10 ms·

The economics of hobby businesses, like bookstores and coffee shops and art galleries, are almost always such that you can either feed it the equivalent of a fu

The economics of hobby businesses, like bookstores and coffee shops and art galleries, are almost always such that you can either feed it the equivalent of a full time salary, or work there every hour it's open yourself, because the kind of business is one that other people want to do for free as a hobby. This means that, unless you want to be a slave to your own business, you'd better have $50k a year minimum passive income in a cheap town to "give" to the business, plus $100k-$500k to set up the space, plus enough money to live on for yourself, or it's not worth it. And forget about ever making a profit, even if you do work there every hour it's open.

chrisseaton 8y ago
So how do coffee shops like Starbucks mange to support 20 working part time plus a corporate headquarters and make a profit, from the same small store you would operate as a hobby?
- trowawee 8y ago
  Higher volume, faster turnover, economies of scale, predictable customer interaction schedules. All the things that make a local coffee shop or bookstore attractive, both to own and to patronize, directly conflict with those factors.
  - mtberatwork 8y ago
    > economies of scale Exactly this...which means Starbucks can then negotiate exclusive volume pricing from their provider/vendors anywhere in the product chain and force them to sell cheaper to Starbucks.
- deleted 8y ago
  [deleted]
- winkelwagen 8y ago
  From what I understood is that not every Starbucks needs to be profitable. Some are insanely profitable, while others are just branding and marketing places that sell coffee. Of course there is a difference between not being profitable and bulking up insane losses each day, I think that is something Starbucks does well.
  - UncleEntity 8y ago
    I've always wondered about this, there are 15 Starbucks within a 2 mile radius of where I live (just looked on google maps) and for some reason they don't seem to cannibalize each others sales enough for them to not keep building new stores, at least 3 of them have gone up within the last year or so.
    - masonic 8y ago
      Even 17+ years ago, there were downtown intersections in both Seattle and Vancouver that had two Starbucks each on opposite corners.
  - itchyouch 8y ago
    They keep them going as long as they are profitable. They track a metric called “store contribution” which is the profit sent to corporate after all the store expenses. The highest volume stores are grossing about 40+k/week with contributions in the realm of 500-700k/yr from one example I know of. Moderate stores are doing around 25k/week. Stores below 10-15k/week tend to be at risk of shutting down or having the location changed. A 15k/week store can become a 30k/wk store just by getting a drive through. There is also a distinction between “community” stores and higher volume profit stores (eg by highway entrance). Community stores get to be a little less profitable but build a “second home” for those in the community to hang out at, while non-community stores bring in profit by being in a high traffic area.
    - masonic 8y ago
      Two SV locations that I used regularly (Alma Village in Palo Alto, Hacienda center in Sunnyvale) have closed this year alone.
- rexpop 8y ago
  Large capital reservoir to float downtimes, extraction of wealth from community in uptimes to fill that reservoir.
  - deleted 8y ago
    [deleted]
- endomatrix 8y ago
  I have a friend who runs a brewery. They distribute a ridiculous amount of their product into stores around the world and have won many awards, yet they make very little margin from all that. He told me they make an overwhelming amount of money off of the tasting room attached to their physical brewery because the beer itself is effectively water in terms of cost so they make profit by not having to pay any middle men in the tasting room. My suspicion is that in the coffee world, if you source and roast your own beans and serve them direct in a venue you own you get a similar effect. I think it must be essential to run the roastery yourself to make it work. That work goes well beyond what is required to just open a cafe and serve someone else’s coffee. Starbucks has simply insane process automation, training, branding, marketing, custom drink labs pushing out new flavors every two weeks, complete control of their global supply chains. It would be more accurate to ask: “How the F can anyone make any money when Starbucks is on every other street corner and has the advantages of scale they have.”
  - dragonwriter 8y ago
    > It would be more accurate to ask: “How the F can anyone make any money when Starbucks is on every other street corner and has the advantages of scale they have.” Source and roast your own beans, don't overroast the beans, charge a premium over Starbucks for not producing crap coffee from overroasted beans. Starbucks does some impressive work with the candy flavors it adds to distract from their coffee, but...
    - gambiting 8y ago
      I never had any issue with the way Starbucks coffee tastes - it's just coffee. I definitely don't pick my coffee shops based on the coffee taste - it's only a matter of distance/price, nothing else.
      - Marazan 8y ago
        That's fine everything is personal taste. ... Starbucks coffee tastes like crap to me and the reason is they chose crappy quality beans and then over roast them.
- SyneRyder 8y ago
  While I can't speak to Starbucks, a similar coffee chain in Australia is actually a property play. They don't just own their cafe, but also several of the adjacent stores as well, which they lease out to other retailers. Much of the value in the business actually comes from appreciation in property values.
  - ozim 8y ago
    That is actually what McDonalds is doing, burgers are just addition.
  - underwater 8y ago
    Starbucks equivalent in Australia? The only company I can think of to fill that space would be Gloria Jeans, but they don’t have the same pull as Starbucks.
    - SyneRyder 8y ago
      I'm reluctant to say which company, as I'm not sure how public that information is. It's worth pointing out Starbucks has several competitors in the cafe-chain space in Australia. There are cities in Australia where Starbucks tried opening & then closed down because they were unable to beat the local incumbent cafe chains.
      - dleclere 8y ago
        Shall we call this mysterious coffee chain Glorious Pants Coffee Company?
        SyneRyder 8y ago
        lol :) I am a huge fan of Gloria Jeans (especially their Mudslide Mocha), but it isn't them. Gloria Jeans run on a franchise model & earn their money from selling franchising rights, collecting franchise fees, advertising fees & requiring franchisees to purchase coffee beans etc from approved suppliers that in some cases are owned by the umbrella company. I understand they're considering a shift to a company-owned store model - but they only just started a franchising arrangement in Germany, so that's a long way from happening. I suspect some Aussies haven't heard of this cafe chain, even though they have twice as many stores as Starbucks, and now have cafes internationally.
- ozim 8y ago
  Small moms and pops coffee shops are not present on airports, in biggest city centers in best locations. After you have best spots in city where a lot of people come add optimizations of supply chain or owning a supply chain.
- jakobegger 8y ago
  By selling a LOT of coffee. Starbucks stores can have a 1000 orders per day [1] A poet / artist space will be lucky to have a few dozen people come in every day. [1]: https://www.quora.com/How-many-customers-does-an-average-Starbucks-serve-per-day?share=1 https://www.quora.com/How-many-customers-does-an-average-Sta...
  - unstuckdev 8y ago
    One of the local coffee shops solves this problem by also being a music school: http://hometownrhythms.com/ http://hometownrhythms.com/ They also have regular musical acts. The Athens/metro Atlanta area has a lot of cover bands.
  - lostlogin 8y ago
    There is one I used to go to that was very busy and they would make 300-600 per staff member per day and there were 6 of them. This reddit thread gives similar numbers per barista. https://www.google.co.nz/amp/s/amp.reddit.com/r/barista/comments/2qv2kb/question_how_many_cups_can_a_barista_make_a_day/ https://www.google.co.nz/amp/s/amp.reddit.com/r/barista/comm...
  - matt_the_bass 8y ago
    1000 day seems low to me. That’s only ~$10k/day. Can they justify at that rate?
    - sdinsn 8y ago
      Are you saying 10k a day is low? That's 3.65 million a year- that's absolutely enough to support rent, part time employees, and a nice profit margin (~10 - 15% on average).
      - matt_the_bass 8y ago
        Yes (I’m guesstimating $10 per customer). That’s fine for a mom and pop coffee shop maybe. But does that support a Starbucks? I’d guess no. I’d guess that Starbucks needs 2-3x that to justify keeping the location open.
- keithpeter 8y ago
  The authors of Capitalism without Capital would argue that Starbucks are reaping the rewards of their investment in their process as illustrated by the staff manual that sibling comment mentions (just finished reading the book - really thought provoking). There is a new coffee shop in the Digbeth area of Birmingham UK that appears to be family run and independent. I shall keep an eye on how they are going. Already there is a '10% student discount' sign on the window in felt-tipped pen (Birmingham City University have their Steamhouse project nearby).
- praptak 8y ago
  Huge effects of scale and then even Starbucks sometimes has to close a shop.
- IAmGraydon 8y ago
  Scale, leading to the associated economies on the supply side, real estate and employee benefits, among other things. Plus, they have a well known, consistent product, which holds high value with customers.
- larkeith 8y ago
  One advantage I feel like is underappreciated is that Starbucks are functionally standardized - If I fly into a new city I've never been to before, I can still be pretty certain that I'll find a Starbucks in the airport, with the same menu, a familiar design, and similar prices, while a local place is always a bit more of a gamble (not to mention harder to find).
roel_v 8y ago
* like bookstores and coffee shops and art galleries* Also, martial arts schools.
- probably_wrong 8y ago
  I taught martial arts for a couple years fully knowing I'd lose money in the process. How did I know that? Because my sensei had told us that he didn't make any money either. Neither does his sensei. I think at this point is almost a rite of passage - if you want to teach you do it because you like it, not because you expect to profit from it. Of course, the economics of your area also apply.
  - rjsw 8y ago
    Probably doesn't apply to martial arts as I'm guessing it isn't very expensive. A reason for getting into sports coaching is the same as for any other addiction, you reduce your own costs by becoming a pusher.
  - itchyouch 8y ago
    I dunno about that. I knew several tae kwon do folks back in the 90s charging around ~$300/mo subscription for twice a week class lessons. There would be 3-4 sessions m-f with 15-25 kids each session. I think the dojo was pretty financially healthy. Uniforms ran like $70-100, iirc. This was in central new jersey. These friends were financially, pretty comfortable. Now I have my inlaws teaching taekwondo in rural Michigan and that’s definitely not a profitable endeavor. More a labor of love.

chrisseaton 8y ago

So how do coffee shops like Starbucks mange to support 20 working part time plus a corporate headquarters and make a profit, from the same small store you would operate as a hobby?

trowawee 8y ago
Higher volume, faster turnover, economies of scale, predictable customer interaction schedules. All the things that make a local coffee shop or bookstore attractive, both to own and to patronize, directly conflict with those factors.
- mtberatwork 8y ago
  > economies of scale Exactly this...which means Starbucks can then negotiate exclusive volume pricing from their provider/vendors anywhere in the product chain and force them to sell cheaper to Starbucks.
deleted 8y ago
[deleted]
winkelwagen 8y ago
From what I understood is that not every Starbucks needs to be profitable. Some are insanely profitable, while others are just branding and marketing places that sell coffee. Of course there is a difference between not being profitable and bulking up insane losses each day, I think that is something Starbucks does well.
- UncleEntity 8y ago
  I've always wondered about this, there are 15 Starbucks within a 2 mile radius of where I live (just looked on google maps) and for some reason they don't seem to cannibalize each others sales enough for them to not keep building new stores, at least 3 of them have gone up within the last year or so.
  - masonic 8y ago
    Even 17+ years ago, there were downtown intersections in both Seattle and Vancouver that had two Starbucks each on opposite corners.
- itchyouch 8y ago
  They keep them going as long as they are profitable. They track a metric called “store contribution” which is the profit sent to corporate after all the store expenses. The highest volume stores are grossing about 40+k/week with contributions in the realm of 500-700k/yr from one example I know of. Moderate stores are doing around 25k/week. Stores below 10-15k/week tend to be at risk of shutting down or having the location changed. A 15k/week store can become a 30k/wk store just by getting a drive through. There is also a distinction between “community” stores and higher volume profit stores (eg by highway entrance). Community stores get to be a little less profitable but build a “second home” for those in the community to hang out at, while non-community stores bring in profit by being in a high traffic area.
  - masonic 8y ago
    Two SV locations that I used regularly (Alma Village in Palo Alto, Hacienda center in Sunnyvale) have closed this year alone.
rexpop 8y ago
Large capital reservoir to float downtimes, extraction of wealth from community in uptimes to fill that reservoir.
- deleted 8y ago
  [deleted]
endomatrix 8y ago
I have a friend who runs a brewery. They distribute a ridiculous amount of their product into stores around the world and have won many awards, yet they make very little margin from all that. He told me they make an overwhelming amount of money off of the tasting room attached to their physical brewery because the beer itself is effectively water in terms of cost so they make profit by not having to pay any middle men in the tasting room. My suspicion is that in the coffee world, if you source and roast your own beans and serve them direct in a venue you own you get a similar effect. I think it must be essential to run the roastery yourself to make it work. That work goes well beyond what is required to just open a cafe and serve someone else’s coffee. Starbucks has simply insane process automation, training, branding, marketing, custom drink labs pushing out new flavors every two weeks, complete control of their global supply chains. It would be more accurate to ask: “How the F can anyone make any money when Starbucks is on every other street corner and has the advantages of scale they have.”
- dragonwriter 8y ago
  > It would be more accurate to ask: “How the F can anyone make any money when Starbucks is on every other street corner and has the advantages of scale they have.” Source and roast your own beans, don't overroast the beans, charge a premium over Starbucks for not producing crap coffee from overroasted beans. Starbucks does some impressive work with the candy flavors it adds to distract from their coffee, but...
  - gambiting 8y ago
    I never had any issue with the way Starbucks coffee tastes - it's just coffee. I definitely don't pick my coffee shops based on the coffee taste - it's only a matter of distance/price, nothing else.
    - Marazan 8y ago
      That's fine everything is personal taste. ... Starbucks coffee tastes like crap to me and the reason is they chose crappy quality beans and then over roast them.
SyneRyder 8y ago
While I can't speak to Starbucks, a similar coffee chain in Australia is actually a property play. They don't just own their cafe, but also several of the adjacent stores as well, which they lease out to other retailers. Much of the value in the business actually comes from appreciation in property values.
- ozim 8y ago
  That is actually what McDonalds is doing, burgers are just addition.
- underwater 8y ago
  Starbucks equivalent in Australia? The only company I can think of to fill that space would be Gloria Jeans, but they don’t have the same pull as Starbucks.
  - SyneRyder 8y ago
    I'm reluctant to say which company, as I'm not sure how public that information is. It's worth pointing out Starbucks has several competitors in the cafe-chain space in Australia. There are cities in Australia where Starbucks tried opening & then closed down because they were unable to beat the local incumbent cafe chains.
    - dleclere 8y ago
      Shall we call this mysterious coffee chain Glorious Pants Coffee Company?
      - SyneRyder 8y ago
        lol :) I am a huge fan of Gloria Jeans (especially their Mudslide Mocha), but it isn't them. Gloria Jeans run on a franchise model & earn their money from selling franchising rights, collecting franchise fees, advertising fees & requiring franchisees to purchase coffee beans etc from approved suppliers that in some cases are owned by the umbrella company. I understand they're considering a shift to a company-owned store model - but they only just started a franchising arrangement in Germany, so that's a long way from happening. I suspect some Aussies haven't heard of this cafe chain, even though they have twice as many stores as Starbucks, and now have cafes internationally.
ozim 8y ago
Small moms and pops coffee shops are not present on airports, in biggest city centers in best locations. After you have best spots in city where a lot of people come add optimizations of supply chain or owning a supply chain.
jakobegger 8y ago
By selling a LOT of coffee. Starbucks stores can have a 1000 orders per day [1] A poet / artist space will be lucky to have a few dozen people come in every day. [1]: https://www.quora.com/How-many-customers-does-an-average-Starbucks-serve-per-day?share=1 https://www.quora.com/How-many-customers-does-an-average-Sta...
- unstuckdev 8y ago
  One of the local coffee shops solves this problem by also being a music school: http://hometownrhythms.com/ http://hometownrhythms.com/ They also have regular musical acts. The Athens/metro Atlanta area has a lot of cover bands.
- lostlogin 8y ago
  There is one I used to go to that was very busy and they would make 300-600 per staff member per day and there were 6 of them. This reddit thread gives similar numbers per barista. https://www.google.co.nz/amp/s/amp.reddit.com/r/barista/comments/2qv2kb/question_how_many_cups_can_a_barista_make_a_day/ https://www.google.co.nz/amp/s/amp.reddit.com/r/barista/comm...
- matt_the_bass 8y ago
  1000 day seems low to me. That’s only ~$10k/day. Can they justify at that rate?
  - sdinsn 8y ago
    Are you saying 10k a day is low? That's 3.65 million a year- that's absolutely enough to support rent, part time employees, and a nice profit margin (~10 - 15% on average).
    - matt_the_bass 8y ago
      Yes (I’m guesstimating $10 per customer). That’s fine for a mom and pop coffee shop maybe. But does that support a Starbucks? I’d guess no. I’d guess that Starbucks needs 2-3x that to justify keeping the location open.
keithpeter 8y ago
The authors of Capitalism without Capital would argue that Starbucks are reaping the rewards of their investment in their process as illustrated by the staff manual that sibling comment mentions (just finished reading the book - really thought provoking). There is a new coffee shop in the Digbeth area of Birmingham UK that appears to be family run and independent. I shall keep an eye on how they are going. Already there is a '10% student discount' sign on the window in felt-tipped pen (Birmingham City University have their Steamhouse project nearby).
praptak 8y ago
Huge effects of scale and then even Starbucks sometimes has to close a shop.
IAmGraydon 8y ago
Scale, leading to the associated economies on the supply side, real estate and employee benefits, among other things. Plus, they have a well known, consistent product, which holds high value with customers.
larkeith 8y ago
One advantage I feel like is underappreciated is that Starbucks are functionally standardized - If I fly into a new city I've never been to before, I can still be pretty certain that I'll find a Starbucks in the airport, with the same menu, a familiar design, and similar prices, while a local place is always a bit more of a gamble (not to mention harder to find).

roel_v 8y ago

* like bookstores and coffee shops and art galleries* Also, martial arts schools.

probably_wrong 8y ago
I taught martial arts for a couple years fully knowing I'd lose money in the process. How did I know that? Because my sensei had told us that he didn't make any money either. Neither does his sensei. I think at this point is almost a rite of passage - if you want to teach you do it because you like it, not because you expect to profit from it. Of course, the economics of your area also apply.
- rjsw 8y ago
  Probably doesn't apply to martial arts as I'm guessing it isn't very expensive. A reason for getting into sports coaching is the same as for any other addiction, you reduce your own costs by becoming a pusher.
- itchyouch 8y ago
  I dunno about that. I knew several tae kwon do folks back in the 90s charging around ~$300/mo subscription for twice a week class lessons. There would be 3-4 sessions m-f with 15-25 kids each session. I think the dojo was pretty financially healthy. Uniforms ran like $70-100, iirc. This was in central new jersey. These friends were financially, pretty comfortable. Now I have my inlaws teaching taekwondo in rural Michigan and that’s definitely not a profitable endeavor. More a labor of love.