2014

Three Vulnerabilities

David Gross

When entrepreneurs choose to venture forth, the opening costs can be staggering and overwhelming. The goal of being independent from any franchise is applause-worthy, but independence does have its vulnerabilities.

Independent coffee concepts’ initial vulnerability is exposed when it comes to securing a location. They could lose their standing against the majors when it comes to location. It’s going to be more and more difficult to get into business and to expand because shopping centers and malls prefer the majors. Though this won’t be true in all shopping centers, it will be (and already is) happening enough to prevent the independents from entering into the “A” locations.

You will have to find your strength in differentiating your concept by catering to the health and wellness sector of consumer demand; to do something the majors are not doing. And more than that, once you’re providing something healthy, promote it. Use signage and POS to let your customers know the health benefits you offer. If you’re catering to the health and wellness market, why keep it a secret?

That is the ultimate vulnerability. You will find yourself having to compete not just for customers, but you’ll be in competition for prime business locations as well.

Of course there are exceptions. A lot of the independents do have good locations with prime real estate, but they’re pre-existing. They got in at an earlier stage of the game. Nowadays it’s likely that when those prime locations come up, the property management teams are going to say, “I’m bringing in Starbucks,” or “I’m bringing in Peets,” or Caribou, or whatever the case may be. Landlords don’t want turnover, they want security as in long-term leases. They want a draw; the overage; the percent rent. It’s not just a case where the majors are seeking locations, but the landlords are actively seeking them out as well. The landlords aren’t putting an ad in the paper for independents; they’re getting busy today by calling on the majors directly.

I don’t mean to be negative, but that’s the trend that’s happening out there. There are some cities where it’s opposite, where the independents are strong, for example the St. Louis area where Kaldi’s Coffee is more dominant than the national brands. Portland Roasting of Portland does probably better than bigger names as well. The same with Klatch Coffee of the greater Los Angeles area. Local chains can survive if they’re there. But trying to form one today? That would be tough. The mall would open up to a place like Kaldi’s or Klatch because they have established a name for themselves in their city already. But if they were just starting out, and it was name brand versus the unknown name? Well, if you were a landlord, you’d do the same thing. You wouldn’t want the hassles; you’d want the rent guaranteed by a public company, etc.

Another vulnerability to be aware of, and this is a must: You must pay attention to social media. Your restaurant, whether you want it online or not, will be subject to crowd-sourced reviews on business ratings and reviews sites, the most popular of which is Yelp. If you don’t actively monitor your restaurant’s online reviews, and participate in answering complaints, you will find your shop empty and you won’t know why. At any given moment, people looking on the virtual map for where-to-go will also see ‘Reviews’ hyperlinked as well. Your restaurant will be there. If they see, “This place is a rip off!” do you think they’ll give your place a chance? You need to see that post and respond to it in a way that shows you take pride in your restaurant and you care about the customer experience.
Another case in point, the recent scandal Dominos Pizza had to encounter when someone posted a prank video showing the employees putting cheese up their nose before putting it onto the pizza. How would you handle that? Domino’s responded within 48 hours but even that was too late according to AdAge, a trade publication. If you have employees and customers with Internet access, the Internet is your vulnerability. However, you can use the Internet to your benefit if you simply respond to customer complaints, and in a timely manner.
Your concept will face its ultimate vulnerability in your food and beverage presentations. The current trend is Health and Wellness. The independent operator will have to put together a menu board chock full of healthy options.

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