Truth be told, coffee and smoking are the last great addictions indulging the modern-day society. The keyword here is ‘addiction’ and relates directly to the millions who find solace in a hot cup of coffee, at any time of the day, from a personal decanter or from the cultural phenomenon that is the local coffee shop. The latter addresses a simple need for a quick, revitalizing beverage, and has usually spawned whole retail chains in the process. Bottomline, coffee shop business is good business!
Names such as Starbucks, Dunkin Donuts, McDonald’s and Barista Coffee have underlined the importance that the modern human, both battle weary professional and the millennial, has placed in these coffee joints as the ideals spots for lengthy social communications. The coffee flows freely, assorted food items are on offer and the ambiance is tuned for finesse and privacy. Like Starbucks’ boss Howard Schultz has noted, ‘Starbucks represents something beyond a cup of coffee’, these coffee chains represent great entrepreneurial opportunities.
Both independent and chain coffee shops face a number of challenges that can temporarily derail the prominent business agenda. These include –
Fluctuating prices of coffee beans
Factors such as low production, gap in demand and supply, bad weather conditions, unpredictable rainfall and rising labor costs impact coffee prices and consequently, the cost of raw materials. An increase in the latter hikes up the manufacturing cost and lowers the manufacturer’s profits.
The disparity in demand and supply, low production, unfavorable weather conditions, unpredictable rainfall, and rising labor costs lead to volatility in coffee prices. The growing gap between supply and demand could have an impact on raw material costs. Any increase in the price of raw materials not only increases the manufacturing cost but also reduces the profit margins for the manufacturers.
Coffee rust caused by unpredictable weather conditions
As a crop, the coffee plant is incredibly sensitive to shifting climatic conditions. Untimely rainfall and frost can lead to the plant’s inability to bear the coffee beans, a condition known as coffee rust. This scenario is especially played out in most Latin American countries, prime coffee producers that export a massive bulk of their harvest. Outbreaks of coffee rust in these parts does severely cripple the global coffee trade, and consequently the specialty coffee shop business. The last such reported case happened as recently as between 2011-2013.
Harmful factors as these do have a say in the profitable functioning of a coffee chain. Technavio has collated these pointers as part of its comprehensive market research report to enlighten the vendors about the latent conditions prevailing in this intensely competitive market. Alongside the aforementioned factors there is also the emergence of RTD beverages that is threatening coffee’s sustained popularity.
The difference maker : People LOVE coffee!
Despite the questions posed to the global specialty coffee shops market, it must be noted that coffee is still the second most traded commodity in the world, after oil. There will always be an audience where the prospect of a hot cup of coffee, intermingled with some lively conversations, is on offer in a comfortable and easily accessible environment. The friendly coffee shop business will continue to brew some phenomenal success stories through 2017 and beyond.
