those sneaky insurance companies!!!

Unfortunately, we all need insurance.  You would be an idiot to go into business without a full array of insurance to protect you from some sort of catastrophic event – property, workers comp, fire, flood, business interruption, liability, car, etc., etc.  

If you are like me, you don’t want to dwell on this topic, so you find an insurance company, sign up and forget about it…. hoping that it will be there if you need it sometime in the future.

Insurance companies rely on your doing just this; they know that once you are covered by a company, you are unlikely to look around for better prices when the renewal comes up the following year.   It is a big time suck to find another policy, get bids, fill out the paperwork, etc., etc.   And they take full advantage of this. 

A couple years ago, I had State Farm insurance for my cars.  I noticed that from year 1 to year 2, my rates increased by 10%.    I know things happen and sometimes insurance companies need to take a big increase, but I assumed that would just be a one-off event and subsequent years would be stable.    Besides which, my three cars were costing me about $1400 per year, so 10% increase was only a $140. This was hardly worth the large time commitment it would take to find an alternative.  The next year, I just signed on without looking at the increase. And I did it for the next year as well (Stupid!!!).  On the fourth year, I took another look at my auto insurance rates, and to my astonishment, I realized that my rates had increased over 50% in four years!!!   Keep in mind that I had not had any moving violations nor accidents during this time; it was just arbitrary increases.  I was now paying $700 per year MORE than I was before…. for NO reason!!   I called my agent to find out why my rates had increased so much, and she just mumbled something about how the entire 'Insurance Pool' had been very expensive over the last several years, so they had to increase everyones rates to compensate for the increased payouts... BS.    

Not six months later, I was looking over the renewal paperwork for my Workers Comp insurance with Travelers Insurance Co.    Similar to my driving history, I had not had a single claim on Workers Comp in years.  It was not a huge cost (~$2500 per year), so I had just signed the renewal each year, assuming that since I had not had any claims that my policy would stay about the same.    Stupid! Stupid! Stupid!    I pulled up my paperwork from previous years and discovered that my insurance had gone up 20% from the previous year and an additional 22% from the year before that!!     We were now talking about some serious money!

So, I learned; this is how insurance companies operate.   They drop their initial sign-up rates nice and low to attract people in, then take large price increases every year, hoping (assuming) that people will either not notice or not care enough to change.   This adds up pretty quickly.

This is not the only way insurance companies are sneaky; they also try to figure out some way to avoid paying out (or reducing the amount paid out).   My catering car was stolen a couple years ago, and State Farm just cut me a check for the value of the car and sent it to me.  I took one look at it, and it became clear that it was nowhere near the actual value of the car.   They had low-balled the valuation with the hope that I would not try to fight for the additional $1000.   When it became clear that I was planning to fight for the true value of the car, they came up with an array of documents they needed to show the actual value of the car. As it happened, these documents were going to be rather time consuming to produce!!    So, in making the process time consuming and difficult, they were hoping I would give up and just take what they gave me. 

So, what to do?

There are three things to do to avoid being taken advantage of by insurance companies:

1.      1)  Use an insurance broker; a good insurance broker is invaluable.  He/she finds good insurance policies, reputable companies, comparison shops and gets the best deals.    He/she also helps figure out what policies would be best for what you need and will fight for you to be appropriately reimbursed if/when you need to make a claim.  You will most certainly get a better deal. Yes, the broker will bump up your policy by a certain percentage, but overall you will probably end up paying less because your broker will find you the best deals.

  

2.      2)  Scan your insurance documents into the computer when you get them; this makes it very easy to look up what you paid in the previous year.  I use a NEAT scanner to scan all documents into my computer.  When it comes time to compare year on year pricing increases - having all the scanned documents together on your computer makes such comparisons a breeze.  

3.     

           3)Take the 5 minutes it takes to see how much your rates are increasing from year-to-year.  If they are increasing more than inflation, call your broker and ask him/her to investigate why your rates are going up.  Just being a pain in the butt to the insurance company is often enough to have your rates dropped back down.  If they don’t drop their rates, then you can ask the broker to do some comparison shopping and find an alternative policy.  So he/she will do all the work for you!

Good luck with insurance!!

In researching this blog, I came across this document (The Ten Worst Insurance Companies in America) that named and shamed the top ten WORST insurance companies (look! my nemesis State Farm is on there!)  Enjoy:

1. Allstate

2. Unum

3. AIG

4. State Farm  (die die die!)

5. Conseco

6. WellPoint

7. Farmers (I've had these guys as well!)

8. UnitedHealth

9. Torchmark

10. Liberty Mutual

Here is a quote from the report:  

Profits Over Policyholders

But some companies have discovered that they can make more money by simply paying out less. As a senior executive at the National Association of Insurance Commissioners (NAIC), the group representing those who are supposed to oversee the industry, said, “The bottom line is that insurance companies make money when they don’t pay claims.”7 One example is Ethel Adams, a 60-year-old woman left in a coma and seriously injured after a multi-vehicle crash in Washington State.   Her insurance company, Farmers, decided the other driver had acted intentionally and denied her claim, contending that an intentional act is  not an accident. Another example is Debra Potter, who  for years sold Unum’s disability policies until she herself became disabled and had to stop working. All along, Potter thought she was helping people protect their future, but when her own time of need came, she was told her multiple sclerosis was “self reported” and her claim denied—by Unum, the very company whose policies she had sold. 

In cases like these, and countless others, the name of the game is deny, delay, defend—do anything, in fact, to avoid paying claims. For companies like Allstate, there are corporate training manuals explaining how to avoid payments, portable fridges awarded to adjusters who deny the most claims, and pizza for parties to shred documents.

(as an aside, I now use Progressive - I've been very happy with them.)

Please join in the conversation!  What would you like to hear about - what issues are most important to you?

-Duncan

The Coffeehouse Guy

The Music Trap

The Music Trap

Six months ago, I was approached by student  music coordinator at Yale University .   A number of students had formed some bands and were interested in playing in intimate seting of the Koffee? atrium.  It was going to be a pretty quiet Friday night, so I thought this would be a nice way to introduce Koffee? to some of the Yale undergraduates.

These organizers did an amazing job publicizing the event.  Posters everywhere, advertisement in the Yale Daily promoting it... and even  a few spots on the student-run radio station.

 Unfortunately, they did TOO good a job. 

Three weeks later, I received my first of many many many emails, letters and phone calls to come - from the attorneys at BMI.

For those of you who have not yet had the pleasure of dealing with this parasitic company, allow me to outline who they are and what they do.  BMI is a music licensing company.    If you buy a Madonna CD from the store, and play it in your house with a few friends... no problem.  That is considered "private use".  IF, on the other hand, you play it in your cafe, where your customers can also hear it - it is considered "business use", and you need a music license for that. 

BMI wanted me to purchase a license from them for about $350 per year, plus additional $$ for each live music event I held.  I explained to the BMI attorney that every live-music event I did was with local musicians that only played their own stuff.  He countered that if any musician playing in my establishment did a cover, borrowed a riff, or used any vaguely similar chord structure to an artist that BMI represented, that I would be liable for infringement.

If this were the only potential cost, then I might consider sucking it up and getting the $350 license.  Besides which, I support musicians getting benefits from the music they make.  I just hate the way these licensing companies treat me.

Unfortunately, BMI is just ONE of many music licensing companies.  The big three are BMI, ASCAP and SESAC, but there are a handful of others.    You might have thought that if you get a license from ONE of the companies, that they have some sort of mutual-agreement going on, so you'd be covered... WRONG!    You must get a music license from EACH ONE - which altogether can run into the thousands of dollars per year.   

A friend of mine, who shall remain nameless, who also owns a cafe, once got a BMI license.  I dont know if this was pure coincidence, or if there is some kind of information sharing going on, but within a couple weeks of paying the BMI license fee, he started getting calls from all the other music licensing companies.  In the end, he was out of pocket a couple grand. 

What to do??  You want to use music legally in your establishment, but you dont want to pay redundant fees to these blood sucking parasite music licensing companies?

Lucky for us, we have two options:

1. Pandora DMX - This is the commercial arm of Pandora.  It works exactly the same way as Pandora, only you buy a specific box to play the music through and you pay a subscription rate of $25/month.  With this, all your music licensing needs for all licensing companies are taken care of by this service.

 

2. XM Radio - For Business-    Like the Pandora DMX, the XM Radio commercial account is a bit more expensive ($32/month), but you have access to the full menu of XM Radio offerings, and  it does not come through  the internet (you will need a small satellite receiver).

There is one downside to this - no live music.  The XM Radio and Pandora DMX services only cover the music coming through their systems.  You will still need live music licensing from BMI if you wish to pursue live music.

This is a real shame.   Up until now, we have done live music every couple weeks - maybe 20-30 times per year.  Frankly, it was never a money spinner for me.  Live music is a pain to find good acts that your demographic would enjoy, organize them, set up  the space etc etc.  It is alot of work.  And all that work for one nights incremental sales.  Even when you do have a good act, you tend to alienate your evening regulars (who cant enjoy a conversation or some reading time), and the people who come for the music dont tend to come back as regular customers. 

I only did live music, because I like to support the small local band who wants a place to play in a public venue.  Now, I have stopped all that - no more live music in my place.  What a shame.   It is places like Koffee? that new music stars are born - without these small venues, people will find it more and more difficult to enter the music industry.  I found this article that highlights some of my thoughts on this matter.

Well, enough for today.  Thanks for reading, and please be sure to leave any thoughts and comments!

Duncan

the Coffeehouse Guy

design the line

no one likes to wait in a line. 

As my business has grown, so have the lines.  I have discovered that people are only willing to wait for just *so* long before they turn around and leave.  Even to this day, when I see someone come into my place and take one look at the line of eight people waiting to be served, they turn around and leave... it drives me nuts.

GRRRRRR!!!  I HATE THAT!

So, I spent some time looking into this. If someone walked into the place, I wanted to be sure they stuck around to buy something!

First and foremost, improve speed of production. 

 I'm going to write a couple of posts about production and service speed in the near future, but that is not what this one is about....   Suffice it to say that your first emphasis should be on increasing the speed of production.  My average customer is now served in 45 seconds, so we can motor through customers pretty fast.

Second - design the line.   

People hate standing in line; they feel like it is a waste of their time.  Thus, you must convince them otherwise:  reduce the 'appearance' of a long line, add distractions to keep them from thinking about their being in a line,  make sure they know what they want when they reach the register, AND add things for them to buy while waiting for their turn.


reduce the *appearance* of a line

In short - don’t make it straight.  A straight line looks longer and feels longer than a curvy line.   Try to design your line so it curves, goes up and down and around.    Here is how I set up the line at Koffee? to try and address this issue:

The guy in the black shirt on the left is standing in front of the cash register.  The door to the outside is on the right (thru the curtain).  You can see from this example that as a line forms it must form in a snake-like pattern.

make sure people know what they want when they reach the register:

Some coffeehouses I've visited have poor line placement, so it is difficult to read the menu until you are AT the register...   This leads people to stand in front of the line gawking at the menu "uuhhh - I'd like a...  uhhhh - a latte?  and do you have any cookies?"   This slooowwwssss down the line dramatically.   Instead, you must have the line and traffic flow set up in such a fashion that by the time a customer gets to the register, they know for certain what they want, ready to order.

As you can see from the picture, people can start reading the menu from the base of the steps going up to the ordering area.  Once they reach the top of the stairs, they are within reach of the grab & go cooler and can see the baked goods in the cases.  Thus, by the time they reach the register (on the left), they know exactly what they want and have grabbed what they need from the cooler. This means the person at the register can just ring them through. Fast!

distract your customers!

Add things along the path of the line to distract and amuse customers.  I've tried a number of things along these lines.  I like the digital picture frames; they are cheap and you can add in rotating pictures at timed intervals to promote products, services etc. 

I also like to show written responses to suggestions (from the suggestion box) on a cork board (you can see it on the wall to the left).

Some other things I've used in the past to distract people are a stack of newspapers near the line, a paper menu of our products, and funny posters. I've seen some place TV screens with black and white cartoons running in circuits to keep people distracted.  I don’t do that because I don’t like TV in my establishment... but it could work in yours!


line the line with stuff to buy

You see this all the time when you are waiting in line at the grocery store: candy, small items, magazines, gum, sitting in easy-to-grab racks right next to where the line runs.  These guys are masters of the line!    I recently went into a pharmacy and saw this:  WOW!!!  Now THAT is using the line to maximize sales!!

I have much to learn from you Master CVS!!

I think you get the idea; put up some tasteful shelves, hanging baskets of shirts, travel mugs, etc. along the line pathway that people can pick up, examine and buy.  You'd be surprised how much that can add to the transaction!


Well, that is enough for today.  I hope you found this helpful, and PLEASE LEAVE A COMMENT!  Let’s get a discussion going here. I want people’s thoughts on this.

Best,
Duncan

The Coffeehouse Guy

one is none, two is one

Five years ago, in the middle of a busy Saturday shift, the espresso machine went down.  hard.   At 2pm I received a panicked call from the Shift Leader at the shop "Duncan - the espresso machine went down!   I have a line of 10 people waiting for their lattes, and the damn thing is leaking all over and wont make any espresso!".  

crap.

So much for my Saturday afternoon.  I hightailed it into the shop to find the place packed... and a line of people waiting around hoping that I could work my magic on this 300lb espresso burping monster.    I twidded this switch and toggled that knob.. turned it on and off... threatened it with a pipe-wrench.... nothing.  A few blinking red lights and the occasional steam-laden-ed sigh.

crap.

I turned to the crowd- "sorry folks, looks like ole bessy here is down for the count."   A groan settled over the crowd, and I watched in consternation as twelve disappointed customers walked out of the shop without having made a purchase.

crap.

This was my first *major* lesson in not being prepared.  When I bought the espresso machine, the guy I bought it from had tried to sell me a service contract with the machine.  I figured it was just some scam to extract additional cash from me.  Now I understood.

The numbers dont lie.  During peak times, we are making as many as a hundred drinks per hour on that machine.   Even at the slower rate of 50 drinks per hour,  at $3.50 per drink comes to $175 per hour in lost revenue.  

When your espresso machine dies, you lose money very quickly.  It is one of those 'mission critical' pieces of equipment that you need.  If it goes down, you need to have a system in place to QUICKLY fix or replace it.   (as an aside, dont skimp when you buy your espresso machine.  Spend the extra couple grand to get a good machine that wont crap out on you every other week.)

For those of you who have not heard this old Marine Corp gem (two is one, one is none), it means that you should always plan on having backup, because you cannot depend on the primary always working.

This lesson can be extended to many areas within the shop - equipment breaks down, people dont show up for shifts, employees quit, internet fails, vendors run out of product.... the list goes on and on. In short, things rarely go perfectly all the time.   You need to be prepared.

That said, not everything needs redundancy.  Some equipment is not critical to serving the customer - it is just convenient.

The goal of this section is to identify the areas of greatest threat to the smooth operations of the shop, and show how you can set up backup systems to ensure things keep moving along, even when there is a system breakdown.

I've broken this down into five different areas of preparedness - employees, equipment, suppliers, payment systems and power.

Employees:

I have my staff structured in a slightly different way from most places.  After a person has been working at Koffee? for 3-6 months, and is promoted to Shift Leader, I give them an additional management task (well, two actually).    (I'll write a post at a later date outlining why and how I do this - it is very effective way to keep your employees happy!!).      These tasks include such things as: processing daily sales sheets, bank deposits and getting change from the bank,  ordering supplies, tracking waste reports and configuring the bakery order for the next week, tech expert (fixing wifi, cash register etc. when go down), upkeep on facebook, website, creating ad posters (and posting them up),    devise new and interesting drinks every day, ordering and tracking the beer & wine, entering bills into QB and cutting checks,  reconciling bank statements, etc etc.

After a person has been around for 3-6 months, I get a pretty good idea of what type of person they are, what they are good and and what they enjoy doing.  From this I give them one primary responsibility and one secondary responsibility.   So, say employee A has ordering supplies as their primary and waste tracking reports as their secondary.     Employee B has waste tracking as their primary and is the secondary tech expert.   If Employee B takes a week off, then Employee A will order supplies AND do waste tracking.   Likewise, if Employee B leaves for any reason, then Employee A will take over the waste tracking until a new employee can be identified who can take over that responsibility... then Employee A will teach Employee C how to do waste tracking reports.   This way, I always have back up for every function and responsibility in the shop - and I'm rarely caught short.

When I get a couple new employees at the same time, I will take that opportunity to shake things up - give employees new primary and secondary responsibilities.


Equipment:

As I outlined above, equipment fails.  It is not a matter of if, rather a matter of when.   Usually at the most inopportune moment.  In this section I'll go through the main pieces of equipment you have, and outline the backup I have put in place to deal with equipment failure.

Espresso Machine - I now have a fast-response contract with my coffee roaster.  If the espresso machine (or brewer) goes down,  he can be there in 30 min to an hour.   He does a quick check over the phone to get some rough understanding of what is wrong with the machine, and if he thinks it is going to take more than 20 minutes to fix, he will bring a replacement machine and simply swaps them.  While this costs me a bit more to have, it is ABSOLUTELY worth it.  When we are selling $1200 a day in espresso drinks,  all it takes is being without an espresso machine for ONE DAY for that contract to be worth while.    The same applies for our coffee brewer.

Internet - Most modern payment systems (gift card verification, credit card acceptance, ATM) all use internet rather than phone lines.  (if you are still using phone lines - you REALLY need to switch to internet - it is alot faster.)   When my internet goes down, it is not just irritating to my customers who are trying to surf the net or download the most recent Kesha hit - it absolutely cripples my business.    Without the ability to use credit cards, gift cards or get cash from an ATM, it is very difficult to accept payment!!    Solution: two internet providers.   Both Comcast and AT&T Uverse high-speed internet service my area.  I have BOTH.  So, I have two internet modems, two wireless routers etc.  This way, if one goes down, we can just switch to the other.

 

 

If you dont have two fast internet suppliers in your area, then I'd do one fast internet and one dial-up modem - anything to have a back up.  It will save you alot of grief!!

Phone - I would not worry too much about this.  Everyone has their own cell phone these days, so having a phone for the shop is redundant.    The only exception is for the catering business - for this you definitely need a reliable phone.     I got a Google Voice number for my catering line, and just forward it to one of my employees cell phone.  If I wanted a phone line for the shop, I'd probably get a VOIP (Voice over Internet Protocol) phone - you can buy the hardware for pretty cheap and the service is free.

Refrigeration - This one is a bit tougher.  We have one walk in cooler, two small under counter cooler, one 3-door undercouner coolers, one large milk cooler and two upright refrigerators.  This gives us enough refrigeration that if one goes out, we can always transfer the food into the other ones.   The downside to this is that all these compressors in each refrigeration unit uses alot of electricity (it is much more efficient to have fewer, larger units.   Were I to start afresh, I'd have two separate walk-in coolers, so they could act as back ups for each other.     At the same time,  I'd also cultivate a reliable relationship with a good refrigeration guy who can get to you quickly if something goes out.

Credit Card Machine - people use their credit cards for just about everything these days.  10 years ago, people would only use them for transactions over $15-20... but now they want to use it for everything.  It would not surprise me if we became a cashless society in the not too distant future (I've even thought at times about eliminating cash from my systems altogether, and JUST using gift cards and credit cards - but I'll get into that in a future posting).  I use the 'square' system - the plug in unit that goes into an ipad (or similar tablet) .      It is pretty important to have backup for credit cards - so requested an additional square plug in unit (free!) and I keep a spare itouch (old) at the shop with the software already downloaded on it.  Thus, if the current square/ipad stops working, my employees can just grab the backup square/itouch, turn it on and immediately start using it.

Gift Card Machine - I have a gift card machine that is separate from a credit card machine.  These days, many credit card machines / processors also try to grab your gift card business.  Dont do it.  Set up a separate vendor for your gift card processing.  This is for two reasons:  first, you want two separate systems, so that way if one goes down, you still have the other one to fall back on.   If both your credit card processing and gift card processing went through the same machine, and it went down, you'd be screwed.  Whereas, if just your gift card machine stopped working, you could still lean on your credit card processor without much difficulty while you were trying to fix the gift card machine.   Likewise, you dont want to get yourself in a situation where you are *stuck* with a certain vendor.  Gift cards are one of those things that you can get stuck on.  After you've been using gift cards for a while, you could have thousands of dollars in outstanding cards... if you try to switch, you still need to figure out how to keep those cards valid.  A real pain in the backside.  If both of your gift cards and credit cards were run through a single system, you'd be prone

Ice Machine - I'm not too worried about having a solid back up for an ice machine,because I can always go to the local convenience store and buy 100lbs of ice, and throw it in the ice machine hopper until the refrigeration tech could get to me.

Commercial Dish Washer / Toaster / Microwave / Stereo  - most of the rest of this stuff is not mission critical.  When they go out, business is not going to stop cold.  It is mainly an inconvenience.  I dont think it is worth setting up back up systems to immediately replace them if they go down.   Instead, keep an eye on Craigslist, and if you saw one of these for sale at a good price, you could snap it up and keep it in your garage in case of emergency.

Suppliers

It is always a good idea to have multiple places where you can get supplies from.  First, this means that if one vendor runs out of something, you can find it from another place.  Second, if your vendors know you have alternative suppliers for their products, they are less likely to jack up their prices.

I have addressed this issue by using specialized vendors and one large generalist.  I have a dairy vendor, a produce vendor, a paper vendor, a cleaner vendor and a few other specialist types.  THEN I have one generalist (Perkins) who could supply me with any/all of those items.  The generalist provider tends to be a bit more expensive than the specialist, but the mere fact that I have a generalist means the specialists wont mess with the prices.    A couple times a year, I will notice that a supplier has bumped up their prices on something (with the exception of dairy and produce, which fluctuate alot).  I will ask the big generalist vendor their price on that item.  If it is lower, I will contact the specialist that increased their price and ask why the price has increased - then explain that their competitor has kept the price at the lower level.  The specialist will usually drop their price back down.

This method not only makes sure you have the supplies you need from redundant suppliers, but it also ensures that you keep your costs of goods down.  (this is important because suppliers LOVE surreptitiously bumping up your prices when you are not looking).

Back Up Power

Over the last five years, I've begun to notice more extreme weather events around the world.  Here in the Northeast over the past couple years, we've gotten hit by a couple hurricanes (such as Sandy), a couple serious windstorms and two huge snowstorms.  Each of these storms shut down the grid for a couple days.    I think we are going to be seeing more of these types of extreme weather events as time progresses.

When these things happen, people go where there is power.  One of these storms knocked out the power to the surrounding neighborhoods, but my shop still had power.  We had a HUGE day of business - people were coming in from all over to grab some hot coffee and charge their cell phones (we set up a charging station for customers).    Not only did we have a banner sales day, but we garnered much goodwill from the surrounding neighborhoods for giving people a warm place to charge their cell phones etc.

This got me thinking.

My shop makes a couple grand a day in revenue.  If the power goes off, I cant open the shop, and lose that revenue for the day (cant open the shop if I cant make coffee).

You can purchase a standby generator like this one, that runs on natural gas or propane.  Keep a 100gal propane tank and hook it up to the natural gas hookup (these rarely stop working - in all the extreme weather events of late, gas has continued to flow).   You have the propane tank onhand in case the gas also goes out.   These generators are awesome - they sense when the power grid goes down and immediately kick in to provide uninterrupted power.

To buy this generator, a 100gal tank and have it installed costs in the range of $5000.  When you consider that it takes only 2-3 days of sales to pay for it... it is pretty clear that this system will pay for itself in just a couple years.  This does not even take into consideration the supplies you will save.  I have between $1500-2000 worth of refrigerated supplies in the shop at any given time.  If power goes down for more than two days, I'll have to throw everything away - what a waste!  Furthermore, the basement of my shop lies below the drain level - so we use a sump pump to keep the water out.  If I lose power, then glub glub... my basement quickly fills up with water.  I'd lose tens of thousands of dollars of equipment and supplies if that happened!!

Remember - one is none, two is one.   The better prepared you are for breakdown, the less business interruption you will experience, the less pain in the butt  you'll have and the more money you make.

good luck!

waste reduction for improved profitability - part II

I know I keep pontificating away about how much I love waste reduction, but I just cant help myself!!.  It is just so great for the business in so many ways.  First, it reduces your expenses without jeopardizing your product quality or services - thus increasing profits!  Second - it is EASY!  It is SOOO much easier to reduce your expenses to increase your profits than doing some big promotional campaign to increase customers in the shop (thus increasing profits).  Third, waste reduction is good for society at large - less waste means less garbage and more fully utilizing resources.  LOVE IT!  Just a win - win - win, all the way around.

So, in this second part of waste reduction, I want to address a few other items that will help you to either reduce your waste, OR help you re-purpose the waste for other products.

Peter Drucker, the original management guru once said - "That which is measured, gets managed".   We are in an industry with a highly perishable product.  Espresso (once pulled) stays good for about 30 seconds.  Coffee (once brewed) only stays fresh for a couple hours.  Likewise, bagels, muffins, scones, sandwiches etc  made one day, are not good the next day.   If you want to keep you business viable over the long-term, your product must be fresh and delicious - every day.

This is tough to do - because you must either order or produce your product before you need it.  We make a set number of muffins, scones, bagels etc each day.    In addition, we do not do sandwiches / salads on demand - we pre-make a bunch of each and leave them in the grab & go case for our customers to grab when they come in.    So, you must be able to accurately anticipate demand well in advance of the purchase event - if you underproduce your product, you miss out on potential sales.  If you OVER produce, then you end up wasting a bunch of product.   Where is a crystal ball when you need it?

So - how do you accurately anticipate demand?  the answer: a waste tracking system.

At the end of each day, the Shift Leader writes down the remaining products left in the case: (the following is actually lifted from the closing Shift Leader checklist:

When the shift leader has filled this out, they put it in a special cubby in the office.  Once a week, one of my employees takes all these spreadsheets from the week, and combines them in a single spreadsheet that tracks the number of remaining products.

From this, you can see certain patterns, which allows you to adjust the production numbers appropriately.  in this example, you can see that the days leading up to Tuesday 6/26 we had a consistent ~ 2 extra banana muffins left over, so we reduced the production by one.  The subsequent days showed no banana muffins left at the end of each day.

This was probably not the best production decision, because the subsequent four days we were at zero - ideally you'd have two days at zero and two days at one - so this way you know that you were not missing out on purchases

It is a difficult balance you must maintain when figuring out the 'sweet spot' of production (or ordering - if you dont produce the stuff yourself) , because you DONT want to be left with ZERO product at the end of the day.  If you do that, then you are probably missing out on potential purchases (not to mention pissing off customers at the end of the day who wanted  a muffin).    Ideally, you have a maybe one muffin left of 2-4 variety types.

You must be regularly adjusting production - I usually have one of my employees do it every 1-2 weeks.  Demand increases for some products during some seasons and drop off in other seasons.  The only way to consistently hit that sweet spot on production if you are regularly checking on waste and adjusting accordingly.


when the world sends you lemons... make lemonade!!

Even with the best waste tracking systems, there will still be left over product.   If you do a good job with the  waste tracking systems, it wont be alot, but there will still be SOME.

About five years ago, I was working late, and I noticed the case was still pretty full of product.  It had been a crappy, rainy day, so sales had dipped about 20% (as it usually does on such days), so I was left with swaths of unpurchased product.... sandwiches, muffins, fruit cups, bagels etc etc.    I looked around the shop and saw we only had a handful of customers left, with only an hour to go before closing.

*sigh*

Looks like I was going to lose a couple hundred dollars in wasted product.  crap.  Even if I took some home for the family, we'd still have to discard the rest.  It would not keep for tomorrow.   What a waste.   Earlier that year, I had tried to give the stuff away to a homeless shelter, but they told me they would not pick it up, so I had to drop it off with them.  I just finished a 14 hour day, and the LAST thing I wanted to do was to deliver  a bunch of food somewhere (wasting both my time AND gas).

While standing glaring at my full case... it suddenly occurred to me... why not repurpose as much of these products as you can - transform them into other products that you can sell as a different product?   With a bit of brain storming, I came up with some ideas that I subsequently implemented:

- Bagels: I have my staff slice them up, add some olive oil, salt and pepper, put them in the oven and bake them into *home made bagel chips*.... with hummus!

Voila!  One old bagel that we were going to throw away, plus 50 cents of hummus, and we have a new product!  Bagel chips and hummus.  Not only do we avoid wasting bagels, but we now have a new product that is HIGHLY profitable!


- Blended Fruit Drink!   We usually have a couple fruit cups left over from the previous day:

Now, we take these day-old fruit cups, add a half-cup of yogurt and blend them up for a healthy breakfast shake!  We sell them for $4.00 apiece!  People now come in early to snatch them up - and we've increased our fruit cup production so we have more left over the next day.  Awesome!  We also do something similar with our yogurt/granola/fruit parfait cups.

Left over baguettes from sandwiches?  cut them up, bake them hard and use them as croutons for the next day's salads!


Yesterday's Yummies!!

There are some products that you sell fresh one day, that you cannot sell as 'fresh' the next day, but are still perfectly fine to eat.  These include old muffins, scones and other baked goods.    For these leftovers, we wrap them in plastic and sell them as 'yesterdays yummies' for about half price from the fresh stuff:

You should always have a day-old baked goods bin.  Always.  This is not because you can at least recoup your costs if you sell the day-old stuff (which you can), but because of the information this telegraphs to your customers.

By prominently selling yesterdays baked goods at half-price, you are telling your customers loud and clear that everything in the case is fresh from today... and you will not sell your baked goods as 'fresh' unless they are actually fresh.

This is important - I knew a coffeehouse that tried to sell their day old muffins (and even 2-3 day old muffins) and fresh.    The owner figured the customers would not be able to tell the difference.  They could tell the difference.  Needless to day - that coffee house is no longer in business.


OK, this next part is kinda gross.....

Dumpster diving.   One of the best sources of information about what you are wasting money on is in your dumpster.   By pulling out garbage and looking through it, you will find a bunch of stuff that people are throwing away.   This can give you insight into your business that you didnt have before, AND it will give you additional ideas about where you can cut out waste.

A couple years ago, I did a dumpster dive, and I found some surprising things.  First of all, there were a large number of half-bars in the garbage.  I was shocked!  How was this possible???  Our bars are fresh, people are always complimenting our bars!  I've never once heard a compliant about something being wrong with our bars!     At the time, we were selling our bars (lemon bars, pumpkin bars, heaven bars etc etc) in sizes of 3" x 3".  Now, I'm not a small guy - I'm 6'2" and I tip the scales at 240lbs.   A 3x3 bar is about the perfect size snack bar for ME...   but in hind-sight, I realize that I'm a bit of an outlier.  People loved the bars, but simply could not finish them.   So, they would eat half of one, and either save the rest for later, OR they would throw the rest away.   Solution?  cut the bars into quarters.  We were selling a big bar for $3.50 per unit, and we cut them down to 1.5" x 1.5" (put them in a little muffin paper) and sold them for $1.25 apiece.  Thus, the insight gained from one dumpster dive resulted in increasing my profits per bar from 70 cents (when we sold it for $3.50) to $2.20 per  3"x3" bar!!    The best part?  we actually sold MORE volume at the smaller size.  The lower price was much more accessible and it allowed people to get a cup of coffee and a 'little something sweet'.

In this same dumpster dive, I discovered that one of my employees was double-cupping every drink (instead of using a java jacket).  A cup costs about 10-15 cents more than a java jacket.  They were making ~ 150 drinks per shift, so that was translating to an additional $18 in expenses per shift they were working!  4 shifts per week, and you are throwing away $300 per month in unnecessary charges!!  An easy savings with just a couple words to my staff.

Key learning from this?  Use CLEAR garbage bags instead of the black plastic ones.  This way you can see what people are throwing away without actually having to open the bags up and dig through them.

future possible areas of waste savings?

I have a couple more ideas for ways to save money and use 'waste' products that I have not yet implemented.

About a year ago, we went from a regular garbage dumpster and a recycling dumpster, to a split waste stream, so now we have *compost only* bins and *everything else* bins (because all other waste materials we use are recyclable).   The recycling bin pick up is MUCH cheaper than regular garbage pick up - about half the price.  The one downside to this change up is that compost is more expensive.  Not only do you have to use compostable garbage bags (about twice as expensive), but the actual disposal is more expensive (about $20 per 50gal garbage bin per pickup).  So, we are getting two of these bins picked up twice a week, which translates to about $80 per week in compost expenses.

I recently stumbled across this really cool commercial-grade composter:

Basically, you put all your compost into one of these machines, and it coverts it all to compost within 24 hours.  Pretty awesome!  I dont know how much these machines cost... and I dont have any idea where we might put the machine, but anything I can do to avoid the $80/week compost removal expense ($4000/year) will probably be worth while.  I figure it would cost a couple grand to buy and set up, then  around $30/month in electricity... it should pay for itself in no time flat.  AND it will produce wonderful garden-ready compost.... ummmm..... maybe I can start selling 'local compost' as a side business!!

Dosage Grinder

I had a problem with my espresso grinder - specifically it never dosed the right amount when you pulled that little lever on the right side.  sooo... people usually over filled the portafilter and then casually swiped the extra into the knockbox.  I noticed this one day, and I realized that I was throwing away about a pound of espresso per day on the casual little swipe.  Umm... $8.00 per pound x 7 days per week = $56... x 50 weeks... holy crud.  I was tossing away $2800 per year in espresso!!!  So, I bought a new grinder.  It was beautiful.  Mazzer Grinder Super Jolly Electronic Automatic... Dont get me wrong - it was expensive.  About $1100.  Much more than a regular grinder.  The beauty of this grinder is that it ground ONLY the amount you needed for a double shot (or triple shot) - no more, no less.  This means that it will pay for itself in about 20 weeks, and after that, it will return $2800 to my pocket every year.    ABSOLUTELY WORTH IT!!

CUT the phone line

AT&T really enjoys taking advantage of business customers.   They charge me $90/month for a business line that I BARELY use.  I used to have a bunch of equipment that needed a phone line to work (ATM, Credit Card Machine, Gift Card Machine etc).  Over time, I gradually weeded them out - so they all went through the internet.  Finally, I was ready to cut the line, but before I did that, I got a google voice account (very easy to set up), then I transferred the shop number over to Google Voice.  Took a couple days for the transfer.  You can do the transfer directly from the Google Voice page. 

I then got a Obitalk box (www.obitalk.com) - it costs about $60 in Amazon (search for an OBi200 VoIP Phone Adapter (this one supports Google Voice).  Then, you set up your Obitalk account (through the website),and hook up the new box.  Voila - you now have a free phone line - costs you NOTHING to use.   I suggest you grab a DSL filter to run the line through - it makes for a cleaner signal (and works for analog phones) - woo woo!  Just saved another $1080 per year!

Hand Driers

You might be tempted to use paper towels in the bathrooms - for people to dry their hands.  DONT DO IT!!   Just get a good quality hand drier. 

We go through a case of paper towels (for drying hands in the bathroom) about once every two weeks - that is $15 per week.  Not a huge amount - translates to about $750 per year.... then you get hit.  About once every two years, some joker puts a bunch of paper towels into the toilet, and JAMS it up.  Not just the toilet, but the drain pipe as well.  $1800 later, the toilets started working again...   Just not worth the time,energy and money. 

Originally, I was planning to get a couple of those Dyson Blade driers, but they proved to be *extremely* expensive - around $1200 apiece!!! And that doesnt even include installation!!

I found a couple Toto hand driers (HDR100-GY) - they got good ratings on Amazon.com.  Cost about $320 apiece, but they claim to dry peoples hands in 12 seconds - that seems about right.  So, these will pay for themselves in the first year, and thereafter no expensive plumbing problems (at least from paper towels) and an additional $750 in my pocket every year. 

Well, I think that's enough for one day.  I hope you guys have found some of this helpful!  Please drop me a note if you have some questions, or have a specific topic you'd like to see something written on.  I'd be happy to give it a shot.

-Duncan
The Coffeehouse Guy

waste reduction for improved profitability - part 1

waste reduction for improved profitability - part 1

Waste reduction is one of my favorite topics because it is the easiest way to improve profitability!

There are just so many types of waste and so many different ways of identifying waste to improve efficiency that I think this will need to be a multi-part post.

Waste is everywhere. To some degree, all businesses waste: time, money, materials... One of your jobs as the business owner is to identify the big sources of waste and eliminate or at least minimize them. Furthermore, you can’t just do it once. You need to do it again and again because waste sneaks up on you and eats away at your profits when you are least expecting it. For example, systems are not implemented correctly, new employees are not trained completely on ways to minimize waste, new products or procedures introduce unanticipated waste, and there’s just general entropy. In short, waste identification and elimination is a constant, never-ending battle.

I now make it a habit to do a waste reduction drive about once a year.

Let’s dig down into this a little deeper to understand why this is and what can be done about it. In short, it boils down to employees having a different perspective from you. This is not to say that they are malicious or stupid; they just have a different set of motivations and incentives from you, thus they see things differently (or don’t see things).

I am very fortunate to have an AMAZING staff.   These guys really care about what they do, they care about the business, and they want Koffee? to be successful.  These guys are also looking for ways to do things better or to fix problems that come up.  Like it or not, problems crop up in the shop all the time.  Equipment breaks, things stop working the way they were supposed to, signs fall down, etc, etc.  When you have an awesome staff, they notice these things, and they try to fix the problem... sometimes without telling you about it.  Frankly - this is what you want.  You want thinking, proactive employees that are figuring out clever ways to make things better.

Unfortunately, when figuring out solutions, they don’t always take the cost of the solutions into consideration, and you end up with some fairly expensive solutions.

For example: five years ago, there was a fruit fly problem that seemed to crop up around the espresso dump bin. One employee discovered that if he tied off the espresso grind bag and dropped it in the compost bin (outside) half-way through his shift AND at the end of the shift, he would trap a bunch of fruit flies in the espresso grinds, thus keeping the fly problem to a minimum. This solution became embedded in the tradition of doing business, so everyone got into the habit of tying off the espresso grind bag halfway through their shift and tossing it. Thus, our usage of garbage bags increased from two to four per day. While it may have helped the fruit fly problem, it cost money on the compostable garbage bag used (they cost about 70 cents apiece!) and took time to do it (taking the barista away from the service area, thus slowing down the line). There are two shifts per day, and we are open 340 days per year.  So while this partially solved the problem, cost basis just increased $0.70 x 2 x 340 = $476.00 per year. They did not do this out of malicious intent, they just did it because cost didn't factor into the equation in the same way it would with me.

These kinds of things happen ALL THE TIME. It is like an insidious rot that creeps up on you, making your shop less and less productive, more expensive and slower. It is further reinforced when new employees come into the business and start adopting the same behaviors... even when the original problem no longer exists!! In the case of fruit flies, we figured out the source of them and eliminated it... but by now the bag change-out had become part of the procedures and continued to be the regular practice. The employee who had started the practice and those he told about it were all gone, and all the new employees had never known about that problem. They only knew that one changed out the espresso grind bag twice during the course of the shift. This practice continued on for another year before I finally identified it as a source of waste and stopped it.

Your shop is not a static thing; it is a living, breathing entity independent of you.  There is a constant, never-ending stream of issues, minute changes and adjustments that happen all the time... with and without you.  If you let these expensive practices build up, over time your shop will become progressively less and less profitable.

This is what I do to fix these problems.

You never know where you will find these kinds of wasteful practices,  so you just have to observe. Just sit in the main seating area of your shop and observe. Try not to be too obvious about it;  it unnerves your employees. You might want to warn them you are doing this beforehand. Just tell them to do everything they normally do. Explain that you want to see how things run and how people do things, and explain that your goal is to make things more efficient rather than get anyone in trouble. It is amazing what you will learn about your business by sitting for an hour and watching how everything is done. How do employees greet customers? How long are customers waiting? What is being thrown away? How long does it take to make stuff? Etc, etc.  You will soon start seeing wasteful behavior; take note of it, and keep watching.

Here are some areas of waste I uncovered while doing this simple observation exercise. This will at least give you some idea of things to look out for, as well as some specific areas of potential waste.

- Garbage Bags: I noticed that the garbage bags we were using were VERY heavy grade, thick contractor bags - bags designed for oil drums (much bigger than our garbage bins). I also noticed that my employees were double-bagging the garbage when it was full. From there, I pulled out a months' worth of invoices from our supplier of garbage bags and discovered that we were going through FOUR cases (of 100 bags) of these heavy duty bags. Each of these cases cost me $35. Thus, I was spending about $560/month or $6700/year on GARBAGE BAGS!! I had my supplier change the type of bag we would use to a lower grade (only $22/case of 100), and then I wrote a memo to my employees asking them NOT to double bag the garbage. Immediately, the business's consumption of bags dropped to two cases per week. This reduced our garbage bag expenses from $6700/year to ($22/case x 2/week x 52 weeks ~ $2300)... I just saved myself $4400 dollars per year!! That is $4400 additional CASH in my pocket at the end of every year.

So, for a couple hours work, I just saved myself $4400. I just made about $1500/hour to fix that problem!! Now that was a VERY valuable use of my time.

The backstory on the garbage bags relates to the previous manager. About a year earlier, we were having some problems with garbage bags ripping on their way out to the dumpster because my employees were DRAGGING them across the floor. If the bag caught on something, it tore open leaving a nasty path of coffee grinds and garbage, which the employee would sometimes just leave without cleaning up. Instead of asking employees to carry the bags (not drag them), he decided it would be easier to just get thicker bags and tell everyone to double bag them. This would eliminate the garbage-trail problem.

This is a perfect illustration of my point. The manager had no incentive to minimize cost, so he solved the problem in a way that (from his perspective) just cost a little extra money ($10?). Let me be clear about one thing here: this is not a *bad* decision from the manager’s perspective. He solved the problem. It is simply a reflection of different motivational factors and how a manager’s perspective on a situation will never be perfectly aligned with yours. THUS, YOU must be the one to do this waste assessment.

- Cream Cheese cups: At the time of this writing, we use the little 1.5 oz. cream cheese cups with our bagels. When a person orders a bagel with cream cheese, they get a toasted bagel with one of these cups. Each of these cups cost me 21 cents. If the bagel is toasted with one of these cream cheeses, the net profit (also taking overhead into account) on the $2.45 bagel and cream cheese is about 40 cents. So, when my coffeehouse sells a customer a bagel (ceteris parabis), I get 40 cents in my pocket.

A year ago, while watching the counter staff, I discovered that my staff had started *defaulting* to providing TWO cream cheese cups with every bagel instead of just one. Without my knowing it, my employees had reduced the profitability of bagel with cream cheese by HALF. To add injury to insult, I looked through the garbage and found about one in three cream cheese cups were thrown away *untouched*.

Let’s run the numbers on this. My coffeehouse sells about 50 bagels with cream cheese per day. This meant that in one month, we are selling about 1500 bagels with cream cheese. If each one of those is costing me an extra 20 cents, that translates to $300 per month or $3600 in loss PER YEAR!!! WOW!! To solve this problem, I made a rule that the default was one cream cheese cup. If a person wanted a second cream cheese cup, they had to ask for it and they'd get it (only about one in five people ask for an extra cream cheese cup). You could charge people for the extra cup, but I don’t think it is worth the aggravation - it pisses people off. Better to just give it to them if they ask for it.

Now, WHY did my staff start doing this? Simple - it was easier. If they provided two cream cheeses for each bagel, they would never have to make a second trip to the refrigerator where we kept the cups. They figured the cost was so minimal that it would not make a difference, and it saved them time and inconvenience (and made the whole process faster - speeding up the line) They were not acting in a stupid or malicious manner, rather they were making a rational decision from their perspective that did not include the cost implications.

- The DRINK MIXER!!

This is another favorite of mine.  A couple summers ago, we sold a HUGE number of Italian Sodas. It seemed every other person was getting one. For those of the uninitiated, an Italian Soda is soda water mixed with one of the specialized Italian syrups you see adorning many a coffeehouse. You can make any number of refreshing bubbly concoctions for a very reasonable price. So, as I watched, a new employee grabbed two of the large cold cups (cost - 16 cents apiece), poured the soda water, ice and syrup into one glass and then proceeded to pour the mixture from one glass to another in a nicely artful manner in front of the customer. Looked like a bartending competition gone wild... I smiled - nothing wrong with a little showmanship, keeps the customer happy. Then my smile slowly wilted as the happy-go-lucky barista handed the fizzing drink to the grinning customer and TOSSED THE OTHER CUP IN THE GARBAGE.

I got up and walked over to the garbage. Sure enough - there were *hundreds* of the 16 cent cups in the garbage. I growled. I walked out to the dumpster and opened it up. I poked a couple bags and opened up a bag that had been behind the counter.... yep... full of 16 cent cold cups.

Again, a classic example of how a decision by an employee had serious cost implications. Why did they do it? Simple - it was fast and easy... and nicely showy... better tips! They also figured the cost of a cup was so small so as not to make a difference. 16 cents. When I asked why people didn’t at least reuse a cup, they stated that it took too much time to rinse it out -- especially when there was a huge line of people waiting for drinks.

So, a summary: take time out of your schedule a couple times a year and just observe your operations. See how people are doing things, how customers order, what procedures are followed, etc. Take a couple days for it, and you will gain HUGE dividends from it. You can add thousands of dollars in net profits to your bottom line through just a couple days work.