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One problem: coffee shops are a competitive business. This makes their owners what economists call "price takers". It makes them what the rest of us call "bankr

by mhartl 18y ago

One problem: coffee shops are a competitive business. This makes their owners what economists call "price takers". It makes them what the rest of us call "bankrupt".

nostrademons 18y ago
Depends. There's often a fair degree of brand loyalty in coffee shops - people have their favorite cafe and don't really check out other places, because they like the atmosphere and want to support the owners. It's not like gas stations, where the price is posted prominently and you can just drive elsewhere. Unfortunately, much of that brand loyalty seems to be to Starbucks, so the little guys don't get much of it.
fallentimes 18y ago
That's why differentiation and probably, not competing in a commodity business to start with, are so important.
rcoder 18y ago
There is more than one axis on which coffee shops compete, though. Price is one of the least-critical, IMHO -- ambiance, service, and "extras" like a decent menu or late-night hours will earn you a lot more loyal customers than a $0.25 price cut on coffee. Remember, if cost was the major deciding factor, people would be making their coffee at home. Going to a coffee shop is a social act, so the "scene" matters at least as much as the product. The problems (and attempted solutions) the article's author described sound to me like they all stemmed from a lack of interest in paying any attention to the market. He admits that the most prominent and loyal types of coffee shop customers (commuters who just want to grab a cup for the road, and laptop warriors who want to sit tight and work for several hours) weren't interested in his business, and then seems surprised that he failed to make a profit? Color me unsurprised. You can make money in the service industry, eventually -- but you have to provide something that people want. Simply being in love with your own clever ideas is seldom a good path to profitability.
- HeyLaughingBoy 18y ago
  There is more than one axis on which coffee shops compete, Absolutely. I live about 7 miles from the nearest town, 30 miles or so from the nearest big city (Minneapolis). I would love a quiet, sit-down coffeeshop that had good coffee, tea, (and yes, cocoa :-) and pastries along with WiFi. I have no problem paying a small hourly fee for the WiFi or better yet an hourly drink minimum. It's nice living on a farm in the middle of nature, but sometimes I want a different environment and I don't want to go all the way into the city or large suburb to find it. I'm sure there are many around here with a similar wish.
jimbokun 18y ago
Is this true? The article mentions that the markups on coffee would be ridiculous for most other industries. And the market pretty much accepts this. I know I'm not considering all the other business costs here. But, shouldn't someone be able to "Wal-Mart" Starbucks and copy their product but cut the margins to put them out of business? Another example is the people with laptops who are buying $5 tickets in the form of cups of coffee to rent a few hours of de-facto office space. Are they going to quibble if it's $6? If the ambiance is a little cooler, or the coffee a little hipper, or the wait-staff a little cuter, an extra dollar might not matter to them, or might not be enough to chase them to the Starbucks across the street. In short, part of the point of going to a coffee shop is to get away from seeing yourself as a "price taker." Otherwise, you can get your caffeine cheaper at McDonalds. Do those of you reading this pass up one coffee shop over another for $1 difference in price? $0.50? $0.25? I'm honestly curious.

by mhartl 18y ago

One problem: coffee shops are a competitive business. This makes their owners what economists call "price takers". It makes them what the rest of us call "bankrupt".

nostrademons 18y ago

Depends. There's often a fair degree of brand loyalty in coffee shops - people have their favorite cafe and don't really check out other places, because they like the atmosphere and want to support the owners. It's not like gas stations, where the price is posted prominently and you can just drive elsewhere. Unfortunately, much of that brand loyalty seems to be to Starbucks, so the little guys don't get much of it.

fallentimes 18y ago

That's why differentiation and probably, not competing in a commodity business to start with, are so important.

rcoder 18y ago

There is more than one axis on which coffee shops compete, though. Price is one of the least-critical, IMHO -- ambiance, service, and "extras" like a decent menu or late-night hours will earn you a lot more loyal customers than a $0.25 price cut on coffee. Remember, if cost was the major deciding factor, people would be making their coffee at home. Going to a coffee shop is a social act, so the "scene" matters at least as much as the product. The problems (and attempted solutions) the article's author described sound to me like they all stemmed from a lack of interest in paying any attention to the market. He admits that the most prominent and loyal types of coffee shop customers (commuters who just want to grab a cup for the road, and laptop warriors who want to sit tight and work for several hours) weren't interested in his business, and then seems surprised that he failed to make a profit? Color me unsurprised. You can make money in the service industry, eventually -- but you have to provide something that people want. Simply being in love with your own clever ideas is seldom a good path to profitability.

HeyLaughingBoy 18y ago
There is more than one axis on which coffee shops compete, Absolutely. I live about 7 miles from the nearest town, 30 miles or so from the nearest big city (Minneapolis). I would love a quiet, sit-down coffeeshop that had good coffee, tea, (and yes, cocoa :-) and pastries along with WiFi. I have no problem paying a small hourly fee for the WiFi or better yet an hourly drink minimum. It's nice living on a farm in the middle of nature, but sometimes I want a different environment and I don't want to go all the way into the city or large suburb to find it. I'm sure there are many around here with a similar wish.

jimbokun 18y ago

Is this true? The article mentions that the markups on coffee would be ridiculous for most other industries. And the market pretty much accepts this. I know I'm not considering all the other business costs here. But, shouldn't someone be able to "Wal-Mart" Starbucks and copy their product but cut the margins to put them out of business? Another example is the people with laptops who are buying $5 tickets in the form of cups of coffee to rent a few hours of de-facto office space. Are they going to quibble if it's $6? If the ambiance is a little cooler, or the coffee a little hipper, or the wait-staff a little cuter, an extra dollar might not matter to them, or might not be enough to chase them to the Starbucks across the street. In short, part of the point of going to a coffee shop is to get away from seeing yourself as a "price taker." Otherwise, you can get your caffeine cheaper at McDonalds. Do those of you reading this pass up one coffee shop over another for $1 difference in price? $0.50? $0.25? I'm honestly curious.