The Coffee Business Opportunity In Challenging Times

Recession. Mention it out loud and some business people start to talk about down-sizing and belt tightening. Then other business people see this reaction and start to do the same. I mean, isn't it only common sense that come the recession, everything has to come to a halt? All wagons should be circled? All hatches battened down?

During the last recession - what I like to call the 'big recession' - in 1990, I was running a coffee shop franchise. People filled the tables and chairs. Muffins were consumed and coffee continued to flow - people were even forcing me to extend the use of my espresso machine by their increasing desire for cafes au lait (soon to be replaced by lattes once the recession had passed - perhaps because of the close association of the poor ‘au lait’ with tough times, I suppose). But I digress. The point is that the recession passed over my business (and those of most of my fellow franchisees) as a non-event. In fact, in some instances, revenues and profits actually increased.

Despite this relative prosperity, we all knew that we were in the midst of a recession - though we were not affected by it. But there was still this general economic downturn and we all knew what we had to do. Tighten our belts. Downsize. Become more hands-on in the day to day operation. This was the smart thing to do. Wasn't it?

The Coffee Business in Tough Times

“Once I built a railroad, I made it run, made it race against time.
Once I built a railroad; now it's done. Brother, can you spare a dime?
Once I built a tower, up to the sun, brick, and rivet, and lime;
Once I built a tower, now it's done. Brother, can you spare a dime?”
"Brother, Can You Spare a Dime," lyrics by Yip Harburg, music by Jay Gorney (1931)

"Brother, Can You Spare a Dime", was a popular recession era song. It's obviously about a guy who's down on his luck and is begging people for enough money. The song never reveals the intended purpose of the 10 cents, but it was widely interpreted to be for a cup of coffee. And this is revealing in that it shows the depth of people's connection to a cup of coffee served in a diner.

To some extent, this is what happened in the early 90's. People, forced into cutting back on the larger luxuries, were still able to afford a cup of coffee. And since a cup of coffee or a cafe au lait were two of the few luxuries people could enjoy; and because they were so inexpensive, people increased their weekly indulgence of them. Customers who I was used to seeing only during the mornings, began showing up in the evenings for a decaf au lait. My revenues and profits increased throughout this period; all the while I was putting in extra hours because of the fear of recession.

The Rest of the World in Tough Times

While I had my nose to the grinder, major events were being played out all around me.

In an effort to stimulate the economy, central banks were lowering interest rates. Hoping to save those players that were still in the game as well as attract new players. Interest rates were much lower than when I bought the franchise. On top of that, it seemed that each week brought new announcements of government efforts to help us out. Tax cuts. Small business grants. Subsidies for labor costs.

While this was happening, many of my suppliers froze or cut their prices. Replacing furniture and fixtures became cheaper. As did repairing and replacing equipment. And quite often at terms that allowed as much as 24 months to repay.

And if you didn't want to deal with a wholesaler, there were always the auctions where prices could be much lower. Our business cousins, the restaurants were falling like flies. Restaurant equipment was everywhere and dirt cheap too.

The Upshot

The recession of the late 80's and early 90's was, like all economic bottoms, a time when 'Cash was King'. If you had cash you could take advantage of the tax cuts, and wage subsidies. You could take advantage of the lower interest rates. You could take advantage of the lower costs and higher unemployment rates. If you were flush, then it was a time for expansion not down-sizing. I expect that this downturn will present the same opportunities. It is a time to be realistic about our personal economic situation and to ignore the negative hype about the economy. I believe that it is a great time to be in(or if you have enough cash, to get into) the coffee business and a time to grab even a greater share of it.