Economic Crisis and the State of the Bean

[LaMarzocco]

I know this is a similar post like the recent "Coffee Sales" post but it's a little different... here goes:

I'm thinking about buying a coffeehouse in CA but I'm nervous about the current economic climate and how it might affect coffeehouses in general. Can I have some input from existing owners about how your businesses are doing and how you see the economic "crisis" potentially affecting you?

Thanks in advance!

 

[cafemakers]

I've written a number of article about this topic recently on my blog and have done 3-4 interviews with trade and national publications that should be coming out in the next couple of weeks, but here's a quick summary of my position on the state of our economy:

1) Large volume coffee retailers are most likely to be impacted by a widespread economic downturn, simply as the result of their market breadth;

2) Specialty coffee is somewhat insulated as an affordable luxury. Practically anyone can afford to pay $3-$4 for a cup of specialty coffee and most consumers are willing to do so, in some cases as a result of, economic crisis. This may appear counterintuitive, but small luxury purchases are often made in lieu of big capital spending during times of uncertainty as a form of psychological release. Those companies with the most unique and desirable products will fare best;

3) Business that invest in the efficiency of their operations during lean times will be well positioned to benefit from economic recovery at a later date; and

4) It's a buyer's market. Weak business are failing (they would have failed anyway, just over a longer period of time); sellers and landlords are being squeezed to meet credit obligations so there are some good deals to be had on coffee shops and chains.

I really can't think of a better time to build a new business in our industry than now. You'll be lean, mean and ready to devour the competition in coming years... assuming that you do it well.

Best of success,

Andrew

 

[Alun_evans]

I would like to thank Andrew for this post. Negativity is somewhat of a contagion, and I think that despite the economy being soft globally, there are plenty of positives out there to focus on.

Being an independent, or as LaMarzocco's case buying an independent, is different from being a corporate running a chain of stores. Small indies (or indeed multi-store independents) generally do a good job of attracting and then keeping their customers. In these times a well run independent business, which has good stock management/control systems, is probably a safer bet in may cases than working for a major chain store.

I think Andrews 4th point is particularly relevant. If you have capital, or need to borrow very little capital, now is as good a time to buy a cafe as there ever will be. This is of course dependent on doing a thorough due-dilagence exercise on what you are looking at buying- but IMHO there are a LOT of bargins in the market at present. I too am looking at something, somewhere undisclosed at this moment in time. I have 100% not been put off by what is happening around us. I think time will prove that buying a profitable cafe business over the next 6 months or so will result in a pretty attractive payback if/when you decide to sell (or refinance) later.

 

[SunriseCoffeeLasVegas]

our store is 5 days old and things are doing well. It was a very soft opening to work out any kinks and recipes. We did do alot of research before moving into the area. The area has a steady business base, very little forclosures, and high drive traffic count.

I was worried too in the beginning but, like what was said earlier coffee is an affordable luxury so, I think our store will do well.

Almost everyone that has come in once, has come in at least couple of times more. We make sure to make all our customers happy, satisfied, and talk a little bit to them.

I think it is a good idea too but, make sure you do your homework.

is it a tourist area? what are the other local businesses dependent on?
(a car factory...not a good idea)

are there alot of home forclosures?

and make the best damn coffee in the world. it is so sad to see coffeeowners who don't care about quality and service.


and be ready to put in 16 hours a day until you can afford employees.

 

[Temuri]

our store is 5 days old and things are doing well.


and be ready to put in 16 hours a day until you can afford employees.

I wish you success in your store, you sound like you shall deserve it.