Member Article

Why coffee shops are still a popular small business choice (and how to compete with Starbucks)

Coffee has been a popular commodity for a long time.

First cultivated in the Middle East of the 14th century, its aroma gradually pervading the rest of the world over the next few centuries, coffee continues to stimulate our lives – and in recent years has become an integral part of our daily routine.

It is a rare commuter that is seen arriving at the office without a paper cup full of frothy caffeine these days.

Indeed, recent research shows that it is the actual coffee shop environment that has become primarily addictive to consumers. Forget the jar of Nescafe languishing in the cupboard – we now crave an instant hit from the warm and vibrant hub of a coffee shop.

While coffee consumption per head is lower now than it was in 2006, according to Barclays’ analysts, there has been a 6.4% increase in sales within the UK coffee shop market within the same period.

There were reported to be around 16,501 outlets in Britain at the end of 2013.

Reasons for coffee shop growth

Barclays leisure analyst, Vicki Sern, reiterates this rapid growth of coffee shops in contrast to tepid coffee wholesales: ‘The growth of coffee shops has in no way increased the UK consumption of coffee. Rather, the way in which coffee is being consumed has changed with people now visiting coffee shops where they might previously have consumed instant coffee at home or in the workplace.’

Ultimately the way in which the British are consuming coffee has changed rather than the amount, and is most likely a consequence of the change in social trends.

Andy Harrison, chief executive of Whitbread, regards the growth of the coffee shop as filling the place that pubs used to inhabit in society,

‘Think of the coffee shop as a social venue. What we have seen is that the coffee shop market has grown at about 5pc per annum throughout the recession even in the most economically challenged parts of the UK.’

‘People talk about the pub as a meeting point but pubs were more about males and the evening, coffee shops are open all day, more female [orientated] and certainly more family.’

In previous years, office workers and home-dwellers alike would have been fine with a spoonful of freeze-dried granules. Now being able to have the choice between an insulated skinny latte and a caramel macchiato is part of the norm – which many choose as a reason to nip out of the office, or a break from the house-hold chores.

The coffee shop not only acts as a cheaper way of socialising, but also as a way of gaining free Wi-Fi if you need to work.

Chain vs independent

At times, it may seem almost impossible to compete with coffee shop giants like Starbucks and Costa. Yet, research from Marketing Week shows that 43% of UK coffee drinkers are not particularly loyal to a brand.

This is great for independent coffee shops, and not so good for chains as it presents a far more level playing field, unlike other markets (in the world of baked rather than roasted, for example, beans really do mean Heinz).

To regain this customer loyalty, chains have attempted to cater to a variety of dietary requirements. For instance, Pret à Manger now offer gluten, dairy, wheat and nut-free alternatives, while Starbucks also provides wheat and gluten-free cakes.

Competing with the giants

There are some ways that independents can boost their customer base and gain the most out of being a small coffee shop business.

Striving not to alienate customers seems rather obvious, however this isn’t just regarding social etiquette but also specific tastes.

As bigger chains have attempted to do, supplying alternatives for those with specific dietary needs has become a necessity. Almost all coffee shops provide soya milk, for instance. If not, many customers would be lost to the competition.

Almond milk coffees have also emerged as a recent trend in independents in a bid to stand out from the crowd.

Training is also key and if you have sufficient experience, you can make sure your staff do too. The Speciality Coffee Association of Europe (SCAE) provides in-depth courses, with modules including brewing, barista skills, sensory, green coffee and roasting.

Navigating trends while retaining a distinguishable image can be tricky. This is especially true when a coffee shop is first started – there can be a real urge to buy the latest espresso gadget and offer a large variety of roasted coffee from many companies.

While appearing to be an espresso sommelier may be appealing, it may not be the right thing for your business and will end up costing you a lot of money. Outline what you think is possible, and stick to it.

Of course, you shouldn’t completely ignore trends – just don’t go overboard and think about what your customers would want.

Trends to expect in 2015

According to Julia Austin, of the AFK insider, these are some of the coffee trends to look out for in 2015:

Coconut/almond milk: A few coffee shops are already supplying this in addition to soya milk, however this is thought to become more prevalent and readily available next year. There has also been an ongoing controversy regarding the consumption of soya milk daily, and that it is not good for you. Vegans, therefore, will be expecting alternatives.

Smaller dark coffees: With people trying to cut calories, many have turned to smaller coffees that are high in caffeine and only require a small dosage of milk and sugar. For example, Costa’s Cortado, Starbucks’ Macchiato (both an espresso with a dash of hot milk foam) and Caffe Nero’s Espresso con Panna (an espresso with a dab of whipped cream on top).

Drive-thrus: Some chains are beginning to build drive thrus onto their coffee shops, a way to entice time-scarce customers into buying their coffee.

Bedtime coffee: Currently on the cards is a coffee to drink before bed and is aimed at making people sleepy (rather than wakeful!).

Meat marinades: If you’ve ever watched Heston Blumenthal in action, you’ll be well versed in the alchemy of ingredients. Cowboys have been doing it for years… but coffee marinades are an upcoming trend, it seems.

There’s no getting away from the fact that coffee is a national obsession that’s not likely to die out any time soon.

If you are in any doubt, pop along to the annual London Coffee Festival which takes place in London’s Brick Lane from 30th April – 3rd May 2015 (www.londoncoffeefestival.com) and mingle with the 20,000 strong crowd of coffee lovers, masters and traders.

And proving that independent coffee shops can hold their own against the chains, the upcoming UK Coffee Leader Summit (www.ukcoffeeleadersummit.com) which is hosted by London’s Langham Hotel on 27th Feb will be running sessions featuring representatives from some of the top independent coffee shops in the UK.

As small businesses go, coffee shops are still a popular choice for good reason. It is possible to compete with Starbucks and co. – you just need to stick to a few ground rules and not succumb to every fad that comes along. Keep to what you want from your coffee shop and, as with any business - know your customers.

By Rose Hill, Online Journalist for BusinessesForSale.com, the market-leading directory of business opportunities from Dynamis. Rose writes for all titles in the Dynamis stable including BusinessesForSale.com, FranchiseSales.com and PropertySales.com.

This was posted in Bdaily's Members' News section by BusinessesForSale .