For many consumers, coffee is a ritual. Coffee shops are where they make a quick stop before work or gather on a Saturday morning with friends, marking the beginning of their day. Coffee is a ubiquitous product, so it stands to reason that a massive and financially lucrative industry surrounds it.
Those coffee spaces—and business models—are as diverse as the communities that house them. However, as diverse as these companies are, nearly all have the common experience of navigating the post-coronavirus landscape and what it means for coffee businesses and their physical storefronts.
The Pandemic Has Reshaped the Coffee Shop Landscape
People now rely on the coffee house as a central community spot. Peter Giuliano, chief research officer at the Specialty Coffee Association, noted that “… community interaction and good coffee is increasingly important to consumers. This has led to cafe owners being much more focused on consumer needs and desires, which may be specific to a particular community.”
Many coffee shops are trying to deliver an experience reflective of the surrounding neighborhood. The key to this strategy is considering and integrating the neighborhood’s social fabric. Coffee shop owners debating between leasing and going deeper in the real estate buyer journey should be doing exhaustive research on the neighborhood culture to deliver the right experience. Although this experience is increasingly prevalent, some companies are heading in the opposite direction.
Convenience-based stores, such as drive-thrus and neighborhood pick-up stores, are on the rise. Starbucks is now experiencing about 75 percent of its transactions through mobile order-and-pay, drive-thrus, and delivery. It’s de-emphasizing the communal space as it opens new stores and investing heavily in new equipment that can quickly make drinks and meet the high sales volume that has become typical. The buy online, pick up in store trend is one that Starbucks is heavily betting will stay, but it remains to be seen how its strategy will play out.
Regardless of the strategy coffee shops pursue, there are three areas owners should consider when assessing real estate needs:
1. Location: What area will work best?
Starbucks is one of many that have embraced the drive-thru model. Dutch Bros. Coffee has deliberately chosen to invest in rural and auto-dependent towns. By closely studying demographics and meeting customers where they are, it has positioned itself for continued success. One of the key drivers of Dutch Bros. Coffee’s success is its focus on offering a community what it needs and not trying to build demand.
Coffee shop owners should seek out real estate that offers a necessary service to people—is it a communal space? A quick drive-thru? Mobile store orders next to a school or office park? Studying the fabric of the city the shop is investing in will give critical insights into the real estate strategy. It’s likely much simpler to fit into people’s lifestyles than to ask them to change. Either plan can follow this advice, and using community data, census figures, and spending time in the community will guide that decision.
2. Community-oriented spaces: Can city infrastructure and associated businesses support the shop’s identity?
Build community-oriented spaces that cater to the needs of changing population demographics. Nick Stone, the founder of Bluestone Lane Coffee, notes how critical it is to overcome the challenge of “… finding the right site and hiring the right staff to build a culture.” It’s essential to look not only at the site itself, but also at the surrounding resources for the business. According to Stone, Bluestone Lane has become a community pillar. “Brands who drive human connection and make you feel part of the community, like a local [are the future].”
For example, considering the availability of a hiring pool, supporting food suppliers, and stable WiFi can help make critical decisions. If a company is building a brand based on the community, it needs to focus on finding the right site in the right locale. If customers don’t feel at home and want to spend time at the coffee shop, the owner’s significant investment could be at risk. Working with a real estate professional who truly knows the local area can help mitigate those risks.
3. Micro-cafes: How can owners embrace uncertainty with sound decision-making?
Some cafe owners see opportunities by choosing to go to city centers where young workers are. By deliberately decreasing their real estate footprint and simplifying their offerings, they can offer a few premium offerings at a reasonable cost. Blank Street Coffee has opened more than 40 micro-cafes, none more than 350 square feet. According to the New York Times, Blank Street is “… designed to get customers in and out quickly and to allow baristas to focus more on customer service than on coffee.”
Working to find prime locations in expensive cities allows the company to get the volume of customers it wants while maintaining relatively low overhead costs. With lower investments and leaner models, businesses can potentially capture a highly desirable market and gain important downside protection. If coffee shop owners could find the upside in higher-risk areas while not exposing themselves to too much risk, they could obtain valuable investment opportunities — especially if there’s less competition or they’re able to provide unique offerings.
Coffee will always have a place in American culture. However, coffee shop owners must consider the needs of the community to ensure they have a place to grow within it.
Matt Giffune is a co-founder at Occupier, a lease management software platform helping commercial tenants and brokers manage their real estate footprint and comply with lease accounting standards. Occupier’s software helps teams make smarter, more informed lease decisions by centralizing the way they work. In turn, teams ensure alignment between their real estate decisions and business successes. Prior to his work at Occupier, Matt held leadership positions within commercial real estate and technology sales. He’s currently based in Boston.
