialty coffee industry over the last fifteen years – is the demand for quality. Specialty Coffee is all about offering a better quality product with a differentiated character, and the human demand for such a product is strong and getting stronger.

 

Second on the list of attributes that attract a customer into regular return visits is the appreciation for good service. Retail is about the theatre of human interaction, and pleasant experiences inspire a revisit.

 

Third factor in creating a regular customer is the efficiency of operations; and although it may be a stretch to suggest that customers will be attracted to a place that is well run, there can be no argument to the suggestion that they will not be tempted to return to a place that is obviously poorly run.

 

And finally, an issue that is very important for the nature of a coffeehouse and other forms of specialty coffee retailing is the comfort of the space. The aesthetics of how the place makes one feel can be a powerful element in attracting customers to regularly visit. There also needs to be a sympathetic feel that matches the personality of those customers that will eventually refer to this as "their" coffeehouse. They may not be the owners legally, but they become the owners emotionally.

 

So let us look at these various factors in detail.

The Coffeehouse

The ultimate expression of a specialty coffee retail operation is the coffeehouse, a place where people can stand, sit, talk for hours, order anything from a glass of water to almost a full meal. Coffeehouses range in size from 1,000 square feet (about 350 square meters) to 3 to 5,000 square feet (over 1,000 square meters). Their menus, besides having a full selection of coffee beverages, almost always include pastries of both a breakfast and dessert style, savory items good enough to hold one through a lunch or light dinner. In Europe, almost all coffeehouses have a complete stock of alcoholic beverages – from proprietary beers and wines, to full shelves of liquors. In the U.S.A., the culture is not so open to coffeehouses offering alcoholic beverages, although some companies, most notably XANDO on the East Coast, has proven that such a combination can work if handled properly.

 

To support the coffeehouse location, it must be placed in a community. Now the definition of a community relies upon some fairly intangible elements. I have yet to see any demographic report that has a score for "community" rating its vibrancy from 1 to 10. Certainly, a community with a higher level of income and education is better able to support a coffeehouse than a poor or depressed area, but it is more than that. There has to be a sense of identity and shared passions amongst a people to form a community, and if you can find that and relate to it, then you will have a good place for a coffeehouse. A well located and operated coffeehouse in a dense and vibrant community can generate as much as $1,500,000 in annual revenues. The average Starbucks location (most of their stores qualify as coffeehouses) does about $800,000. The average independent coffeehouse in the USA does about $450,000.

Espresso Bars

Espresso bars (and this includes mobile carts) usually operate a fewer number of hours than can a coffeehouse, where its seating and other amenities can draw mid-morning, late afternoon and evening business that is not native to the espresso bar concept. As such, then espresso bars need to be located in an area that enjoys a tremendous amount of traffic at critical coffee drinking times, most notably the early morning hours. If the volume of potential customers that can easily access your space are enough to generate a sustainable level of business, then you have the right location. The best performing Espresso bars can do over $500,000 in annual sales, where the average operator is doing a little better than $200,000.

 

By their nature, kiosks are dependant upon good co-tenancy – in other words, the other businesses that they share contiguous space with. For example, it is becoming increasingly popular to locate specialty coffee retail kiosks in supermarkets in the U.S. The combined refresher for shoppers with the access to add wholebean sales to their list of grocery items, coupled with the sometimes favorable lease arrangements the surrounding store’s are willing to offer to their captive, sometimes even licensed, coffee kiosk makes this a potentially viable and successful concept. The best located kiosks can do as much as $500,000 in annual sales, with the average doing less than $200,000.

 

Drive-thru coffee outlets are the latest form of specialty coffee retail, having become common in some parts of the U.S., but still being newly discovered in most regions. The challenge with the drive-thru concept is fighting the battle for real estate where cars are such the common form of commute that parking lot space is at a premium value – and the function of the drive-thru requires a great deal of that valuable space. The success of the drive-thru is completely dependant upon finding a site that is in the mainstream of commuter traffic where ingress, egress, and ample room for a waiting line of cars can be accommodated. Usually, drive-thrus have very narrow operating hours, and so their sales volumes usually tend to be even lower than the average espresso bar or kiosk, which can serve more customers at a time during the crunch demand periods.

 

So although it is simple to say that location is important, the factors that determine what is a good location are highly relative to the concept and community where that operation is intended to be placed. I remember hearing a presentation by Jerry Baldwin in 1992, where he said that all of his experience finding locations for Peet’s Coffee in San Francisco didn’t amount to confidence for identifying good locations in Southern California – and at the time I believed him. When I was looking for real estate in Los Angeles County, after opening seven successful coffeehouses in my home county of Orange just 50 miles south, I definitely felt like a duck out of water. A tremendous amount of study of a target area is warranted to familiarize yourself with traffic patterns, cultural fabric, and community identity, before the work of choosing a location should be pursued. And remember, the return on investment difference in comparing an "A", "B" or "C" location is not only dramatic, it can be lethal to the business.

 

The operator has the greatest challenge in identifying their business to customers in a manner that provokes their interest, establishes positive expectations, and matches a prevalent or potential demand existent in their marketplace. This range of issues used to all be lumped together in the study of marketing, but most recently the business slang for it is "branding." The idea of branding is to give a name, look, and feel to a place so that customers readily identify and get excited by it. Larger companies spend a fortune on developing their brand, doing market research, study groups and testing of prototype elements of their intended branding pieces.

 

Independent owners do not have the resources to hire marketing firms to develop their brand, and I think, are better off without it. The most successful coffee brands came from an individual or their family’s passion and an obvious commitment to their business.

Almost every great coffee company was named after somebody, usually its founder, and there is an endearing power to such personalization and proprietary pride. If you have a name like mine, where such trite rhyme of "Holly’s Coffee" just doesn’t sound right, you have to adopt some other name. A good example of this is Community Coffee, a wholesale roaster out of Lousiana, which decided to expand into operating coffeehouses. Their first few they opened under the company name, but market research told them that outside of their local market "Community Coffee Houses" wasn’t going to work. They have adopted the name "CC’s Coffeehouses", which evokes a proprietary individual – maybe someone’s Southern Aunt – who loves coffee and owns these coffeehouses. Everyone loves their aunts.

 

The signage size, shape, color, placement, and typestyle are all something to consider with a great deal of common sense and at least a little creativity. Certainly your sign should be visible and readable, or else why bother hanging it, but it should satisfy these criteria of evoking interest, generating expectations, and matching demand. Is your concept to produce the feel of a conservative library? Your sign and its colors and typeface should be simple, traditional, conservative – maybe rich gold and maroon tones with a serif script. Are you wanting to evoke exotic adventurism with your concept? Maybe greens and yellows with jungle-like or more aggressive fonts. The short answer here is that a lot of thought needs to go into the sign, theme colors, and logos chosen to represent your company. They will have a profound effect on inspiring potential customers to give you a try at least once.

 

 

So now you have gotten them in the door, but you haven’t sold them anything, yet. The old marketing slang calls this "closing the sale". Well, in specialty retail, how do you do that? You have to think like a customer when you design your store: approaching it from the outside, opening the door, and gathering impressions. Your success in winning those customers can be achieved if you fulfill four basic strategies in designing your concept, menu, and interior décor.

 

First, be genuine! By this, I mean, you must suit the concept to what is a good representation of you as the owner-operator and the mission and purpose for you being in the coffee business. Customers will be intrigued and enchanted by the story of your business if the story is real. If your concepts are merely copied from someone else, your execution will be obviously hollow and seem false. If you just put items on a menu because everyone else puts them on, they will not satisfy. You have to commit enough thought, energy, and consciousness to all of the details of your business so that they are part of you and reflect you in their execution – that is what I mean by being genuine.

 

Secondly, and this goes hand-in-hand with the first: be unique! The specialty coffee business is all about differentiation. Kenya’s taste different than Guatemala’s, Sualwesi’s are different than Java’s. If they weren’t, why should we bother carrying all of them? Because people enjoy differences, and they like finding things and places that suit their mood and expectations. So you have to give your business a point of differentiation from the other coffee operations near you – and that will come automatically if you fulfill the first strategy by being genuine.

 

Third, put in the effort to express a sense of style and aesthetic. Many times you see coffeehouses that were built with cheap materials – linoleum floors, plastic laminated counters, fixtures chosen principally to reduce costs. They never seem to have too many customers. The places that were designed with a sense of style, artistry and craftsmanship – where it is obvious that someone cared about the sense of space – these are the ones that have the customers. And the menu is your calling card, it is your brochure, it is your ultimate treatise of your interest in making that customer happy. You cannot spend enough time, consciousness, and effort to make that menu educate and entertain those customers into feeling like this would be a nice place to get something.

 

And finally, what is really just a re-emphasis of all of the strategies above: refine the details! This doesn’t mean clutter the place with a bunch of knick-knacks – unless such a look and feel is part of your concept. It means thinking about your space, your menu, your merchandising in terms of square inches. The detail of joinery and grouting, the placement of the little item placards and what they say, the word choices on your menu, should all reflect the quality and common sense that is aimed to please the customer.

 

By being truly genuine, you will be unique. By refining all of the details with principles of style, you will create a place and a function that will make that customer yours if you have been lucky enough to get them to walk in your door. They will buy something.

 

Now the question is, will they come back?

I have often been questioned about the value of locations that are within resorts, and my answer is fairly blunt and negative. Having a transient market where you physically can only have each customer once, or maybe once a year, holds no interest. The best possible case for a coffee business is to develop return business. After all, coffee is the most regularly consumed beverage. Why not build a base of customers that only get their coffee from you?

 

This is a powerful idea. If 80% of your customer base is coming from regulars that visit your place at least five times per week, and they spend $3.00 each time they visit, then that customer is worth $750 a year to you. To make $1,000,000 a year is sales, you only need 1,300 of those regular customers. And how quickly can you build to that level of sales? That all depends on how many new customers you can get in, and how many of those you can turn into customers.

Let us take some realistic presumptions, so that you can get an appreciation in what I like to call "compound interest". Let us say that your store is located and has the image enough to bring in 10 new customers per day, and that you are successful in making at least 75% of them happy and wanting to come back every day after that. Let us also say that 20% of them are so happy that they refer at least one customer each into the store. So next day, you have 7 or 8 "regular" customers, and twelve new customers – ten from the visibility of your location and 2 that were referred by your regular customers. If those relationships stay true – that 75% of the new customers become regulars, and that 20% of the regulars bring in new customers, than your business will grow fairly rapidly:

By Day 17 you would be at over 500 customers: and you would pass the 1,300 customers per day mark by Day 24!

 

Sounds aggressive and unreasonable, so let’s be more conservative in our assumptions. How about we are only able to convert half of our ten new customers per day into regulars, those regulars only come in 3 days per week, and only 10% of them refer new customers to us. Well, that compound interest is still fairly profound. You would reach the 500 customers per day level by day 27, and surpass the 1,300 mark (which is about $1,000,000 in annual sales) by day 33! Now, in comparison, if you were in a transient market like a resort area, you would still be at just 10 customers per day

 

Remember, the coffeehouse or espresso bar regular is the core of the business. They pay the rent, make payroll, and keep the lights on. If you build enough of a base of regulars, you will become wealthy.

 

Ray Oldenburg, Dean of Social Sciences and the University of West Florida, first coined the term, "the third place," to represent that place beyond work and home that people adopted as their regular abode. In his book, The Great Good Place, published in the early 1970’s, Oldenburg identified the coffeehouse as a principal example of a powerful "third place," and lamented their relative disappearance in the U.S. after the decline of the bohemian ’60’s culture. Little did he know at the time that his book would be the rallying cry for coffeehouse builders in the late ’80s through the 90’s, even to be quoted in Starbucks annual report several years ago.

 

Although cafés, bars, and even libraries can achieve the status of "third places," the coffeehouse has proven itself over the last several hundred years to be particularly capable of providing the kind of atmosphere that builds community, fostering interaction and public communication. It is my theory that coffee provides the catalyst for that interaction, and that good coffee should be the focus of our industry if we wish to be less vulnerable to cultural changes temporarily bypassing the role of the coffeehouse. A good example of this was the bohemian cult and the role of the coffeehouse as the principal venue for jazz concerts in the U.S. in the 50’s. The coffee was known to be lousy, but these other two factors gave reason for the coffeehouses to temporarily flourish until the bohemians started getting called up to war and rock-and-roll, which usurped jazz and couldn’t be played in the coffeehouse as they were too small to host amplified music.

Most of the coffeehouses disappeared as a genre in the U.S. until their rediscovery beginning in the mid-80’s as a result of the burgeoning specialty coffee trade.

A similar phenomenon is happening contemporaneously with the advent of the internet café. Based on the concept that offering internet access will be a reason to build business, and that the coffee quality is secondary to the success of the coffeehouse, these operations are vulnerable to being lost in the evolution of technology as more browsers go wireless and don’t need hardwire access. There is nothing wrong with offering supplemental reasons for customers to enjoy your operation, but only the fundamentals of quality in product, service and environment can guaranty long-term tenure as a going concern relevant to the community.

 

Now, one of the common misbeliefs in our industry is that the customer can’t tell the difference in quality. After all, coffee is the most ubiquitous product consumed on earth. In many venues it is as expected a complimentary amenity as water. Banks, offices, restaurants, offer as much coffee as you wish to drink on a complimentary or low cost. It is taken for granted as nothing other than a warm brown liquid that is a vehicle for caffeine consumption. Yet, we know that coffee is much more than that. It is in fact one of the most complex natural substances chemically, having over 1,000 different molecules that contribute to taste and aroma. We know that at its best, coffee can offer the most profoundly enjoyable organaleptic experiences, rivaling wine, distilled spirits and the finest of cuisines.

 

Does it take a skilled taster to notice the difference between good coffee and bad? I am convinced that almost everyone can discern and prefers a direct comparison between an arabica and robusta, a good preparation over a bad preparation, freshly roasted coffee and stale. I would agree that only trained tasters can probably tell you why the one is better than the other and be able to easily give meaningful terms of reference as to what is the reason for the difference and preference. But, just because the untrained cannot put a name and reason to their preference, doesn’t mean that they aren’t going to make a purchasing decision based upon their experience.

 

In fact, the specialty coffee industry is a testament to the fact that there is an absolutely different model that explains the price inelasticity for purchasing of coffee that is antithetical to the supply/demand graph that we are taught in macroeconomics.

The relationship of coffee’s supply and demand curves are the reverse of what is believed to be the principal model of a commodity. Usually, the economy of demand suggests that the higher the price, the lower the demand, and the greater the price the higher the supply. But in coffee we know that the supply of the higher grades, higher priced coffees is relatively low, and that there is a greater demand for them than the more highly available lower grades.

 

Unfortunately, non-coffee people are the one’s so often guiding the strategic marketing of the major roasters, and increasingly, the medium size roasters as well. The mistake of applying traditional supply/demand relationships – where the suggestion is the lower the price the higher the demand – has decreased per-capita coffee consumption amongst adults by half of what it used to be in the United States in the 1960’s. This phenomenon has only been reversed by the non-traditional but much more correct marketing of real quality coffee at whatever its appropriate cost should be.

 

In real terms, the cost of specialty coffee is extraordinary. It is not just a matter of double the cost of the "C" market for green, and three times the retail price of the finished beverage or wholebean roasted. It is the time that consumers are willing to take out of their busy lives to stop by a specialty coffee retailer to pay for something that they could have probably gotten for free at their office, but at a lesser quality. This we know is the practice that has fueled the specialty coffee industry, and anyone who begins to make business decisions on the basis that the customers will not be able to see compromises to quality is walking down the same fatal path that the big three roasters in the U.S. already blazed the last three decades.

 

The specialty coffee retailer is in a powerful position to have a positive impact on a significant number of people’s lives within a community. The "blank canvas" of experiences that a coffeehouse or espresso bar can offer yields a number of effects:

 

•There is the impact of interaction – where neighbors, business associates, friends and strangers have neutral and nutrient territory to converse, share ideas, conduct transactions, even foment cultural revolutions. The service of the coffeehouse is the "gesso" of this canvas that allows these functions to occur.

•There is the role of stewardship that the coffeehouse provides naturally for a community. A great example of this was just offered by Teri Hope, owner of Los Gatos Coffee Roasters, who tells the story of how her coffeehouse became the natural rallying point for her community after the last major earthquake south of San Francisco.

•The coffeehouse can become a refuge an revitalization point for the emotionally abject or numb. A neighbor of mine, recently diagnosed with breast cancer, shared the story of her visit to her favorite coffeehouse and how it became an escape, for three precious hours, from her disease.

•It was Abraham Maslow that defined the stages of personal growth, and that social interaction fed the soul. As a public venue, only religious havens could possibly claim a higher fulfillment of this purpose than coffeehouses.

•Coffeehouse operators can attest to the number of weddings, business formations, and lasting friendships that have been directly attributed to the the power of a coffeehouse in building relationships.

 

This idea that a coffeehouse is a ‘blank canvas’ in which customers can paint their own experiences, filling in the void of time and life with humanity, companionship, and connection to their community.

 

Some of your customers may be ‘systems minded,’ observant and critical as to how your operations work. They might time lines, waiting periods and total service periods. They may watch how orders are taken and fulfilled, looking for inefficiencies or methods that could be improved. But most of your customers are only subconsciously observant, developing a feeling as to whether the place is well run or not. Believe it, everyone will notice if you put the thought and effort into designing and managing an efficient operation.

 

It begins with the design of your space. How you layout the counters and equipment in relation to the doors and seating space and how you orientate the flow of customers are important to the store’s eventual efficiency. Granted, its few places that become very busy the day that the doors are open, but every operator should be designing and constructing a retail coffee store as if they are going to be doing $1 million a year in business. That translates into about 1,000 customers per day, and given the daily cycles of business with peak periods of 40% of sales generated inn just three key hours, that means that the store must be designed and equipped and staffed to serve at least two customers continuously every minute for extended periods.

 

If the operator has been savvy enough to design, build-out, and equip their store properly, then biggest continuing challenge is staff training. Nothing has a greater impact on both the efficiency of operations, but also quality of product and service, and overall financial performance. Yet, the most neglected activity in the specialty coffee retailing industry at this time is the training of staff. Most commonly I hear that from the