Capitalise on the coffee opportunity

Emulate the high-street chains' approach: know your margins and get equipped to compete effectively in the coffee market, says him! sales and marketing director Tom Fender.

What else can your business do to attract your existing customers more often and bring new customers into your outlet? Well, one possible solution that you should consider is coffee.

This month Starbucks reported strong quarterly profits, while Mc-Donald's continues to grow, with two million more customers choosing to use it every month. The recession and changes in spending habits may well have contributed to the growing success of both these chains.

However, McDonald's impressive and continual ability to attract and retain customers has really been the key to its success and something we can all learn from. In 2008 it sold 10 million more cups of coffee than it did in 2007, having invested £6m in new equipment to upgrade from old filter coffee pots. It also improved seating options to attract and meet the needs of different customers, including:

1.​ The linger zone — armchairs, sofas and free Wi-Fi connections.

2.​ The grab and go zone — tall counters with bar stools for customers who eat alone and plasma TVs offering news and weather reports.

3.​ The flexible zone — booths featuring fabric cushions with colourful patterns and flexible seating. The new design allows different music to be targeted at each zone.

In addition, many of its TV campaigns are based around its food-sourcing ethics, enabling it to move away from price or meal-deal promotions. For example, it uses British organic milk and freshly-ground Rainforest Alliance certified coffee and supports British farmers.

The on-trade and coffee-chain channels are similar in many ways, in that they often have good high-street locations, have sizable outlets and are competing for the same discretionary spend. Not only do coffee chains offer location, opening hours and consistency of offer, but they are also well-equipped for business users, with the likes of WiFi and laptop power-plugs.

Greggs is another retailer that has also recently innovated its offer by introducing WiFi and laptop stations in some of its outlets to capture this working-on-the-move market.

And Caffè Nero has just announced that it will be showing the World Cup games in its outlets to capture those who do not want to go to busy pubs. So competition continues to grow for consumers' leisure spend.

So why are consumers using coffee shops?​

The main reasons are:

• To relax/have a break: 40%

• For a snack between meals: 26%

• For breakfast: 7%

• For lunch: 6%

• For an evening meal: 5%

• To buy a treat: 4%

• For refreshment: 3%

• To meet friends/family: 3%

These are all missions that pubs could and should fulfil. On average customers visit coffee chains more times per week than pubs. These people often buy a cup of coffee every morning — can pubs try to capture some of these habitual coffee purchases by offering coffee to go?

OnTrack, him!'s pub-customer tracking programme, tells us that currently only 5% of pub customers are buying a hot beverage — is this so low because the coffee offer is not very good or because customers don't know that it is exists?

Only 32% of licensees say that they have a coffee machine of any sort in their establishment. On average licensees tell him! that they charge £1.22 for a coffee. Look at prices in coffee chain outlets and think of the potential margin these drinks offer. We know from OnTrack that many pub staff do not know the margin made on coffee.

Meanwhile, 37% of pub customers tell him! via OnTrack that they would be likely to use a pub if it served a good cup of quality coffee. It's worth considering that 22% of pub cust-omers are going to drive directly after visiting the pub. A good coffee offer could be just the ticket for these customers.

And 23% of coffee shop customers buy bakery products — again, these are high-margin lines. Can pubs capture this breakfast market by offering locally-produced bakery items? OnTrack reveals that 26% of pub customers say they would visit the pub for breakfast.

There is often more and better up-selling going on in coffee shops by staff, such as encouraging customers to go large. Only 80% of staff working in pubs say they know how to make and serve a perfect cup of coffee — so there are training issues to address.

So what could pubs learn from coffee shops?​

• Provide a quality coffee offer and market it — perhaps with a free trial. Introduce a simple loyalty scheme, such as buy 10 coffees, get one free.

• Make the environment suitable for working/meetings by providing WiFi and laptop points.

• Merchandise savoury snacks and other morning goods and cakes on the bar to tempt customers.

• Ensure staff up-sell by offering morning goods to any customer buying coffee.

• Consider offering a table service to customers before noon.