How Inflation Affects Coffee Shops
It’s no secret that costs are rising, making coffee shop innovation matter more than ever before. The New York Times reports an 8.3% increase in prices since last April. With the economy’s future uncertain, small businesses are looking around and deciding how to prepare. Here’s how inflation affects coffee shops and what you can do about it.
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Rising Costs for Coffee Shops
Inflation heavily impacts coffee shop expenses. Coffee shops typically produce high margins, but they also require high overhead. Here are a few rising costs that affect coffee businesses.
- Real estate and leases. While real estate costs depend on the area, commercial lease prices rose 7.5% in a year, according to the National Law Review.
- Ingredients and materials. The price of food has jumped by 9.4% in a year, milk by 14.7%, and coffee by 13.5%, according to the Bureau of Labor Statistics (BLS).
- Equipment. The price of appliances has increased 7.8% in a year, according to the BLS.
- Labor. Finally, compensation costs rose 4.5% in a year, according to the BLS.
Are rising costs affecting your day-to-day operations? Or are you planning to launch a coffee shop but feeling unsure about what’s to come? At Texas Coffee School, we believe it’s possible to survive—and thrive—even during economic insecurity. After all, our company was founded amid the 2008 recession.
Let’s talk about a few of the ways your coffee business can succeed this year and in years to come.
How Can Coffee Shops be Successful in the Face of Inflation?
Earning enough revenue to adjust for high costs comes down to two things:
- Increasing the number of transactions.
- Increasing the dollar amount of the average transaction.
With more high dollar transactions, your bottom line can grow. But it might take new revenue streams and a lot of creativity. Here are a few ways we see coffee shops and other small businesses succeeding in the current economy.
Hybrid Models
The hybrid model—combining coffee sales with another business—is a natural fit for many existing small businesses. And it might not be enough to just add food items to your menu. These days, some creative coffee businesses are also offering pilates, floral arrangements, and haircuts to adapt. It’s two-fold: you draw more customers in with a separate product (raising the number of transactions), and you sell more products and/or higher value products (raising the average transaction).
Source: Lo Melinda’s Buzz and Bloom Facebook
The hybrid model can also work in the opposite direction, where you add a coffee program to an existing business. With the infrastructure, location, and audience already in place, you can start serving coffee to generate more revenue.
Efficient Operations
You might be surprised how much profit can leak out of your business simply by not running tight operations. Here a few quick coffee shop operations dos and don’ts that can save money:
- Do schedule weekly cleaning events. Equipment and interiors that collect dirt and residue will quickly become unusable. Customers might be turned off by an unclean space, and you might have to purchase replacement items sooner.
- Do organize inventory. A disorganized storage area often leads to over-ordering of supplies.
- Don’t neglect employees. This includes offering training, promotions, and advanced scheduling to keep staff happy. And happy employees means less turnover—and turnover is expensive.
- Don’t forget to compare labor costs to sales. Managers should run a daily labor report to see if it aligns with sales. Overspending on labor can be detrimental to the business over time. But running a coffee shop does require long hours every day of the week. Even if you close your doors once a week, that’s 52 days a year—a significant chunk of the bottom line. It just comes back to the number of transactions, and the average transaction dollar amount that justify the cost of labor.
Drive Thrus
Mobile dining has been on the rise since the pandemic, and it’s not going anywhere. And the many benefits of a drive thru—convenience, speed, and flexibility with current business—make it a good option for coffee shops to succeed.
Take Chick-fil-A, for example. The grilled chicken chain can take a customer’s order and send them off with a meal in 541 seconds, according to the 2021 QSR® Magazine Drive-Thru Study. Meanwhile, 85.7% of customers say the customer service is “very friendly” or “pleasant.” With employees efficiently taking orders in the line outside and responding with the iconic phrase, “My pleasure,” Chick-fil-A is a glowing example of a successful drive thru model.
Another popular coffee brand with a green mermaid serves drive thru customers in 409 seconds. And the drive thru line at Dunkin’® takes just 295 seconds. Imagine how competitive your coffee shop would be if you could serve that clientele with the same level of speed and ease.
Now that you understand how inflation affects coffee shops, you can move forward as a successful Coffeepreneur®. The classic view of a neighborhood coffee shop might be evolving, but we can create what’s next. And as Tom Vincent, Founder of Texas Coffee School, says, “Experience-based businesses are going to be the future.”
You don’t have to navigate the industry alone. With a Texas Coffee School education, you get to learn from a team of experts and meet fellow Coffeepreneurs®.
Register for a class to continue your education this year.
