Coffee v. Location: Location Wins (Unfortunately)

Coffee is a very competitive industry—especially in Portland. Having a coffee shop on every other corner is one of the things that makes living in this city enjoyable. You don’t have to walk very far if you’re looking for a place to get some caffeine.

Not all cafés are created equal, though, and today I would like to talk a little about what makes a café successful. There is a difference what makes a good café and what makes a café successful. What is the number one factor for coffee shop success? I wish the number one factor were high-quality coffee. Unfortunately, in my exploration of the city’s coffee I have found that location trumps quality—even in Portland.

Fast food businesses have used this to their advantage for years. I remember my economics professor at WSU leading a discussion about what makes a the fast-food industry successful. He used McDonald’s as his example.

“What business is McDonald’s in?” he asked the class.

Several hands went up. An easy question, everyone thought.

“Hamburgers,” one unsuspecting student ventured, figuring that for the first time, he knew the answer to one of the professor’s questions.

“Wrong.” The professor smiled at our naiveté. “McDonald’s is not in the hamburger business. It’s in the real estate business.”

Real estate? But don’t they sell hamburgers?

“Think about it. Which one of you would go to McDonald’s if you wanted a great hamburger?”

No one raised their hand.

“I didn’t think so.”

He had a point.

“In every city, who has a store by the most popular attractions, where the most expensive real estate is? Yep, McDonald’s. There’s a McDonald’s in Times Square. There’s one at the Pantheon in Rome. You can find a McDonald’s by the Louvre and on the Champs Élysées in Paris. In fact, you probably can’t go to any famous place without finding one nearby.”

He was selling us on the idea that even if you serve mediocre hamburgers, you can still make a killing if you have a great location. Starbucks, who has been very successful, knew this and implemented it in its growth strategy (note: I’m not implying that Starbucks has bad coffee—or mediocre hamburgers).

To give you another example, today I’m writing this article in a café that will succeed because of its location. The café is at the heart of a neighborhood, it has lots people walking by all day and it  has a large parking lot right behind it. As it has been almost every time I have come in, the café is full of people. It is going to be successful, but not because of its coffee. In fact, I don’t really like the coffee.

Why, then, do I come here? I admit (somewhat shamefully) that it’s because the café is convenient. The location is an easy walk from my house and the baristas are friendly. So even for me, someone who really likes and appreciates good coffee, the convenience of a great location sometimes trumps sub-standard coffee quality.

It would be great if the success of a café only depended on its coffee. Then we could always get great coffee no matter what the location. If all PDX coffee drinkers banded together and demanded an end to bad coffee, we could force every café in the city to serve great coffee. Maybe in the future we will.

Then again, maybe that’s just a utopian dream that could only be realized in Portlandia.

Be Nice to Your Guitar (and Your Customers)

This morning I listened to a live webinar put on by John Bernard of Mass Ingenuity. He spoke about how the combination of social media, cloud computing and the millennial mindset (not wanting to wait for anything) are combining to change the ways companies interact with their customers in ways so profound that it is difficult to comprehend the changes how the new marketplace works. He said that we have moved from the era of mass production into the era of mass customization, where products and services are more tailored to customers’ needs. He especially mentioned how meeting customer needs through good service is more important than ever.

Bernard cited United Airlines’ baggage handling service miscues in the case of musician Dave Carroll as an example of how companies should not respond. In case you haven’t heard, Dave’s $3,500 Taylor guitar was destroyed during one of his trips on United Airlines and he went through months of troubles with the company to try to get them to rectify the situation. Things finally turned his way after he wrote a song (complete with music video) about his troubles that became a huge hit on YouTube. There are actually three videos in the whole series. Here’s the first one:

It’s true that some people write bad things about a company just to advance their own agendas. In the past, the companies might be able to ignore them and the problems would go away. However, with the speed that information gets passed around these days, it is imperative that businesses monitor what is being said about them in social as well as traditional media (that reminds me, I need to Google ‘Caffeinated PDX’ to see if there’s anything being said about it. Hold on a minute, I’ll be right back. . . . . Okay, we’re good for now). While it is impossible to know everything that is being said about your company, you must take care to monitor the problems and put out any fires before they get going too strong.

Although I question Bernard’s claim that this one incident with United led to an $180 million reduction in market capitalization for the company, his point was a good one. Customers have more power to expose companies’ misdeeds than in the past, so companies must be more alert and responsive than ever. Of course, those of you with your own businesses already knew that, right?

Coffee is NOT on the Way Out

Janet Morrissey wrote an article for Time this week that implied that young people are not going to drink coffee in the future because they drink Red Bull or other energy drinks instead. I disagree, and judging from the comments, so do many others. According to the article, the heavy marketing that energy drink companies have done to give energy drinks a ‘party drink’ image is a sign that coffee’s future is not bright.

There is no question that the energy drink companies have been pushing hard to reach college campuses. At PSU, there is a vehicle parked somewhere on campus at least once a week where young, good-looking people hand out free energy drinks to students. And I admit to being surprised when I read about the twenty-something PR consultant who said he didn’t drink coffee because it tastes bad (He drinks Red Bull, and he complains about the taste of coffee?).

 However, if you spend much time in coffee shops, you see young people everywhere. When I worked at Starbucks in Boston, we had a large group of regulars that came over every day from a nearby high school (sometimes twice!). The cafés around PSU are jammed every day with the 18-24 year-olds that are mentioned in the article. I stopped in at the PSU library the other day and was surprised to see a new coffee bar in the lobby. This evidence leads me to believe that coffee is not doing too badly in the under-30 crowd.

If you want to make the case that this age group won’t be drinking more Folgers in the future, that’s different. After all, this is the generation that came of age during the golden era of Starbucks. Of course they’re not going to accept the taste of pre-ground or freeze-dried coffee that has been stored in a can for six months! However, predictions that young people will not be drinking coffee in the future are like predictions that bell-bottoms would never be seen again after the 1970s. They make for a good story at the time, but years later, people look back at and laugh about them. In twenty years, we will be able to look back and this one and laugh too.

[note: Portlanders will be proud to hear that Stumptown was mentioned in the article as a place where younger people do have a good coffee experience (at the Stumptown Ace Hotel in New York City)].

Starbucks in the News

Starbucks has been in the news a lot this last month. I don’t want to be accused of advertising for the company, but with 16,000 stores worldwide, the Seattle-based coffee giant is probably the most important coffee chain in the world. To ignore it would be doing you a disservice. After all, many cafés watch what Starbucks does very closely and then try to mimic or improve upon it. What starts in Starbucks may later be seen at your favorite local café.

VIA

At the beginning of the month, Starbucks released its flavored VIA instant coffee (available in vanilla, caramel, cinnamon spice and mocha). Yes, that’s right, the company who rose to prominence by educating customers about high-quality whole-bean coffee, now sells flavored instant coffee. Am I the only one who winces when he walks down the bulk coffee isle at the grocery store and gets a whiff of the caramel-flavored coffee sitting on the shelf? Some of those aromas are so strong they make my stomach queasy. The flavored VIA had better be nothing like those coffees. When I try it, I will let you know.

Mind you, I am not anti-instant coffee. If people want to drink instant coffee, that’s their business. One of the things one of our professors in business school told us was that if your product saves people money or if it saves them time, you have a winner. VIA does both. It’s cheaper than going to Starbucks to buy a mocha every day and drinking VIA is a lot quicker than stopping at a Starbucks too. In addition, as reported by the company, sixty percent of its customers drink flavored coffee and eleven percent of American households buy it. Maybe the company is onto something. 

Read More