starting a coffeehouse on the cheap - pt 2

In my previous posting, I covered how to build out your coffeehouse cheaply, using creative construction, materials from Craigslist (and other similar sources), and avoiding major renovations.

In this segment, we will cover how to get equipment for cheap.

First - getting NEW equipment for cheap.   Usually the best place to get brand new equipment for very cheap prices is expos, equipment fairs, barista competitions etc.  I once picked up a brand new $12,000 espresso machine for $6000.  I was at a coffee expo, and Rancillio there with a booth.   They were demonstrating their new machine to people, so it was plugged in and operating.  Now, once a new machine has been used, it can no longer be sold as 'new'.  Likewise, the dealer doesnt like to use the same machine for every expo, because the machine gets dirty, it is difficult to find space to store, maintain etc.  Instead, they usually unbox a new machine for every event.  Thus, they are left with a "used" machine that has been used for less than a week...  They just want someone to come and pick it up so they dont have to deal with it.  

 Near the end of the expo, I stopped by the Rancillio booth, and offered to drop by after the expo was done and take the machine off their hands for $4000.  We went back and fourth a couple times, and I eventually agreed to $6000.   Voila - a new machine for half price.

Any time there is some kind of demonstration, expo etc - where new equipment is being used for a very short amount of time, you can bet the company will be willing to sell it to you for a steep discount - just to get it off their hands so they dont have to deal with it.   Bring a truck and a wad of cash (cash talks loudest). 

Second - used restaurant equipment:  Let me start by outlining the broad structure of the restaurant equipment market.  As you probably deduce, restaurant equipment is designed to last  a long time with heavy wear.   At the same time, there are a surprisingly large number of restaurants and other food establishments that fail early on in their lifespan - one study suggests a 60% mortality rate within 3 years of launching.   Thus, you have equipment that have only been used for a couple years of their six to ten year lifespan, resulting in a large amount of used restaurant equipment floating around the market.

There are many used restaurant equipment purveyors that buy the stuff from shuttered restaurants, clean it up, fix it up and resell  it for maybe 50% of the brand new stuff - just do a google search for 'used restaurant equipment' in your area, and I'm sure you'll come up a half dozen companies that do this.

Likewise, you can always find used equipment on Craigslist and Ebay - just keep your eyes open and pounce when one comes up.  For craigslist - the best ones to go for are the ones with no pictures.  These people usually have no idea what their equipment is worth, and the statistics say that a Craigslist ad without a picture has 30-40% fewer respondents - fewer respondents translates to fewer people calling about the equipment, which in turn strengthens your negotiating hand.   For a reasonably good piece of equipment (in good shape), I'd expect to pay about 1/3rd the new price when buying used off Craigslist and Ebay.

Now, how to get restaurant equipment for REALLY cheap:   restaurant equipment auctions.  Whenever a food establishment goes out of business (or creditors repossess the shop), the owner will call an auction house to auction off the contents of the place.  This is where the used equipment dealers go to get their equipment for resale.  You can get some phenomenally good prices.

I usually check Craigslist (business section) for auction listings, or just do a google search for restaurant equipment auctions to see what comes up.  These things are going on all the time, so they are not difficult to 

find. 

Auctions are a bit more tricky, because the equipment is usually sold as-is, where-is... and you have to provide the full amount you bid there and then.  It feels a bit wild-wild west.    Unless you are a restaurant equipment specialist, it is difficult to ascertain whether a piece of equipment is good or ready to break (you can usually turn it on to check if it actually works).   However, the way you deal with this is to just bid low enough on it, that if something does turn out to be broken, you can get it fixed and still end up with a good deal.  Likewise, you must remove the equipment from the store yourself, and then transport it back to your place.  Just a word to the wise here - the other bidders often do sneaky things to throw other you off ... make it seem like the equipment is broken etc.  For example, one auction I went to, someone went around before me and turned the thermostats up on all the refrigeration units (and freezer units), so when I came by to check them out, they were blowing warm air (usually a sign the compressor is bad).  When I noticed the thermostat and turned them back down, the refrigeration unit worked just fine.    I also saw one bidder turn on a meat slicer to check that it worked, then surreptitiously cut the cord and pocket the plug, so no one else could check to see if it works (rewiring the plug is a simple procedure).  This way, when the bidding started, he was the only one who knew it actually worked - the rest of the crowd only knew that the cord was cut...

Some newbies are intimidated by auctions, because you are surrounded by used equipment dealers who do this sort of thing for a living.  They know the actual value of everything, and what things cost to fix, the bidding procedure, strategy etc etc.   However, you have a huge leg-up on these folks.... simply put...price.  They are buying equipment to resell - so they HAVE to buy it very cheaply.  You are buying equipment to use, so you can easily bid above them, and still get an amazing price.

If you want to try your hand at an auction, here are the steps you need to take:

1. figure out the equipment you need.

2. Look up the equipment online - both new and used prices of various brands.  Get a good idea what normal prices are for this kind of equipment. 

3. At auctions, I usually expect to pay 10-20% of new price for the equipment (depending on the item - the more popular items like sandwich making stations, slicers and stand-up refrigerators may be closer to 25%, whereas large convection ovens can be snagged for 5-10%).   This will give you a rough idea of what you should expect to bid up to.

4. You can usually pick up your equipment for a day or two after the auction, so you dont need to rent a u-haul truck to go to the auction.  You can grab that later (when you have a better idea of the size of the truck you are going to need).  Also, bring a bag of cash.  You can usually use cash, check or credit card for the purchases, but most places will give a 2-3% discount for cash.  I went to one auction and got $4000 worth of equipment, then paid in cash.  The guy knocked 3% off the price, thus saving me $120. 

5. Auctions are best used if you are getting a bunch of equipment.  If you are getting just one item - it may not be worth it (unless that item is expensive).  Once you factor in your time, truck rental (gas), hiring a couple guys to help you move it, possible fixing etc - it may not be that much cheaper than buying from a used restaurant company.  So, if you are going to go to one of these things - plan on buying a bunch of stuff.  I like to buy back up equipment for my vital pieces (under counter dish washer, ice machine, refrigerator, espresso machine etc) so if they go badly wrong, I can just yank them out and put the other piece in. 

As an aside - the WORST time to buy equipment is when you absolutely need it.  When you need it NOW, you will pay the most money for it.  Grab some back up equipment for your shop and stick it in the basement or a garage, so you have it there for when an emergency strikes.

Here is how the auction works:  usually the auction starts around 10am, but the shop is open for inspection a couple hours before-hand.   You get there around 9am, and sign in.  The auctioneer will take your information and then give you a card number.  This is your bidding card - keep it handy.  Next, walk around noting all the equipment, and what they look like.  Try and turn everything on to check that it works (and watch out for tricksters).   Make a list of the things you want to bid on, and write next to it what your max bid will be.  This is important, because in the excitement of bidding, you can easily lose your head and bid way above what you should.  If you have your max bid in front of you, you are less likely to over bid.  I always look for dirty equipment - you can usually get the best deals from dirty equipment.  Most people intuitively believe that dirty equipment is worth less - just because it is dirty.    This is crazy.   When a restaurant is going out of business, employees and owners spend less and less time on general cleaning, upkeep and maintenance, so things tend not to get cleaned.    So, focus on the dirty equipment to get the best deals.

When the bidding starts, the auctioneer and his buddies (spotters) herd everyone over to the first piece of equipment.  They start the bidding out at some arbitrary price and the auctioneer starts his fast-talking patter (250 250..do I hear 270 270 270... etc)  If you will take that price, you wave a hand, cock an eyebrow or some positive motion, and one of the spotters will point at you and yell "got" or somesuch to signal the auctioneer to move to the next price up.  If the price is too high, and no one is bidding, the auctioneer will actually step the price down. 

There will be two types of people there:  people like you (restaurant/cafe owners looking for cheap equipment) and dealers.  Dont worry about the dealers - you can always outbid them.  You need to be mindful of the other restaurant owners.  See if you can befriend them.  If there are only a couple of you, see if you can come to some side deals - find out what they want and tell them what you want - then cut a deal instead of bidding against each other.  For example, if there is a sandwich making station, a refrigerator, an under counter dishwasher and an ice machine there that two of you want, you could offer NOT to bid on the sandwich station and refrigerator, if they pledge not to bid on the dishwasher and ice machine.   Obviously the auctioneer wont like this, but he cannot stop you from talking with the other people there.

There was one auction I went to that had two 'bakers tables'  at auction- these tables are 4' x 8' with chopping block surfaces.  Very valuable tables for bakers... and very expensive.  A good quality table will sell for several thousand dollars.    I wanted one, and one other guy was bidding against me.  I didnt know if he wanted one or both of the tables, so in the middle of bidding, I quickly asked him - "you want one or two?".  He lifted one finger at me and I immediately dropped out of the bidding.  I managed to get the second table for less than he paid for the first.

If you are going to bid - dont bid in at the beginning.  Wait.  let the others bid up and drop out.  Once everyone else had dropped out, THEN you can drop in.  This tends to keep the prices lower.

Strategy:  You are allowed to bid in at any price you want.  So, if the last bid was for $350, and the auctioneer is calling for $375, you can yell "$355" and the auctioneer will accept that.  However, I would not recommend that.  Going up small increments tends to encourage other bidders to stay in the race.  If they put in the bid at $350, and your bid is just $5.00 more, they will be LOATHE to lose the bid due to just $5.00... they will likely be goaded into increasing the bid.

Most people stop bidding at certain monetary thresholds - usually x00 numbers or x50 numbers (such as $200 or $250, $550, $700).  They have set a mental threshold beyond which they will not bid.  So, if an item is at $300, and two guys are still in, chances are good that one will stay in to at least 350.  SO, if you just bump the bid directly to 350, that will tend to drop one from the running right off.  Furthermore, such a large increase shows the other bidder your intention to win the bid... and at that point, he will have to bump up his bid at least $60 to be considered - a much larger obstacle than just the $5.00 previously mentioned.   So, dont be afraid to play around with bidding increases.  Think strategically.

I recently went to an equipment auction in New Bedford, MA.  A  Big Y store (a big grocery store chain) had closed, and all the equipment in the store was up for auction. 

It was an interesting experience.  I ended up getting a truck full of coolers, tables, shelves, etc for a mere $4000.  Had I purchased this equipment new, I would have paid close to $20,000.  It was an all-day event (and I had to make two trips, because my truck was too small), but it was worth it.   Enormous savings.   

Thanks for reading!  Let me know if you have any issues or questions you'd like me to address!

Duncan

Coffeehouse Guy

On a final note: as you may know, I'm in the process of writing a series of guides to show people how to move from a corporate job to owning a coffeehouse.  Unfortunately, they are not going to be ready for a little while.  However, If you are REALLY serious about starting your own coffeehouse, and you cant wait for my guides to come out, I also offer a 2-day, one-on-one intensive boot camp on starting a coffeehouse.  You come up to New Haven for these two days, and we spend two intensive days going through all the intricacies of starting, owning and operating a successful coffeehouse.  If you are interested, send me an email and we'll get it set up: coffeehouseguy1@gmail.com

starting a coffeehouse on the cheap - pt 1

I received a request from one of our readers to do a segment on how to start a coffeehouse on a budget. - Here's to you Omondi!  If you have any requests for specific issues you'd like me to address - please feel free to send it my way: coffeehouseguy1@gmail.com

Many people have an impression that they must spend a packet of money to start a coffeehouse.  I've seen figures bandied about of $90,000 to $500,000 to get a coffeehouse up and running.  These same people feel compelled to go out and buy a bunch of brand new, shiny equipment from their local restaurant equipment dealer, all the top of the line furniture,  the 'perfect' plates and high-end espresso cups.... not to mention hiring expensive architects, designers and contractors to make the place 'perfect'.

I beg to differ. 

When setting up a shop, the two most important things are quality, prompt, courteous (and fun!) service, with EXCELLENT food and drink that people dont have to wait long for.    These are the two main things that will get your customers coming back again and again.   Everything else is of secondary importance.   Thus, when setting out to create your coffeehouse, you must focus on those two things.   All the other stuff - designed space, beautiful equipment,  perfect couches and the marble countertops??? Not as important.  Naturally you need something functional -  you need a usable space, just not an expensive usable space.

Creating a usable space cheaply -

There are three main sources of expenses when starting a coffeehouse: build out,  equipment and operational expenses.  I'll start by writing about the first of these three (build out) in this blog posting, and cover the other two in subsequent postings.

First - Build out!  The build out is any kind of construction you need to do to the space before you can open up for business.   Any time you start construction, it will get expensive pretty quickly.  Plumbers, electricians, carpenters, materials etc etc...  big money.    SO, the best way to avoid these expenses is to absolutely minimize the amount you will need them.   You can do this by finding a space that used to have some kind of food establishment before.    Ideally, you could find a restaurant, cafe, deli etc that you could buy from the current owner and then take over the lease (and change the business over to what you want).  (NOTE - I will write another section later about how to go about finding / buying a food-business that you can use to convert to your coffeehouse.  The short version of this is to find a run-down business in a good area with excellent foot traffic - that you can get for cheap.   Ideally the owner is older and looking to retire)  If a food business has been in that space in the past, all the plumbing, electrical, floors, ceiling etc will mostly be in place.  You will likely only need to do some minor adjustments to the space to make it work for you. 

I like to negotiate with the landlords to get them to throw in some $$ to cover some of the cost of renovations.  You wont always be successful, but it is worth a try.  I can usually convince the landlord to give me six months of free rent in lieu of a construction budget...

Once you have the space - plan on doing the *minimum* work on the space you can.  Focus on the aesthetics - make it  look nice.  Erecting walls, painting, trim, lighting decoration etc - this is cheap and easy to do, and can transform the look of the place.  That is what you should focus on.  Avoid as much plumbing/electrical/floors/ceiling etc as possible - that stuff gets expensive pretty fast.  

For now, focus on just using residential grade counters, cabinets, sinks, etc.   I like perusing Craigslist for used counters/ cabinet / shelving etc - you can get a steal of a deal there.  Here is an example!

$300 for a granite countertop with integrated undermount sink???  What an awesome deal!! 

Sometimes, you can actually get some of this stuff for FREE!  I found these cabinets for free online - all you'd need to do is replace the hinges and the pulls, then paint them, and voila - new cabinets!

So, you could get a bunch of stuff from Craigslist, and then fix them up a bit, give them a coat of paint and then cobble them together for your service area.   Right now you are NOT looking for perfect.  You are looking for usable.  Later on, when you have a strong, thriving business, you can replace the second hand stuff with upgraded materials etc.  THen you will have the money to make those upgrades.  For now, this will get you up and running. 

Who will do the work?  I like to do my own general contracting because it is less expensive and gives me more hands-on control of the process.   It is a bit more time consuming, but you might consider giving it a shot.  It is particularly good because you will learn alot about the different trades, and how to assess the quality of different professionals.    I suggest reading this book called "Be Your Own House Contractor" It gives good suggestions and insight into the process of finding subcontractors, negotiating with them, estimating costs, where to get materials etc etc.   I also like using Angies List to find good plumbers / electricians/ painters/ etc.  In addition, I 've had success finding professionals by talking with some local architects that have had experience with these subs in the past. 

The important thing to remember when figuring out what you are going to do with the space is that you can always go back and redo it if you need to.  Start out by doing it as cheaply as possible.. a year later once the business is thriving, you can always go back and get those marble counters.  For now, do it cheap... but with style.

This brings up the next point - style.  Just because you are keeping your expenses to a minimum, it does not mean the place has to look slap-dash thrown together.  Use creativity to create a wonderfully warm and happy space (which is consistent with the Niche market you are aiming at - more on that later).  I enjoy reading about cheap design / decorating ideas for the home - often times you can borrow them for your shop.  Makes a huge difference in the place, for relatively little money.  Here were some places I've gotten ideas:

HGTV - 10 inexpensive Decorating Ideas

CountryLiving - budget decorating

There  is also a cheap book on Amazon ($3.99) called "Cheap Home Makeover: Interior Decorating on a Budget".  I must admit I have not yet read it, but it was referred to me by a friend.  The next time I need to do some decoration, I'm going to read this book first.

In addition, you can find a bunch of cool stuff at Goodwill and other thrift shops to find cool decorations and decorative pieces that you can adjust to meet your needs. 

So, to summarize this section on starting a coffeehouse on the cheap :  First, find a place that just needs a cosmetic makeover - with as little serious construction as possible.  You can erect walls (fix walls), counters, paint and decorate pretty cheaply, but do as little electric/plumbing/floors etc as possible.  Second, try to get the landlord to cover some of the cost with either a direct cash injection or free rent.  Third, find USED materials on Craigslist (cabinets, countertops etc) and then paint them, change the hardware for cheap etc, and cobble together the service area.  Fourth, decorate cheaply - there are many websites and other resources that can teach you how to do this - buy decorations from Thriftshops, paint and repurpose.

In short, at this stage, you are just trying to get the place open for business for the lowest possible price.  You can use this to prove that your coffeehouse concept will fly - once it starts making money, you can replace things at your leisure with commercial grade stuff.   

In my next section, I'll go into finding cheap equipment for your coffeehouse...

Let me know if there are any topics you'd like me to write about!  I'd love to hear from you!!

best

Duncan

On a final note: as you may know, I'm in the process of writing a series of guides to show people how to move from a corporate job to owning a coffeehouse.  Unfortunately, they are not going to be ready for a little while.  However, If you are REALLY serious about starting your own coffeehouse, and you cant wait for my guides to come out, I also offer a 2-day, one-on-one intensive boot camp on starting a coffeehouse.  You come up to New Haven for these two days, and we spend two intensive days going through all the intricacies of starting, owning and operating a successful coffeehouse.  If you are interested, send me an email and we'll get it set up: coffeehouseguy1@gmail.com

effective coffeehouse marketing - pt III

effective coffeehouse marketing - pt III

Let’s Generalize...

In my last posting, I outlined the primary marketing tools that worked for me.  I'd like to use this posting to draw conclusions from these successes and put together a systematic approach for developing an effective marketing campaign for any coffeehouse.

To start with, I'd like to put forward a few principles of marketing that you must consider when you are developing a marketing plan for your shop with the explicit goal of getting new people into the shop.

1. Consistency:  a single one-off marketing shot does not work.   A single batch of posters, a single article in the newspaper, a single door-to-door flyering does NOT work.  Marketing by its very nature is designed to convince people to try something new (your shop), and people are not convinced by just a single 'touch' point.   There is a basic principle of marketing called '7-touches' wherein a consumer will not register your brand or product until they have had seven touch points with your brand (seeing a poster, a comment on Facebook about your shop, a phone call, a passing comment by a trusted coworker, etc.).  Once they have seen these seven touches, then the brand/product will register with the person, and they will be open to trying the product or service.  You can see an article about this marketing principle here.  So, the only way you can create seven touch points is to have a regular, consistent, sustained marketing effort.  When you are planning your marketing, make sure it is planned in such a way that it will be on-going.  I might also suggest that you automate the marketing, so you don’t actually have to do anything for the marketing to continue.  You will always have 36 things tugging at your time, so if you don’t automate the marketing, then chances are it will fall down your priority list and not get done.   An automated, consistent marketing effort is key.

2.  Cluttered Advertising Space = Ineffective Marketing.   There is SO MUCH advertising out there!  According to a Yankelvich Consumer Research study done a couple years ago, the average person is exposed to 3,500-5,000 advertising messages per day!!  PER DAY!   There is no way for any person to absorb, consider and respond to such a fire-hose of advertising messages.  Instead of seeing and comprehending the advertising, we just filter it out of our consciousness - or just ignore it.

 Don’t despair!  There are ways to get your message through this barrage of advertising to reach your customer!   You see, we don’t filter the advertising messaging from all mediums equally.  The more advertising clutter there are in a specific medium, the more you tend to ignore messaging from that medium.  Take highway signage as an example:

The sign on the left is a single highway billboard.  As it is alone, you will likely notice it - and even read it.   This is an example of selecting an uncluttered advertising medium that will actually get noticed.  Now check out the picture on the right: a long series of billboards that stretch into the distance.  You might catch the first one... maybe even the second... but the visual clutter and multitude of messaging of all those billboards would quickly overwhelm you, and your internal filters will shut them out.  The same type of advertising - billboards - but two very different levels of effectiveness due to the clutter. 

This is *part* of the reason I don’t like advertising with places like Facebook (quite apart from the fact that Facebook is an evil empire).

Just on this single Facebook page, there is ONE posting from a friend, and SEVEN advertisements.  Why would you pay good money to have Facebook jam your advertising message with six other companies to try and grab the attention of the consumer?  No - that is a losing battle.    It is better to find a more effective advertising medium in which you don’t have to compete with other companies for the customer's attention.

In summary - when looking for an advertising medium, find one that is NOT cluttered with messaging from other companies. 

3.  Small, Ultra-Local.    Your coffeehouse has a small draw radius.  1-2 block draw radius - max.  You draw 95% of your regular customers from a population of people who live, work or commute through a 1-2 block radius from your shop.  Period.  So, focus your attention on JUST those people.  There is no point in doing a newspaper ad that will reach 100,000 people if only 20 of them meet your *possible* customer definition.  There is no point in advertising in a magazine with 20,000 subscriptions, if only 3 meet your *possible* customer definition. 

The other cool thing about highly-targeted, ultra-local marketing is that it is too difficult for big chain-stores (like say Dunkin Donuts) to do.... and it doesn’t make sense for them to create a ultra-local ad plan for every store.  Instead, they prefer to spend their ad dollars on mediums such as print ads and television that allows them to hit a wider audience.  This means that ultra-local marketing tends to be cheap (very little competition) and uncluttered.  

4. Be Different:  Time to turn on those creative juices; come up with something that is creative, interesting and catches people’s eyes.  If you just do the same boring crap that everyone else does, you won’t get noticed.  Try something strange or outrageous; don’t limit yourself.   I will sometimes google "strange advertisement" to get inspiration from what other creative people have come up with.  Here are some AWESOMELY creative ideas:

5. Select appropriate mediums for your specific niche or shop type.  Not all advertising mediums are appropriate for all coffeehouses.   If you have a high-end, expensive coffeehouse that caters to a wealthy clientele, then putting raggedy posters up on telephone poles is probably not an appropriate medium, Instead, maybe having some engraved invitations printed up and sent to homes of wealthy nearby individuals (you can get such a mailing list from INFOUSA.com) would be a more appropriate advertising medium.   If you are a coffeehouse with a classical cinema theme, then advertising at the local moviehouse, joining the classical cinema Facebook group, or hiring a handful of look-alike famous movie stars (or actors) from the 1960's to  saunter around town giving out coupons for free cups of coffee may be appropriate.    

I stumbled across a coffeehouse in Boston last summer called "Olga's Cafe." All they do is flavored iced coffee.   Ok, that is a bit of an exaggeration; they do some other stuff, but flavored iced coffee was their big thang: snickerdoodle, birthday cake, chocolate mint, cinnamon mocha chip, mudslide, etc.  It was AWESOME.  It was clear from the product they were selling and the overall look/feel of the place that they were competing for the same customer as Dunkin Donuts.  If I were them, I'd look to find the nearest Dunkin Donuts (anyone who has spent any time in Boston knows that there is a DD on almost every corner; it is like Starbucks in Seattle) and then do some kind of outrageous promotion to mess with them.    Create controversy - it sells.  Find a big enemy and then start shooting at them in a very public way.   People love to root for David when he is taunting Goliath.  It will get attention, then it will make the news, etc., etc.  

6. Message -   Two hallmarks of an effective message: brief and emotive.   For most marketing messages, you will have about 2 seconds to communicate to the person.  Thus, the message must be short and clear.  Come up with something that can be read and understood in about 2 seconds.

Emotion rules our decision making process (see article), not logic.  So don’t even bother to try and sway people with a logical argument for visiting your shop; instead appeal to the emotion.  Who is your target market, and what deep needs do they have that you can fulfill?  That is the message you want to convey.

7. Feedback Loop -  It is impossible to know if a marketing campaign is going to be effective before you actually do it.   For this reason, you must have some sort of feedback loop that will allow you to reasonably assess the effectiveness of the campaign.  There are a number of ways you can do this, depending on the type of marketing that you do.  Some are better than others.

- assess impact to sales:  This is the worst way to figure out how well a campaign worked.  See what the sales were before you started the campaign, then see what the sales were a couple weeks after the campaign and do the math.  While it can be helpful to at least get a rough idea of the effectiveness of the marketing, this does not take into account other exogenous variables that may also impact sales: weather, some event going on near the shop, seasonal effects, sales by day, special deals run by competitors, etc., etc.  Furthermore, you don’t really know what the lag-time on the marketing could be.  When we started putting up effective posters, we saw an almost immediate pop to sales.   On the flip side, when we started sending 'welcome to East Rock' letters to people moving into the neighborhood, it took six months of monthly mailings to start seeing the impact.

- keyword:  in the ad, tell people to mention a key word when they get to the register to receive a 'free gift'.   This is better, because you only have to count the number of times that secret word is used then compare that number vs. another campaign with a different secret word to see which works best.  However, it will only tell you which campaign works better, it will not tell you the actual sales increase due to the campaign (current customers could use the secret word, customers could use the secret word more than once, some people may come in to just get the free gift and not come back, some may see the ad and come into the shop as a result, but not use the key word because they are not interested in a free gift).   It is also prone to being poorly counted, because employees will sometimes forget to count the number of people who come in and say the keyword, or they will whisper the keyword to a customer/friend so that person can also get the free gift without having seen the advertising.

- coupon:  Some might consider giving out coupons (or sending them out) with a certain promotional campaign, then counting the number that return.  Like the keyword, it is good in that you can get a real number to compare with other campaigns, but it has all the same downsides to the keywords.  In addition, coupons tend to attract a certain type of customer - the type you don’t want.  Customers who are serious penny-pinchers... the ones who collect and use coupons... tend to be terrible customers.  They buy when there is a deal (low profit), they buy the cheapest items in the shop, and take up space in the shop.  For this reason, I suggest steering clear of coupons.

- OTHER - there are an array of different, creative and interesting ways to get people to indicate that they saw and are responding to a specific marketing effort.  Take some time to design a solid feedback look, and it will pay for itself quickly in cutting out wasteful promotional programs.

Once you start testing out different marketing messages and mediums, you will slowly begin to triangulate in on the variables that work for you and your demographic.  You can then use those lessons to try other related messages/mediums that might also work.  Think of marketing as a constant source of learning. I like to shake up my marketing every 6-9 months, so it does not get old and stale. 

So, these are the main principles of effective coffeehouse marketing targeting new customers:   regular and consistent program, avoid cluttered mediums, ultra-local, be creative (and controversial), be brief and bake in a feedback loop.

I'd love to hear from you!  Please let me know what you think!

Duncan

Coffeehouse Guy

On a final note: as you may know, I'm in the process of writing a series of guides to show people how to move from a corporate job to owning a coffeehouse.  Unfortunately, they are not going to be ready for a little while.  However, If you are REALLY serious about starting your own coffeehouse, and you cant wait for my guides to come out, I also offer a 2-day, one-on-one intensive boot camp on starting a coffeehouse.  You come up to New Haven for these two days, and we spend two intensive days going through all the intricacies of starting, owning and operating a successful coffeehouse.  If you are interested, send me an email and we'll get it set up: coffeehouseguy1@gmail.com

effective coffeehouse marketing - pt II

Now we have covered what *doesn’t* work, I want to show you what worked for me.

The first step is the hardest:  Identifying your customers. 

In 1906, Vilfredo Pareto observed that 80% of the land in Italy was owned by 20% of the population.  He went on to observe that 20% of the pea pods in his garden contained 80% of the peas.   This interesting observation has developed into the '80/20' rule popularized by business management consultant Joseph M. Juran who went on to develop some of the most famous business management tools of 'lean manufacturing', 'business process management', and Six Sigma certification.    The basic idea behind the 80/20 rule is that 80% of your business comes from 20% of customers.

In the coffeehouse trade, I have found that split to be closer to 90/10  where 90% of my business comes from just 10% of my customers.

With this in mind, it makes sense to try and figure out who these 10% are and then to target all marketing on getting JUST these 10%-ers. Because getting just ONE of these 10%-ers has the same impact on your business as getting 9 of the other type of customer. 

My average 10%-er comes into Koffee? every day (sometimes twice a day) and spends $10-15 per day.   So, if I figure out how to attract just ONE additional ultra-regular customer, it will add around $4000 per year to my revenue figures.  If my shop is doing $600k/year in revenue and I can attract 12 new ultra-regular customers to my establishment (just one per month), then my business will continue to grow at 8% per year.    So, my marketing goal is the very modest goal of adding just ONE ultra-regular customer to my place per month.  JUST ONE.   Imagine that!  How difficult can that possibly be - just add one person per month!   If that is all I need to do, why would I spend my time and energy on big, sophisticated marketing campaigns? Maybe the best kind of advertising I could do is to spend more time in the shop, sitting down and chatting with some of the less-heavy users (ones who come in just 1-2 per week) and making them feel happier and more content, so they increase their usage to 1-2 per day!  

However, before I do that, I need to gain a better understanding of just WHO my ultra regulars are and how I can best identify them.

With this target in mind, I sat down with some of my ultra-regulars and just asked them a bunch of questions about themselves.  Here are some examples of the questions:

·         where do you live?

·         what do you read?

·         what kind of car do you drive?

·         what activities do you enjoy?

·         what topics interest you?

·         what aspects of this coffeehouse do you like - what characteristics does this coffeehouse possess that others do not... what causes you to choose us over our competition?

·         what aspects of this coffeehouse do you NOT like - what could we improve or offer to make this a more attractive destination?

·         where do you go for dinner?

·         what do you like to eat for lunch?

·         what is your favorite color?

·         do you walk here, drive here or roller-blade here?

·         what path to you take to get from your house to here?

·         where do you do your shopping?

·         age / profession / marital status / kids

After interviewing about 20-30 of our ultra

-regulars, a profile began to emerge... or I should say that two profiles began to emerge.

Profile #1 - These folks tended to be people who lived in the East Rock Neighborhood of New Haven.  They were students, staff or faculty at Yale, who walked (or biked) from the East Rock Neighborhood to Yale every day.  They tended to be medium-high to high networth individuals, who were interested in healthy foods, academic topics and were generally left-leaning.  

You can see from this map: the green circle is Koffee?, the blue area is Yale, and the purple circle is the East Rock Neighborhood.  The red arrows represent where people tended to walk when getting from their homes in the East Rock Neighborhood to Yale. You can see from this picture that they tended to walk onto Orange Street, which tended to funnel them past my coffeehouse or onto one of the other roads within 1 block of my place.  This meant that there were a large number of potential customers that were walking pretty close to my place on a regular basis.

There was another characteristic of people in this neighborhood; they tended to be transitory[AH1] .  People moved into the neighborhood when starting at Yale, then (depending on the program) 2-4 years later they would move away.  This meant a surprisingly large turnover.  I discovered that this neighborhood had about an annual turnover rate of about 20%!!!  That is bad; that meant that every year I was probably losing 15-20% of my customer base!!!  And because my shop is not on a major thoroughfare (Audubon Street is a very small 2-block side street), it might take someone six months to find Koffee?!!! 

Based on the first customer profile and these specific characteristics, I developed two marketing tools to attract the attention of these customers and draw them into the shop. 

Method #1 - Welcome to East Rock!

I wrote a 12-page introduction to East Rock (above is just the first page) that included all kinds of useful information about the neighborhood.  Everything from where to get your bike fixed, which shops carried the best booze, where to get a good steak, get your car fixed, good running trails, the best priced gym in the area, and how to avoid getting towed during a snow storm... and much more.   Baked into this welcome letter was gratuitous promotion of my own coffeehouse, catering business and Koffee Afterdark.... but I wrote it in a way that people could connect to.  It was not some faceless advertising put out by the city; it was me, my experiences and my recommendations.   This worked well with the overall gestalt or niche of Koffee? (Koffee subtitle "Your Local Coffeehouse"); it clearly telegraphed that I was not some big Starbucks knockoff, but a small local business that wanted to welcome them to the neighborhood and help them transition to their new place.

I contracted with a list-producing company (infoUSA.com) to send me a list of every person (and their address) that moves into the East Rock neighborhood every month.  So, every month I receive an excel file of between 30-120 people and addresses, and  I then send the 'Welcome to East Rock" letter. 

The second strategy was postering.  If you look at the map again, you can see that people going from their houses walking to Yale follow fairly set paths.  If you set up a bunch of posters (on telephone poles and at corners) along the way, people will see that they are walking pretty close past your business on their way to class. This will likely improve the chances they will stop in along the way.   The first round of posters was a complete flop. 

We postered with this poster for about three months and saw almost no increase to sales.   I was perplexed; this should have been working.   The planning, research and strategy were fine, but I was falling down on the execution.  The poster was not doing the job then I realized that the poster was sending mixed messages. The text signaled that we were cool, laid back, mellow local coffeehouse people, but the visual structure of the poster was stark and jarring and more 'corporate' looking.  In short, I realized that I was a sucky visual designer, so I needed to find someone else to design my posters for me. 

I had a guy working for me who was a talented artist, so I asked him to make me some cool posters.  I just told him that I wanted the name and address of Koffee?, but then I gave him complete artistic freedom to make whatever he deemed appropriate.  This is what he came up 

with.

Sales started increasing almost immediately.  That was two years ago, and sales have continued increasing 10-12% per year.

Profile #2 - At the beginning of this posting, I indicated there were two profiles of people I found.  The second profile was the parents of kids who were dropped off next door.  Koffee? is located in the 'artsy' district of New Haven.  Right next door is the Neighborhood Music School, and beyond that is the Creative Arts Workshop.  Both provide classes or private tutoring for kids to learn everything from piano or violin to painting and wood working.  The key thing here is that classes usually last about an hour.  For the mothers or nannies that take their kids to these lessons, one hour is not enough time to go home and come back or really do anything productive.  Thus, they tend to drop their kids off at the class, then saunter over to my coffeehouse and hang out there until the class is done.  For these customers, I don’t need to do any advertising.  We are next door to their actual destination; they see us and will use us if they feel so inclined.  So I didn’t bother coming up with any good plan for them.

Well, that is a brief summary of some of my more effective marketing methods.  In the next segment of the effective marketing series, I'll go into the lessons I've drawn from these successes (and failures) and generalized principles of how to put together a good marketing plan that would work for your coffeehouse.

Best of luck - and until next time, I'd LOVE to hear what you think about these postings.  Please feel free to give me some feedback!

Duncan

Coffeehouse Guy

On a final note: as you may know, I'm in the process of writing a series of guides to show people how to move from a corporate job to owning a coffeehouse.  Unfortunately, they are not going to be ready for a little while.  However, If you are REALLY serious about starting your own coffeehouse, and you cant wait for my guides to come out, I also offer a 2-day, one-on-one intensive boot camp on starting a coffeehouse.  You come up to New Haven for these two days, and we spend two intensive days going through all the intricacies of starting, owning and operating a successful coffeehouse.  If you are interested, send me an email and we'll get it set up: coffeehouseguy1@gmail.com

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 [AH1]I think transitional may be a better word

effective coffeehouse marketing - pt1

This is a bit more of a complex topic that requires more than just a single blog posting to outline the issue.  For this reason, I'm going to break 'effective marketing' into several parts and write each part as a separate blog posting.

effective marketing - pt1

"Half the money I spend on advertising is wasted; the trouble is I don’t know which half."

- John Wanamaker (department store merchant)

To start, I want to outline what does NOT work.   This may sound counterintutitive, but it is instructive to see all the ways I was stupid and wasted my money on stuff that I should have known would not work.  Good marketing is an experimental and iterative process; you never know what will work until you try it.  Once you try it and it works a bit, you can tweak it and try it again. Or if it completely fails, you can drop it and move on to something else.  Sooooo,  I want to outline my unmitigated marketing failures and why I think they failed, so you will not waste your time and money on them.   

You see, at the beginning, I did not take marketing seriously.  I saw my job as ensuring the product was good, service was excellent, ambiance was nice, vendors were paid, the place was clean, etc., etc.  In short, I felt there were just wayyyy too many things more urgent than marketing.    As a result, I took an inconsistent shotgun approach to marketing.  When someone approached me to do advertising, I considered it, then probably took it because it was simple (didn’t take much of my time) and I could just pay and have it done.    Talk about stupid.  It would have been much smarter to hire someone to make sure the food was good, service excellent, ambiance was nice and vendors were paid, so I could spend my time and energy marketing the business.  Marketing is the owner’s job.   Marketing is what defines the business to the marketplace.  If it is done poorly or inadequately, it will starve your business.  It needs to be done well. 

IN-effective marketing

Traditional Marketing does NOT work.  At least, it does not work for a small independent coffeehouse.  Newspaper, Magazine, TV, Radio, Yellow Pages... bah.  All crap.    When you first start your business, you will get many, many, many calls from media salesmen trying to convince you how important it is that you get a good Yellowpage ad or how much exposure you will get in running an ad with a local radio station.    If you ever run across someone claiming how effective these media are for generating coffeehouse sales - run far, far away.    When I first started out, I bought newspaper ads for $500 apiece that showed up once a week in a very popular newspaper here in town.  I must've dropped a couple thousand dollars before realizing that nothing was happening.  I then got a call from a Yellowpages salesman, who sold me on a $1200 Yellowpages ad.    I don’t know of a single sale made due to that ad.  Always remember - when these salesmen are talking about the effectiveness of their advertising, they are not talking specifically about you or your coffeehouse.  They are talking in generalities; they don’t know squat about how your business works or what would constitute effective marketing to you.  

Online Advertising  The impact of online advertising (from the likes of Google, Facebook, Twitter, etc.) is virtually nil.  I find this very interesting because I've read a number of articles about marketing coffeehouses, and many of them talk about an 'internet/social media marketing strategy.' These articles outline how a coffeehouse owner should ‘tweet’ regularly and post interesting things on the company’s facebook page to draw people and to stay 'top of mind'.    After reading these articles from the 'experts,' I thought I must be insanely stupid because nothing I was doing on twitter or facebook moved my sales one iota.    I even tried a few google and facebook ads to see if it would help, but it did all of NOTHING.  

Groupon / Living Social

I'll admit - I have not done anything with any of these coupon sites.  I am skeptical about the effectiveness of these services.  When Groupon first came on the scene, and everyone was trying them out, I thought - "wow, this looks pretty cool, I should try it".  So, I contacted Groupon and asked them about the program... and it turned out to be very interesting.  In short, this is how the system works:

1) you give Groupon the option to sell say 500 coupons for *something* (in my case, it was a sandwich, drink and bag of chips) for about 50% off the normal price.   Normally that combination comes to about $10, so the 'deal' is for $5.00

2) Groupon sells the coupons, and keeps HALF the money, so they only pay me $2.50

3) But they dont pay you the full $2.50!  If there are associated credit card charges or other types of expenses associated with the coupon being sold, that comes out of my 50%!  So, I would end up with maybe $2.25.

4) BUT wait!  that's not all, they dont pay you all up front!  They give you only a small share when they sell the coupons, and then wait 30-60 days to pay you the remainder.... so essentially you are giving Groupon a free loan.

The biggest problem with this?  My cost basis for that package of food is about $3.25 - closer to $4.00 once you factor in labor.  So, that means for every sale, I'm out of pocket $1.75!!  Sell 500 of these bad boys, and that translates to almost $1000 out of pocket to do the event!

In addition, it would alienate your current customers.  Long lines, clogged seating by people eating meals that you are losing money on?  Current customers are likely to be turned off by this.

Finally, these cheap-seekers are unlikely to return.  In my experience, those people who actively seek out cheap deals are not good customers.  They come for the cheapest stuff (which is usually also the lowest margin), and dont come back.  They are loyal to low prices, not businesses.    Check out this SLATE article that goes into this.

It is better to take that $1000 and spend it elsewhere - that would have a more positive impact.  If you really want to try something like this (I generally would not recommend it), get 500 coupons printed up yourself that is 1/2 off lunch deal, then contact a list company (I use infousa.com) and get the addresses of people that live / work in close proximity to your shop.  Just send out those 1/2 off coupons to those people, and see what happens.  I'd be willing to bet you'd get as good a response as Groupon, but you dont have to share the revenue it generates.... so you dont lose money on every transaction.

If you are a brand new coffee bar, then I can see how something like this might be helpful.  It can get your name out there, and quickly get people to at least *try* your place.  Likewise, if your business is in a location that has alot of customer turnover (such as a college town with students graduating and leaving, and students showing up every year), then sending such half-off coupons to new customers may well make sense.  But besides this, I'd avoid coupons - they tend to bring in the wrong kind of customers. 

Yelp

Yelp makes me uneasy.  It seems like it would be a good place to go to promote yourself - because many people look for food establishments on Yelp.   However, all the stuff I've read about Yelp makes me wonder about how honest they are.  Check out some of these articles I found about them:

Yelp needs to stop filtering out honest positive reviews of businesses
SF Restaurant calls for Yelp boycott
FTC Complaints about Yelp allege extortion, libel and more:

"Restaurants filed complaints accusing the company of filtering out positive reviews (thus skewing their ratings), of harassing them to buy advertising, of refusing to pull libelous reviews, and a whole lot more."

I have gotten multiple calls from a Yelp representative asking if I would like to advertise with Yelp.  One representative coyly suggested that companies who advertise with Yelp tend to get higher ratings (due to the increased visibility of course).    I politely declined the invitation... and strangely enough, about a week later I noticed that I got two 1-star ratings back-to-back.  Very strange indeed considering that I had been getting 4-5 star ratings for several years now.

At first I was incensed, but then I just shrugged it off... and I have not responded to any Yelp inquiries since then.  In short, it is best to simply not engage the Yelp people.  If they have a chance to talk with you and you turn them down, they may feel the need to retaliate.  If they are never able to contact you, then you could always be a potential source of business, so they will likely leave you alone for now.

Frankly, I'm not sure Yelp makes a single iota of difference to my business.   Coffeehouses like mine are not destinations in their own right.  People do not drive across town to come to my coffeehouse.  Coffeehouses are convenience destinations - if you happen to drive past, walk past, work or live in close proximity to a coffeehouse, you are prone to use it.   Most people wont look up a coffeehouse on Yelp to see if they want to visit it, they will work nearby and just go and try it out.  The cost of experimentation is low ($4-5) so there is little risk involved in trying it out.



When researching the whole internet-advertising industry to figure out the best way to promote my business, I read an article written by Justin Kownacki, who interviewed a bunch of coffeehouse owners about different experiences they've had in opening coffeehouses.  Rich Westerfield (owner of Aldo Coffee - another small, independent coffeehouse) had something interesting to say about Facebook and Twitter: "Other than some laptop warriors and a handful of certified coffee geeks, NO ONE really pays attention to Twitter or Facebook for coffeehouses."  Yep, pretty much my experience as well.   

There were a couple other types of marketing that were recommended  in other books on 'starting a coffeehouse' and articles written by 'experts' that I found to be completely worthless.    But, before I go on, I just need to come clean about something. I am becoming more and more skeptical about much of the stuff I read in books and articles about how to run, operate and market coffeehouses.  I am constantly looking for new and interesting ways of doing things to make my coffeehouse more efficient and better run,  so I read as much material on the topic as I can get my hands on.   Some of the material I've encountered has been fine and corresponds with my experiences; some even gives me some ideas of how I can do things better.  Unfortunately, much of it is just crap.   

Okay, back to the examples of worthless advice. I recently read an article by a marketing professional who wanted to dip her toes in the coffeehouse trade.  She went on to talk at length about how hosting live events such as live music, poetry slams, storytelling, and pecha kucha was a great way to market your coffeehouse.   As someone who as actually had poetry slams, live music and storytelling events at my place, this is not necessarily true and can actually be harmful.

We have a pretty decent crowd on most evenings.  We serve beer and wine in the evenings (Koffee Afterdark), so we will have some small groups of friends hanging out and sipping wine or some students studying away with a beer.   

When you have live music, you must plan and organize the music... then market the music.  This takes quite a bit of time and effort.   If we are lucky, we'll get an additional 30-50 people in the place for the live event.  While that may sound like a lot, they don’t seem to purchase much.  On the live-music days, we'd get maybe $150 in additional revenue.   While we make a bit of extra money, we alienate those our 'regulars' -  people who come to Koffee Afterdark to sit and converse with friends... and those regular customers may not come back.  Furthermore, the increase in customers due to the music is usually once-off.  The people who come to the event are usually not people who will become regulars at your place.  They just come for the music and that's it.    

That said, setting your cafe up as a music venue *can* work under some circumstances.    A friend of mine recently set up his cafe with the specific goal of having a live-music venue that could take large numbers of people.  (You can see his place here: http://www.bestvideo.com/).  He did a good job with it, and it seems to work for him, but it is an intentional part of his business and design.  If you design your business with live performance as a part of your business strategy and plan around that, then you can be successful at it.  However, do not try to just bolt this one post-facto; you'll just alienate your current customers.

Is there a specific type of marketing you think might work - something you'd like me to sound off on?  send it my way - I'd be happy to consider it!

Thanks again,

Duncan