Cafe Caper Becomes A Grind
LEAN times call for little treats and small comforts, so it would make sense for cafes to be ticking along nicely during the economic downturn.
But industry insiders say that it’s only the smart operators who are doing well.
“Cafes are struggling, without a doubt,” says Adrian Raftery, a director of ARW Chartered Accountants, which has about 10 clients in the cafe sector turning over $100,000 to $700,000 a year.
“Owners have had to cut down on wages and become more hands-on.”
Raftery’s clients include cafes in the Sydney central business district that have been affected by redundancies in the banking sector.
He estimates their takings could be down on average by about 10 per cent on a year ago.
“We are seeing pockets of growth in the economy but coffee and cafes are missing out,” Raftery says.
Nevertheless, a few operators are bucking the trend, he says.
“Those who have intimate knowledge of the cafe sector, who may have taken over a run-down business and applied a proven formula, such as new seating and staffing, are doing well.”
Research into credit card spending by American Express backs up his observation, with 28 per cent of cafes surveyed reporting higher profits during this period.
The survey of 250 restaurants, cafes and bars in Sydney and Melbourne in the first half of the calendar year shows that consumers have not abandoned eating out but are opting for lower-cost dining experiences.
“Downscaling is very much the current trend,” says Geoff Begg, head of client management at Amex.
Begg says cafes and bars have been able to step in and meet this need more quickly and easily than some of the more up-market establishments.
Indeed, cafes are well positioned to make a profit on their flagship item — coffee — which costs providers about 60c a cup and retails for about $3.
But industry insiders note that it takes a lot of coffees to cover overall business costs.
“There’s a huge profit margin on coffee,” Top Franchise founder Ian Krawitz says. “But there are fewer customers coming through the door and they’re not spending big. Value for money has come to the forefront.”
Smart operators are capitalising on the twin demands of tighter wallets and the desire for little luxuries.
A lot of the top-performing franchises have introduced incentives such as incorporating a drink with a muffin in a fixed price or starting a coffee happy hour after 2pm.
These successful franchisees have increased sales by 10 per cent to 25 per cent, Krawitz says.
“Others who expected to go backwards have held steady with grab-and-go food and coffee, which ties in with other needs of the times. In this climate, if you are switched on you can actively grow your market share.”
For franchisees, a key to success in tough times how quickly franchisors can adapt to changing market trends.
Top Franchise recently nominated Mrs Fields as the second best performer in a franchisee satisfaction review of 65 systems across Australia. One reason for its placement is the support the group has provided to its franchisees, with value-for-money initiatives such as a $4.95 coffee and cookie combo, which has been very popular this year.
