1. Is Your Coffee Shop Profitable?

How can we help our people start looking as true merchants? How they're managing their store is not just about putting coffee out your window, it's about how you're controlling your inventory and therefore saving the company money because nobody wants to lose a bunch of cash onto the shelves of their business, right? Your managers are probably thinking to themselves, "The more I stock up the better, 'cause I don't want to look like a jackass that runs out of something, right?" But that's not always the way that you want to run your business. You want to be cash savvy, cash smart. Welcome to the Coffee Experts Club, where we discuss all of the insights, expertise, and drama that goes into making your passion your profession. Our hosts, Aaron, Ben, and Drew are three coffee experts who have taken their coffee experience and turned it into true expertise. They have consulted with major coffee brands throughout the United States and beyond, providing operations, expertise, and gross strategy for drive-through openings, multiple locations, and everything in between. So, brew yourself a cup and hang out a bit with the Coffee Experts Club. I just thought I'd at least kick off some conversation, kick off some conversation starters on how we've been handling, helping people manage their cost of goods. So, Ben, do you have any follow-up thoughts on that? Essentially, how can we help stores stay most profitable at a lot of times that comes from controlling how we're spending? So, Ben, you want to talk about those for a minute? For some reason, I think people forget how much they need to budget, and they're either a store owner or operator or a manager. I mean, it's just paying good attention to your cost of goods. It's just like managing your own whole budget. I got to make sure that I know how much I said it's been each month of a mortgage. Like, I didn't know if I had no awareness around that. At the end of the month, I'm like, "Oh, that's the best thing." My mortgage. The same thing goes with your business. Like, you have to be aware of how much you're spending. Well, I'm saying, your college is the largest shelf. You're going to be outside of maybe, you know, at least. But even then, if you're busy shop, your college is going to be the largest percentage of cash that you're spending out your store. And so, to just not be aware of exactly how much that is, or not be tracking that weekly is, it doesn't make any sense. What's the way, just from a personal standpoint, doing how much money you'd have or you don't have? So, Ju and I were talking about, you know, we've got a coffee master class for those of you guys who don't know. We have coffee master class for the minute. Next week, we're kicking off. It's going to be opening my first drive-through. So, my first drive-through.coffee is where the URL is going to be. The website will be up the next couple of days. But essentially, walking people through the mechanics of what they need to open their first coffee drives through. But when Ju and I were talking about a yesterday, then when you were fainting sick, when you had been out, but you and Steven were out too late, then I'd floor, you know, whatever. Sick yesterday. Ju and I were talking about, for a lot of people coming in, I think they're just at the basic level, right? Maybe they've been running stores. Maybe they've been working for other people. But a lot of times, they don't know what they don't know until it's too late. I talk about, you know, my first business venture, how I lost 200 grand and how to shut down my business, because I thought I understood from running somebody else's business how to run my own. And I got myself into hot water and lost 200 K out of value in my house. And then had all of the shame and all of the embarrassment of having to sell off equipment and sell off inventory from the back of a you haul driving around to different parking lots throughout my town, just to try and make back up some of the money. So there's some things where it's like, there's simple levels of business. And there's complex levels of business. And I think my hope for us with coffee experts is, let's help people in the on ramp, right? Like, there's no shame, whatever stays with the journey on. And she never opened a coffee joint before. If you've run a couple of coffee joints, if you know, if it's a big chain coffee that you're working with, there's day for levels all the way up. But lean back into people who've been there before and one of the best ways to control would be through your cost to good soul. But that's next level stuff. It's not just putting cups of coffee out. You know, that's the first thing, right? Everybody's stressed about open, right? CJ and Lindsay just did their second grand opening, right? All the stresses around is my POS ready, right? Is my point of sale system up and ready? Do I have all the right supplies? Have I trained my people? Is my manager prepped? How is the existing store going to do with this news store? Starting right, it's all those things. But then you can easily lose track of, holy, am I even watching my cost of goods? Is that even something that I'd keep an eye on? Because you get so lost in the forest for the trees that you take your eye off the ball and realize, no, no, but if your store isn't profitable, none of those things matter, right? You can have the best point of sale system. You can have the best manager anybody's ever seen. You could be, man, opening and closing like a dream, like all of your, all of the systems that people at simple level coffee business master. But if you're not watching your cost of goods, if you're not watching your profitability, that can bite you in the ass and in the end, that's what's going to take you down even more than these other things. You know, because this simple level of business stuff, that's just an assumed. The next level stuff where you start to watch your cogs, your cost of goods sold, it's really important. If you had a copy or had something in the comments, she said in her experience, I saw a lot of managers just order the same thing every week because they knew what was selling. But they didn't know how much the product they were selling. They didn't use the tech they had to monitor how much those products they were selling. Super smart. Drew, you want to speak to that? Because I know Phoenix is your girl and we love her. Yeah, I mean, there's a big difference between knowing how to do something and fully understanding the process of how you're doing this thing. And so like you mentioned, you can be running day-to-day operations and just know the surface level stuff. But you can be fantastic at it. But once you get back into the weeds of how everything is working behind the scenes, it takes a lot of reps and a lot of practice and a lot of understanding to get to the point where you can actually teach something. That's when you kind of know that you're, you know, have footing in that realm. Okay, so let's say we do Master Cogs, like Phoenix is talking about. Steven even talked about it too. Like, you're right, it's not like you go to the grocery store. It's technology as far as like two managers, get them out of the mindset. It's talking to shelves full like the grocery store. But ordering off the needs of the store, I think that's totally hits the nail on the head. Steven's pretty smart, dude. Pretty smart. A little smart. But Jared asked a good question of, okay, so let's say you've got to master this whole Cogs thing. What do you do if you're pricing and what you're ordering at? There's just not enough margin in there. What do you do with that? Is it something that you would go out to other vendors? Is it you start shopping different vendors and try and bang your numbers down? Do you raise your prices? You know, if you're somebody new coming into the space, you probably only have so much margin and not bend you have thoughts on what your modality would be in a scenario like that? Yeah, I mean, no raising prices is the last thing we want to do, right? Especially if you're in a highly competitive area where you think me that you'd have to raise your prices higher than you're competition. First thing I would do is I would start with negotiating with my vendor. Like, if you're already with that vendor, he shows them for a reason. Maybe you like their customer service, you like their worry system. I would start with negotiations with them in the head and just say, "Hey, look, these costs are killing me." I would sell them with profit margins. Can we negotiate maybe I purchase instead of a weekly amount of vanilla syrup? I purchase from you and a discount of three weeks' worth or something. Can I buy them both somewhere with you? Right. Give me discount and buy them both in cases of purchase bottles and stuff like that. So, in guarantee, I mean, it's a vendor that's killing the pinch of inflation to their every trying to hold on to clients. Because I mean, it doesn't matter for them to have a warehouse whole product and they can't sell it either. So, I would first say, I'll always negotiate with you, Ben. If that doesn't work, if they're like, "Nope, sorry, prices are prices." Go kick rocks. Then I would start looking for other vendors. There's a ton of people out there who are looking to undercut their competitions. Same thing we do when you have a coffee shop. If you have a racer's competition, and if I can drop my law, I can take away my sense lawyer's competition. Same thing with distributors. You go warehouse guys that will look to underpay each other. You're more often than you can find competitive distribution of where you can get lower prices. And then if you are the position to do it, you can always think about creating the product yourself, creating your own energy drink, going with your own frat. That'll have that cost down a lot. But there's always ways to find pennies here. And that really is what it comes to be. Coming comes a game with pennies and dimes and nipples and quarry. Because those CEO add up over a month, especially free four of our competitions. Those dimes and nipples have had a whole lot. And if all of that fails, then it may be time to raise prices. Hopefully you're the last one in the kind of block to do that. I would say what we always tell people when we're starting out this conversation about Cougs is there are a couple of spots where there's most couching, right? As far as the most couching of opportunity for savings in it, I would say obviously beans and roasting. That's always the first and right. If you're buying beans from somebody else, if you can cut out the middleman by getting your own roaster and buying green, training up a kid, like like West did with Cody, like all those things through the years where you can actually bang down your number by cutting out a middleman. That's always your best, right? So green is always the easiest way to do that with beans. Then looking at your milk fenders, a lot of times your milk fenders, you can get them to play against each other because there's some big money in that kind of a spend because you're buying such high volumes in quantity. So I would say beans, then milk, maybe, Derek, you remember the John Patterson era where John really found us a lot of couch in changing milk fenders back in the day. But then I would say, once you've identified those two bigs, move into a proprietary process like energy drinks, right? We know that five times the savings, you can get out of just cutting out Red Bull, going to something you hate for yourself. For out, we were able to get three times the savings, right? Dropping it from like 18 bucks for bag down to like, I think we got down to like 11 bucks for bags for big training equivalent by making your own strap. I think coming up with those proprietary processes, I would say, Number one location is tough if you only have one 'cause you're not buying probably quantity to some of those things. So establishing a quantity count of how much you're actually selling and then that can justify the spend when you begin to buy and bulk like what Ben's saying. At that point, when you start developing your own energy drink, you're just buying three months of quantity in bulk. And if you can think about it that way, I'm just buying three months worth of energy drink and creating my own and dropping the floor on cogs while I've already established a traffic count with people that want energy drinks, you're growing money in that margin. So I would say those are the main things when it comes to negotiating. The other thing that you did Ben that I thought was really cool is find out what your competitors are charging and then you can actually ask yourself, okay, so for this line item for a latte with this extra flavoring, whatever it is comparable, what are my competitors charging? What does it actually cost me? What's my retail price? And is there any margin that I can inflate and do there? So I would say attacking cost of goods first, then going out and looking at your competitors pricing and then asking yourself, is our cup for an equivalent product? In line, do I have space to raise it? 'Cause the next thing would be, I've already identified my cogs. I've already identified that I can't go any cheaper. I'm right at that breaking point. What are my competitors doing for the same? Asking myself, do I have any room to raise it? And then I would always suggest subtle incremental raises. Like if you do find there's a ceiling, don't raise the crap out of your orders. Like slow-grow your raise. Otherwise, you obviously lose. You lose people of that. Jewish, you wanna speak to that? I know that's one of your passion points. Like don't throw your customers off the side of the boat. - Well, we don't wanna skip a step of just halting spending, right? Like Christmas. Sub-us spending. - Thank you. - And then we go on to all those great steps. - Yeah, I mean, we did several price raises over the year and it was always an analytical move. And the rollout was sensitive time. So in the speaking towards incremental moves, it's always smarter to of course do a little by little. And then it gives you the time to of course see the difference in where the traffic is flowing and where the money is coming in. It's not such a big hit 'cause the customer relationship with the baristas is a big deal. So those frontline baristas are always the ones who are taking that first social hit when you do make changes to anything really. The TOS is if you rebrand, if you are raising the prices is almost a personal thing for customers. And because of the situation that we were in at Roasters for so long, we were hometown brand. And so it was like a personal relationship with people. So raising prices slowly and gently. And of course, only when you have to. I would also recommend something along the lines of watching for different brands of things you can buy too. 'Cause I know one of the clients that we worked with, they were there was a few different brands. And even the casing they were using, they switched brands they used glass to brands that used plastic. There was a price difference in things like that. So yeah, there's all sorts of things that you can do. - That's a really good one. 'Cause it's easy to get stuck in a, no, we only use this premium brand product. We only use this premium orange clean for our counters that cost $9 a bottle when, really, I would just get something generic for $1.25. Don't be afraid to swap out those products. And I mean, I would say you have to be careful when it comes to the products that you're using for your, your menu. But you kind of pigeonhole yourself and you say, okay, the only thing that I'm gonna purpose for my distributors are their absolute premium products. 'Cause those products get expensive, really quick. You have different types of serves, even one vanilla serving, five, seven, five bottle. - The other serves, seven, seven bottle but premium organic, yeah, yeah, yeah. Which in that's, if that's what you clientele wants and it's selling really well, great, but just know that at some point you may have to think about, 'kay, either I raise the price and it's been a long time or I swap out for a terrible, very similar tasting vanilla that may save me two bucks a bottle. So I wouldn't be quick to swap out my menu. I would never shut that out as a possibility of, maybe let's take a look at grabbing a different brand, keeping me seeing as a character. - That's smart. And I remember Lindsey started that way, right? Like that was something that you identified for her with outside or Lindsey was so upset on, I wanna make all my own serves. And she was so brilliant at it, right? Like outsider does such great stuff and they've got a really unique menu and Lindsey switches her menu up every quarter like she keeps it super fresh and it doesn't really cool specials and but there's a lot of energy that goes into that and I know when you did some analysis you're like, hey, be careful because some of that stuff that you're investing in your serve costs really drives up your cogs on your per cup town. And if you really wanna experience a profitability, you might wanna think of something some of those custard serves out for something that's in the equivalent, right? How was some of the counseling that you gave them? - Yeah, I worked with that but I used that same menu, retail price point analysis just kind of sure like look, it's not there losing money on the cup but we're making nearly as much as they could have it if they treat so serious. But again, if your business is like our entire clientele base is around our brand of we make our own sauces in the house then of course you don't wanna get that and I think they're still doing the in-house sauces and they're buying some of it but if that is your thing, you're like we have to always do in-house sauces. That means you have to find some other bought in your business that you get recouped that box with a cost. Maybe you hire a buyer who you can pay a couple dollars less an hour to make those sauces or whatever it may be, you gotta find those any somewhere else. Maybe you switch from a specific brand of paper cup to a brand of paper cup that's maybe not as cool but say to you two cents a year and there, it's the whole pigeonhole like thing that always gets me worried as a business owner 'cause business owners say if this is my brand, we are known for this, you immediately go, okay, I can never change it. You can never change something that's fine but you gotta be willing to go change everything else to accommodate the cost of what that thing is. - Super smart, that's really good. Drew, you gotta do a negotiating situation with a vendor down a Reno helping out at each Reno, right? With their paste rest and you had to go back and forth and whittle down and like pit them against each other, you wanna talk a little bit about Paul? - Yeah, that was an interesting experience because of course everybody have their COVID habits and the cities are different, of course, than where Tri-Cities is like. So it was a big difference in business performance, I suppose, and customer relations. But something that we negotiated on was as simple as wrapping pastries or we would weigh the pastries and then we'd be like, hey, like this is what we're getting for a blueberry muffin that weighs this much and you guys are selling us this one for this much, but they were direct competitors and so it is a way to kind of get, you know, what we want. And goal of all of this is to get the best product at the best price customer. And so the people that we're working with is they have won the same thing essentially, but we are in the process of between them and our customer. So the negotiating is fun. It's all business relations. So it's creating relationships, nurturing those relationships and trying to make sure that they're good. We went actually through, I think, they'd gone through every pastry vendor in Reno. By the time we found one that we actually really liked and actually through that process, we created a really good relationship with them because we got to tour their facilities and we got to see them face-to-face quite often and negotiate different things like when they're delivering, what times of day they're delivering, whether or not they'll bring the pastries in for us and stock them or keeping them, you know, if we quote what we're getting now from our vendors and then talk about, hey, well, they're not doing this or not doing this, not doing this. If we are to bring you on as a new vendor, can you guys include this in your price and what's second to look like? So as Ben said, you find little ways to pinch those pennies and make things inclusive because those businesses want to grow too. I mean, I would imagine that a business wants to grow to keep their revenue flowing. So anyway, that you can, I mean, especially if you're growing business or if you have aspirations to grow, you can work that into the conversation because that's a future contract for them of new stores. You can say, hey, this is the average sales that we're getting at these stores. Remember, one store, and this is what we're expecting at a new store. So your contract is going to either double, you know, or however the size is of your business. And I think that's a really good leverage point too. - Well, I think it's really, I mean, I think that what's, once you have so many of your eggs in one basket, like it only benefits that guy to consider making you even happier. You know, I mean, like, what, what do you think about this? What if we included this, you know, Jeric asked in the comments, when do you make a roast to your decision? Like when do you make some of these proprietary energy drinks decisions? I would always say three stores is where I would say you're starting to create enough working capital where you can justify making some investments. Unless you're coming to the table with a bunch of work in capital, I know with a new coffee shop up in Great Falls, Montana, great family, come out of Black Rock, right? Had a little bit of disillusionment being bought out of their franchise, but it was the fuels for the fire to go start something on their own. I totally always love working with independents, people that are out there doing their own thing. They have 10 years in coffee. They have experience and they've got working capital that are looking to invest in. We want to develop our own proprietary energy drink. We want to develop our own frappe because they realize the recognized savings and if you've got working capital and you can roll that in to making money out of the gates, it allows you to really get aggressive on your pricing and really get punchy coming out of the gates and really show people what profitability can look like with coffee, you know? So I think that it depends on where you're out in the game. If you're just new, listen, you're just new, you're opening up your first one, two, three shops, like West Bootstrap did. West didn't come from money, you know? So West had to bootstrap it with whatever he had. Sometimes he's got to be scrappy and get in the game and play with whatever he got. But as you're starting to build equity in your business, start looking for good opportunities to make investment where you can drop your cogs because you've already established your traffic count and then like we said, you're just growing money. You've already proved [BLANK_AUDIO] going to pay six bucks for that drink to put it out the window. If you can drop your cost of goods down, sub $2, you just made $4 a profit on that cup of coffee and where else can you get a return on money like that, right? We're going to talk about that on the coffee masterclass coming up next week for your first coffee drive through like bottom line is this is people investing coffee not only because it's low price of entry to enter, but also because you can be scrappy and bootstrapped something and potentially make good profit out of it. The way you make good profit about it is to be really, really intentional about how you're making decisions and what you're investing on, what you're investing in. So just the end strategic leaning back into experts that have been just out in front of you. Maybe you've run coffee. Maybe you know coffee to a certain level, but do you know it at all those levels and there's no way we can all know everything, right? So that's why Steven's a great ad, Drew's a great ad, Ben's a great ad coming into a group like this, hearing from Jared's here and from Deanixon's hearing from Mason's, all these people that have great things to say great comments to add and then collectively we all benefit from each other's wisdom and we can all go out and continue to make great cuts. All righty guys, well I thought good. Anything else? Yeah, everybody got just a good piece of wisdom you see everybody have some just brilliance just beaming out of you. I would just say the this industry that we're all in is so massive and so relational. As you said, lean into your relationships, you know, learn with people that are also learning because in a group like this, we learn together and we learn so much faster and it's almost like inspiration is a is a progress multiplier, but when you're all inspired to work together to solve these things and multiplies about that much more. Yeah, and realize this is that I know it was so cool. Did we start a little boxer channel with Lindsey from outsider as she was a little over grand opening. I think that's the blessing of being in coffee experts and just being able to talk about hey, what are you seeing on this, this, this, this, miss. Hey, how have you guys been dealing with this, this, this, miss. I think that it's so cool. Just have something to fall back into that you can reach out to that way. All righty guys, see you guys. Thanks so much for joining us today. For those of you who are looking to become a coffee expert yourself, we offer an incredible thorough training online for opening your first coffee drive through at www.myfirstdrivethrough.coffee.