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Case Studies of Coffee Business Failures & Mistakes, or "How to Turn a Great Opportunity into a Disaster" |
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What are the Eight Biggest Mistakes? 1. Starting to Spend Your Money... ...and your time without first determining if your project makes any business sense in the first place. You won't learn that from your friends, relatives or your coffee or equipment dealer! 2. Choosing the Wrong Location - The main reason for Starbucks success is the locations! Our Espresso Business Success Program discusses the criteria in finding that 'perfect' location. 3. Naming Your Shop with a Name Unrelated to Your Business - You are driving along and notice a shop called Dottie's. Would you stop there for a cup of coffee? 4. Not Knowing How to Design Your Work Environment... ...for speed and efficiency of operation. Unless you design the shop properly, employees will be running around like chickens with their heads off, slowing service time and testing your customers' patience! 5. Having a Menu that is Too Long & Confusing... ...and that does not focus on the menu items that matter the most. While the average independent coffee shop manages to serve only 31% espresso-based drinks, our clients average over 80%! Just think how much more money you will make if instead of selling 200 cups of brewed coffee at $1.25 per cup, you sell 200 espresso based drinks at an average price of $2.97! That is a difference of $244 - over $80,000 a year! 6. Mixing Coffee with Food Items - Soups, sandwiches and salads - People don't do to Starbucks to eat and they don't go to Subway to drink espresso-based drinks! 7. Poorly Trained Employees - Employees with no clue how to market and prepare espresso-based drinks properly and promptly are death to an espresso shop! 8. Having Your Espresso Machine Operated... ...by people that do not drink & enjoy espresso based drinks themselves. If you make any of the above mistakes, your business will not reach its full potential and you will not make as much money as you could. Worst case is that you will soon be out of business and lose all your and/or your investor's money.
All of the above mistakes are PREVENTABLE! You don't have to make them because we already made them for you!!! As Alex, Oksana, and Michael traveled all over the country on consulting assignments, they saw many coffee business disasters that were created by owners that believed that "there is no big deal" in opening a coffee shop or a drive-thru. Many of them were influenced or misguided by coffee roasters, equipment salespeople, or design architects that 'never' worked a day in a coffee shop, or by "experienced employees" hired away from a competing shop. Due to these and some other reasons, they ended up with far less efficient and profitable shops, after having wasted needlessly thousands of extra dollars. If you were investing $100,000 to open a coffee business, how much would you pay to prevent the above mistakes? $1000? $5000? $10000? How much? Wouldn't it be better to start right from the beginning than try to fix it later? After having wasted thousands of dollars and losing countless customers because you did not understand this business? The following actual cases illustrate what happens when people start this business without fully understanding of what makes it "tick". Compared to any other food related business, the espresso business is more lucrative and the work environment more pleasant. However, as with any business, the owner/operator must understand it in order to maximize it's potential. To expect the coffee or equipment supplier to teach you the coffee shop business, is like to expect a restaurant equipment salesman to teach you the restaurant business and how to be a great chef! Visit Our Shop to place an order.
Seven Case Studies to Illustrate the Biggest Mistakes in Practice ~ and the Results...
Some time ago Alex received a call from a man in PA who opened a coffee shop six months before. Prior to that, he found Alex on the internet and "read every page" of it. Unfortunately, though he understood somewhat "what" had to be done, he really did not know "how to" do it. He considered ordering Alex's "Espresso Business Success Program" to educate himself, but one of the "experienced" employees that he hired away from another coffee shop talked him out of it. She said that it "would be a waste of money", and she knew "how to make the drinks". She simply did not think that he would benefit from it to any degree. He called Alex because he was concerned about the slow sales. He was barely breaking even. He wondered if by introducing sandwiches he could do better. We talked a bit about the location, which seemed to be in a good area, and should be doing at least $750 a day, instead of it's present sales of only $400-$500. Alex asked him several questions and realized that his slow sales were due to the following reasons:
He invested about $97,000, which at this rate of sales he would never get back. All of the above mistakes cost him thousands of dollars in sales and customer satisfaction, and could have been prevented had he educated himself properly about the business! Here is what he would have done differently, had he applied the principles that are covered in my "Espresso Business Success Program":
All of this would translate in higher sales, more customers satisfaction, and more money in his pocket! But then, he got the "training for free", didn't he? Start-Up Coffee Business Advice
Case Two: Non-Functional ~ Great Location A little while ago we got a call from a man who found us on the internet. He liked what we had to say and asked us to help him to find three or four locations on the East Coast, the only criteria being that they must do at least $600,000 a year in sales each. Money was no object, as he had as much as one million dollars to develop those locations. Alex spent about five days with him, looking at some prospective locations, and unfortunately locations could not be found or they were not available. But he was not disappointed, as during that time he got a much better idea of what to look for. Alex did not hear from him for about four months, when all of a sudden he called him and asked to come over and help him open his shop. Surprised, Alex asked him why didn't he call him before, to design his shop and provide him with full consulting services, for surely money was no problem. He claimed that he did not need Alex's services at that time, as he "hired a nationally renowned" design architect to design his $375,000 shop, and an "experienced barista" from a competing coffee shop to help him with the set up and opening of the business. Unfortunately, the "experienced barista" proved to be completely inept when dealing with anything but his area of "expertise", and probably cost him an extra $40,000 in superfluous equipment and shop design elements. The day before the planned opening the barista walked out on him. So, he was there ready to open his $375,000 investment and without experienced people to work it! Indeed, the shop was in an excellent location, and it LOOKED like $375,000! However, the way it was SET-UP, that is, the counter and equipment layout, the menu, the register system, customer order and pick-up areas and the massive six person wooden booths along the wall, was absolutely not conducive for an efficient operation in that busy location. He was convinced, however, that it could be operated in its present state, and asked Alex to open for business against Alex's advice. Needless, to say, it turned out to be an absolute disaster, and they had to close after about an hour, for there was no way they could handle the resulting confusion about the menu, the ordering, or prepare the drinks fast enough with the awkward espresso equipment set up. This disaster proved to be very costly to the owner not only in the money lost due to faulty and superfluous design, but in the good will of his prospective customers. It took another week and $17,000 to redo the counter, reposition the equipment, change the seating, cash system and menu, but by that time the owner was so disgusted with the whole process that he put the shop for sale and canceled his plans for any additional openings. Here we have a case of a perfect location, with a $375,000 opening investment, with a potential of grossing at least $650,000 a year. With proper expertise in designing, marketing and running of that business the owner could have put in his pocket around $200,000 a year and fulfilled his dream of being self employed. Instead, his dream turned into a nightmare. He was influenced by:
All of these people told him (in so many words) that "he would be crazy" to hire and pay for a consultant, that they would teach him the business for free! Though that was an extreme example, this happens on a minor scale all the time, as we can see by the following cases:
Case Three: Excellent Location, High Investment Shop, Poor Marketing and Layout Some time ago, while scouting for a location for a client in the Midwest, Alex came across a very attractive, expensively designed coffee shop in an affluent suburb of a large city. The shop was located on an older street that had undergone some cosmetic improvements and was populated with great restaurants, art galleries, boutiques, a performance theater and an array of small businesses catering to affluent patrons. An expensive, brass and copper espresso machine occupied the center stage of the back counter, with a wall menu that featured every espresso drink in the Universe. The place was busy, with four people behind the counter stepping on each others toes. The prices were out of sight, starting at $2.75 for a small "latte" and $1.45 for brewed coffee. Alex ordered a "cap" and watched in fascination as the "barista" proceeded to "murder" his order by doing most of the preparation steps wrong. Because of the awkward equipment lay-out, seemingly without any consideration for speed or efficiency of the operation, it took twice as long to prepare it. Though it was one of the best looking cappuccinos that Alex ever had, served in an elaborate and expensive cup, it was also one of the worst, with no relation to what a properly cap should taste like! Alex stayed for about 45 minutes watching the action, and was not surprised to see that only five more espresso based drinks were ordered during that time, while most of the coffee sold was brewed. Despite of all that, the shop seemed to be doing very well. Of course, the reason for their relative success was the excellent location and the absence of expert competition, which came a few months later and took a great chunk of their customers and probably cut very deeply into their revenue. The moral of this story: You won't be able to prevent competition, but you could keep it at bay by creating a loyal customer base. However, you won't be able to do that by serving lousy, overpriced drinks with slow service, no matter how much money you paid the architect/designer to build a monument to his ego. With proper functional design, menu and common sense marketing combined with expert training and drink preparation techniques, such shops could become true "jewels", providing the customers with better product and service, and awarding the owner greater income and satisfaction.
Case Four: Excellent Location, Poor Shop With No Clue Some time ago, while consulting for "Borders Books & Coffee", Alex stayed in a hotel near the Union Square in San Francisco. It was an early Sunday morning and Borders would not be open for another two hours. He had to have his morning "latte" fix to get him going, so he took a walk looking for a coffee bar. He came across a small shop with a big window "ESPRESSO" sign. As soon as he came in, he realized his mistake, for it was a bake/sandwich shop that happened to serve espresso. As all Alex's previous "espresso experiences" in such places were disasters, he was about to walk out but ordered a "latte" against his better judgment. And sure enough, he got what he deserved: A thin, overheated, brownish and tasteless milk! When you combined that with a complete lack of any kind of "espresso image", a confusing menu and unrealistic prices for such a set-up, this shop qualified in every sense as an "espresso disaster zone". Such a wasted location, on a "demographically correct" street, with thousands of prospective customers passing by! With some repositioning of equipment, change of menu, a few cosmetic decorations and an open and receptive mind set, this location (as thousands of other similar cases across the country) could have become a gold mine, selling hundreds of espresso based drinks a day, with half the cost and labor of the present operation. Obviously, the owner did not realize that, or did not know how to extract that gold. Alex wondered why his coffee supplier or the espresso equipment dealer did not show him the opportunity?
Case Five: Poor Location, Satisfactory Operation One summer, while on vacation with family in the San Diego area, Alex pulled of I-5 to a strip mall for a burger lunch. Among the other stores, Alex noticed a shop with an "espresso" sign on the window. As he needed his daily fix, he went over there prepared to be disappointed. But to his pleasant surprise, he had a much better espresso than he expected. He introduced himself to the owner, congratulated her on the drink and asked how was business. From her less than enthusiastic response, he deduced that it wasn't too good, and it obviously had nothing to do with her products, which were prepared properly as he had a chance to observe. Her location, though right off the freeway, could be as well on the moon! The only prospective customers that noticed the store were people that came to the parking lot for some other purpose than coffee. Some months later she had to close her business.
Case Six: "I Can Get Free Training From My Supplier" Some time ago Alex had a call from a woman who found a location. Having read his "Espresso Report", she felt that Alex was the person to help her start on the right track. As she had the necessary capital to remodel the shop (about $90,000) Alex started his consulting by evaluating her location, which turned out to be excellent. A couple of weeks went by without any communication from her, Alex gave her a call. She told him that she found a large "national coffee wholesaler" that would provide her with "free training", a banner and some promotional material if she purchased the espresso equipment and coffee from them. She "more or less" copied the design of another coffee shop and proceeded to build out her shop. She also talked to one of the "experienced" employees of that coffee shop who wasn't happy in her present job, and she agreed to work for her. In other words, our services were no longer required, as she "had everything under control". A couple of months later we happened to be in her area on a consulting assignment and paid her coffee shop a visit. Indeed it was in a good location. Alex ordered a "latte" and got "an overpriced, thin, overheated, tasteless brownish milk". The layout of the equipment was not conducive for speed and efficiency of the operation, the menu was not "espresso friendly" and most of the drinks sold while we were there were "regular" coffee. Obviously, she wasn't making it on coffee drinks alone, as we noticed a blackboard menu with soup and a few sandwiches. As she wasn't present at the time of our visit, we could not ask her how business was. But from the taste of the "latte", by observing the "barista" preparing other drinks, by the equipment layout, by the menu and by noticing what customers were ordering, we could say that this wasn't a "coffee shop"; it was a "deli" that happened to serve poor tasting espresso. How many customers did she fail to attract to the espresso drinks due to lack of effective initial marketing? How many customers did she turn-off due to poor taste of her drinks? How many customers walked out because of slow service due to poor equipment layout? How much bigger was her payroll, her food costs, and how much smaller were her profits due to food preparation? How many tens of thousands of dollars would she lose due to her inability of positioning the business as a viable "coffee shop" in this excellent location? And how long would she last in business should expert competition open nearby? But of course, her training was "free".
Case Seven: Franchise Coffee Concept Some time ago we received a call from a man that was considering
buying a failed single unit coffee shop that had opened eight month prior as a
coffee franchise. The owner of the franchise invested a total of
$310,000 by the time he was ready to open the doors. He was losing his
shirt, and was trying to get out, offering to sell his shop for whatever
he could get.
Alex & Assoc. advised our client to pass on the deal, as the franchise company would not release him to become an independent. We could tell you countless other "disaster" stories, but all of them have some similarities:
Espresso/coffee by the cup is a great business, still with unlimited potential across the country. It may provide you with a substantial income and personal satisfaction - but only if you get enough education to conduct it properly! Sooner or later, if you plan to be in any business, you will have to start investing some money. By the time you complete your project you may have invested from $40,000 - $300,000 and several months of your time. How you invest that money and time will make a huge difference in the outcome of your business. One of the most effective ways to prevent the above mistakes and start on the right track is by working with experienced people that "done that and been there". Alex's "Espresso Business Success Program" together with Oksana's or Michael's over the phone or by e-mail consulting, will provide you with all the basics on how to design, open and operate a coffee by the cup business and prevent those mistakes.The cost of this Program is a tiny amount of your total investment, but it may be the most important one, as it may prevent you from wasting thousands of dollars on something that may not work. At the same time it may make you tens of thousands of extra dollars because it will show you how to maximize your investment by creating a concept that will return that investment in the shortest time.
If you want to do more "research", our FREE Coffee Biz Report "How to Make Real Money with Espresso" will show you what you must do to start up a profitable coffee retail concept. Here are some of the contents:
We send it by e-mail only. Please click here to email your request.
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Alex & Associates - Oksana & Michael Fisenko Phone & Fax: 1-866-590-9423 - 9 a.m. - 6 p.m. PST
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