Inflation Proofing your Cafe Business
It’s natural for small business owners to feel a reluctance about raising their prices. I’ve seen several signs in cafes and other small businesses in recent weeks apologising for needing to raise their prices. We’re giving you permission to stop apologising, you didn’t cause this so there’s no need to apologise for it. It is what it is.
Let’s talk about moving past those emotions of fear or guilt. The two most obvious choices are to either add value or cut your margins. Constantly cutting your margins is a race to the bottom and it’s not sustainable, just look at brands like Dominos.
This is a pretty meaty article loaded with actionable items so get ready to make some notes and share your feedback on the Coffee Constellation Facebook page HERE
First up, take the time to look at your overheads so you understand your cost structure and adjust your pricing accordingly. You need to do this so you can maintain a sustainable business.
ACTION ITEM - Pick your top 3 food & beverage sellers (as a minimum) and break down the costs behind these items in a spreadsheet. You need to understand your numbers in order to be sustainable and profitable.
So, how do you add value to your customers? As inflation rises and discretionary income reduces, customer sentiment is likely to be less about supporting your (small) business and more about the value you add to the customer. It becomes more about ‘them’. Grab a notepad and let’s brainstorm some ideas on how to add value in your business with ideas that aren’t directly related to price.
An example from a non-cafe environment is my (personal) value set on certain grocery items. I only buy free range chicken at the supermarket for my family. I don’t care what the cost difference will be because the value of true free range chicken far outweighs the price of factory farmed chicken for the health benefits alone. This is just my opinion of course. What is something that’s important to you? Pick a personal value to add context.
What’s important to your customer? Have a think about the different profiles of customers that visit your cafe. Who are your customers and ‘why’ are they coming into your business. Are they a corporate/business customer ? These people are generally more concerned about feeling welcomed and having their needs met efficiently than they are about price. Quality is also value to this customer.
One of your customer profiles might be a Tradie looking for a large coffee along with a convenient & easy to eat meal. Value to this profile of customer is usually about ease of access to your cafe (convenient parking), and food that’s easy to eat on the run. They also care about you making their decision process quick and simple hence all the tradie combos smart cafes always have advertised in the mornings.
If you own a business with speciality items like a Deli Cafe or Independent Supermarket, you might want to try having small quantities of your deli meats and cheeses wrapped & ready for purchase. I want to buy your triple smoked ham but I rarely have 10-15 minutes to wait for it. To some customers however, being served and having someone explain the different cheeses is all part of the reason they come to your business.
ACTION ITEM - Take a moment now to document who your customers are and what value means to them.
More ways to show value can be found in how and where you engage your customers on social. We want to hear about the new Japanese chef you recently hired and learn how they get their fluffy pancakes to have such a large sidewall. Who is your donut business named after & where did you start out? Let customers hear the authentic stories behind their favourite products and meet the maker. Getting your customers more engaged will keep your business front of mind and help you beat that pesky algorithm on Mr Zuckz platforms. People care more about you and your business when they know who you are.
Cheap stunts on social don’t work like they used to. Having 100 engaged followers is worth more than 1,000 followers that will never buy anything from you. It may also be appropriate to showcase some of what makes you special in-store and interact with your customers in-person.
Quality and Presentation - Depending where you position yourself in the marketplace will impact what customers expect from you. You just don’t expect a burger from Maccas to look or taste as good as the picture promises but if you’re running a boutique burger shop, the packaging and presentation needs to be on point with your customer’s expectations. That is part of the value proposition your are offering your customers. A reverse example of this is restaurant chain having to cut their (free) self-service condiment unit during Covid. They still offer the same range, it now just comes pre-packaged and it’s still free when their customers ask for it. Not having the self-service option turned out not to be such a big deal to their customers and saved the restaurant owners both money and labour.
ACTION ITEMS - How are you presenting your menu? Is it time to invest in new plates or better quality paper napkins? Ask your team for ideas too. Perhaps value is spending a few more seconds plating up an insta worthy shot. What do you offer that doesn’t add value to your customers? What can you potentially stop doing?
Take a good look at your budget. Do you have, or are you working towards an expenses fund? As a guide, you should be building a fund to cover a few months of expenses. It’s OK to tap into this fund to grow your business, that’s what it’s there for. You could use it to hire a new Chef or do some marketing in your business.
ACTION ITEM - Go through your last 3-6 months expenses, look at what you’ve spent. Don’t forget to look at any annual expenses that you need to add in for the purpose of building an expenses budget.
Get ahead of purchasing certain items - With inflation comes more frequent cost increases. We saw this during Covid lockdowns.
ACTION ITEM- What long-life or shelf stable items can you buy now to help provide a buffer against future price increases. Refer back to your budget in the last action item to help with forecasting. Just don’t let this impact your cash flow.
Cut costs creatively and with Caution - Before you go cutting costs indiscriminately, finish reading through the article and complete all the action items. Any good hospitality operator knows you can’t run a cafe from a spreadsheet or you’ll damage your business. Look at what your customer values before you cut things out. Cheaper is not always better.
This article was written to help you and is general in nature. This is as much an opinion piece as an article so if you have something to add, we welcome it in the comments at the Coffee Constellation Facebook page or in a DM.
If we work together as an in industry, we will get through this together. There’s no need to feel stuck or alone, Coffee Constellation was crated as a collaboration space for cafe and hospitality business owners.
Berenice Walker
Founder- Emu Coffee Pty Ltd
Facilitator - Coffee Constellation, your collaboration space