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Coffee bean bonanza

How do independent coffee shop operators compete with international chains? They don’t – not if they want to be successful

Coffee shops and cafes represented the fastest-growing sector in food service last year. Photograph: Getty Images

Coffee shops and cafes represented the fastest-growing sector in food service last year. Photograph: Getty Images

 

“I don’t take on Starbucks. They’re really nice people and really good at what they do but I don’t try to compete with them,” says Colin Harmon, award-winning barista and owner of 3FE, one of Dublin’s best known independently owned coffee shop businesses.

In fact, he doesn’t even compete with himself. Despite having two 3FE coffee shops in Dublin city centre, and two more on the way, he has no interest in having a chain of identikit cafes.

“Each coffee shop is informed by the people who run it and the people who drink in it. Each one is different and has its own atmosphere and that’s how it should be,” he says.

Although the big chains know there is strength in numbers – and certainly economies of scale – Dublin’s independent coffee shop owners know there is consumer demand for individuality and uniqueness too. What also helps is a seemingly unquenchable thirst for good coffee.

Independent coffee shops tick a number of consumer trend boxes as identified by Bord Bia. First up is “grab and go” cuisine.

The food business development agency valued the Irish food-service market at €7.8 billion last year. This includes all food consumed outside of the home, and incorporates everything from pubs to work canteens to street vending.

Today, more than one third (35 per cent) of consumer spend in food service goes to what is termed limited-service restaurants – which includes quick-service restaurants, fast food and food to go. Within that, coffee shops are showing the second biggest share gain (after hotels), currently accounting for 6 per cent of all food service spend.

Indeed, helped by continued economic prosperity, coffee shops and cafes represented the fastest-growing sector in food service last year.

Ireland’s 2,275-odd coffee shops and cafes between them accounted for €424 million in consumer spending last year. But though the market is growing, so too are the pressures as more players, both local and international, seek to slake it. “The big chains are starting to develop outside the city centres now,” says Maureen Gahan, food-service expert with Bord Bia.

Big trend

Right now the big trend among urban coffee lovers is away from large, hissing cappuccino-making machines to filter or cafetière style coffees, reckoned to provide a better flavour experience.

That should work in the independents’ favour. Coffee shops are expensive to kit out, with many of the best-known coffee brands providing lease deals on coffee-making equipment in exchange for exclusive retail rights.

But the biggest challenge to independents is the price of high-street property. “We are back to astronomical prices again, with key money that only international brands can snap up,” says Gahan.

Independent coffee shop owners can succeed by being canny about location, however. “The success of coffee shops such as Two Pups in Francis Street, near St Patrick’s Cathedral, show it is possible to create a destination coffee shop simply by serving great coffee and amazing food. It has a small kitchen and a limited menu but they do a great job,” says Gahan.

Being adept at social media helps too. Colin Harmon at 3FE has a huge following online, including an international following that often makes a point of visiting when in Dublin.

That international following has helped him develop export sales from his coffee roastery in Glasnevin.

A big challenge for coffee shops is cultivating a loyal clientele, ensuring people don’t just visit once for the bragging rights. Like restaurant goers looking for the next big thing, coffee shop interest can be “faddy”, says Gahan. To survive you need to build a loyal clientele.

The fact that coffee drinking is rising is both good and bad too, given independent coffee shop owners are increasingly up against not just franchise chains – both local and international – but against petrol stations and supermarkets too.

Centra has developed its Frank and Honest brand, Topaz sells close to one million coffees a month, while supermarket Dunnes, which now owns the Cafe Sol chain, puts coffee-cup holders on its trolleys, so you can sip as you shop.

If you are going into the sector, “do your homework”, says Gahan. “It can seem attractive, the lifestyle seems nice, but in reality it’s a very tough business. The fixtures and fittings are expensive and can take an awful lot of coffee sales to make back, so do your sums.”

Once established, be careful about how you engender loyalty, she advises. “At one stage, very many coffee chains were going down the ‘bundling’ route, charging a set amount for coffee and a sandwich. Now they are saying it is very hard to row back from that, as customers don’t like it if you do. That leaves you selling on price, which is not good. It’s very important to get the price/value conundrum right so that you’re charging a price people are happy to have paid for a product that tastes so good that they want to come back.”

Retail consultant James Burke believes small, independent cafe owners have a number of strengths to play to.

“By the nature of a large chain, they are not going to be able to bake fresh cakes and scones in the back room each morning. Most of them are tied into third-party supply chains, and delays are part and parcel of that. What the independent cafe can do is ensure their products are better and fresher – it’s their ace card,” says Burke.

Don’t just do that, spell it out to customers. “Too many owners don’t think to tell their customers. One told me recently a regular customer had asked where he sourced his scones. She never realised they were all baked in-house. You have to call it out.”

Next, make it easy for customers to order. “Set up a text and collect service. Local operators will know that if it’s a Thursday, John or Mary will be in for their weekly cappuccino, for example – acknowledge that fact when they do. As an independent, you have a level of personalisation that a chain can never have, so take the personalisation of your service up to another level.”?

Technology can help

Technology can help. Bamboo is an app that is fast growing in popularity among coffee shops and cafes, allowing customers make their order in advance, saving them time when they get there.

Coffee shop owners pay a commission to Bamboo but, as chief executive Luke Mackey points out, “the coffee shop owner gets all the good stuff to, the ‘hi how are you, here you go’ happy customer part.” Bamboo also allows you increase the number of customers you can handle at any given time, without a concomitant rise in staff costs.

Independent cafe owners have great scope to work with local businesses too, providing outside catering, or a venue for breakfast meetings and business lunches. “Again, that’s something a chain is simply not going to cater for and if it’s done right should add up to 15 per cent to your revenues,” says Burke.

Finally, put a little bit of creativity into your marketing. “If you have a cafe that opens during the day, why not use the venue at night for things like coffee tastings or themed pop-up foodie events,” says Burke.

“I know of one cafe in London that has a room dedicated to customer training about beans and how to make the perfect cappuccino, or coffee-tasting events that customers pay £30 to attend. Partner up with a roaster and it’s a very useful way to use your space. You’ll be winning new customers for less than the price of a cup of coffee.”