It’s no secret that the traditional cafe model operates on razor-thin margins. This limiting scope is no longer an option for coffee shop owners in today’s competitive market. In this episode, we speak to three coffee entrepreneurs about their innovative models, approach to cafe profitability, and the decisions they’ve made to grow their respective businesses.
Meet the Guests
Doug Hewitt is the CEO of 1951 Coffee Company, a cafe and barista training program located in Berkeley, California (LinkedIn.)
Steve Holt is the founder and owner of Unravel Coffee, a coffee company with four locations across Denver, Breckenridge, Vail, and Winter Park, CO. (LinkedIn.)
Matt Fuller is the owner of MudPenny, a coffee shop, restaurant, and catering business in Grand Rapids, MI (LinkedIn.)
Key Takeaways from the Episode
Today’s episode argues that the traditional cafe model is a thing of the past—if you want to be a profitable business, that is. Let’s take a look at some of the episode’s key points.
Never Take a Single Revenue Stream for Granted
Coffee companies today have access to endless sales channels. From wholesale accounts to e-commerce coffee subscriptions, cafe retail environments to full-fledged food menus, coffee shops have expanded far beyond the bar and embraced new opportunities.
However, some business owners still make the mistake of relying solely on a single revenue stream.
Doug Hewitt of 1951 Coffee Company started his business in 2017 to help refugees and asylum seekers gain the job experience they needed to start a life in the United States.
By offering free barista training, he was able to connect aspiring baristas with other coffee companies and create fruitful job opportunities. This model also allowed customers to interact directly with the individuals their cup of coffee was benefiting.
“We could have had a cafe where someone buys a cup of coffee, and a portion of the proceeds go to something really far away. But this is a different way to be able to be involved in refugee issues here in the United States locally.”
But, as COVID swept the globe, in-person interactions and training sessions suddenly came to a halt. With the main driver of revenue taken away, 1951 Coffee Company had to make strategic decisions about what else they could do to generate revenue while continuing to make an impact.
With this in mind, the company learned that sustainable cafe business models have customer value propositions that can make money even as the world around them changes drastically.
Recognize What You Don’t Want to Do
With local and online competition, coffee shops often fall victim to the “gotta do it all” mentality. They open their cafe, then add a roastery, then launch an e-commerce website, followed by an in-house food menu, and on and on.
Suddenly, they’re carrying the weight of several different business models on their shoulders.
Steve Holt of Unravel Coffee has had a fascinating career in coffee working at farms in Ethiopia and Panama, among other exciting ventures. And, it was his firsthand experiences with several business models that helped him define what he didn’t want to do with his new business.
“I decided I was not going to go through all of this work on the farm side, and then give it to somebody else to roast. I had to control that process. But at the same time, I didn’t want to learn a whole new set of skills, invest in another facility, and traditionally do what other roasters were doing. Honestly, I just wanted to get the coffee on the farm, and serve it to the people and tell the story. And that’s where Bellwether really came in as a solution.”
This insight along with innovative decisions—like serving to-go drinks in reusable glass jars and launching an online ordering system—helped Unravel Coffee obtain a mind-blowing profitability rate of 20-22%.
Additionally, knowing what you don’t want your business model to be, shines a light on other opportunities. Steve has since launched another business involved in Ethiopia’s green coffee direct importing trade.
“… what that tells me is that it’s what else besides coffee are we doing? There has to be a bigger purpose. Anybody can source anybody can roast. Anybody can serve incredible coffees, but what else are you doing?”
Pivoting is Necessary, Embrace It
For Matt Fuller of MudPenny Coffee, his entire business model is invested in embracing the pivot. What started as a coffee cart in 2012 has transitioned into a well-oiled machine consisting of a corporate catering operation, restaurant, wholesale program, and market. To date, 70% of MudPenny’s business comes from food-related products and services, while the remaining 30% are rooted in coffee.
When COVID hit, Matt explains that they lost all of their corporate catering revenue and made the difficult decision to pause their second cafe and lay off the majority of their staff.
With his “embrace the pivot” mindset, they dove headfirst into wholesale operations after noticing more customers were going to the grocery store to purchase coffee. This flexible approach proved to be successful, with MudPenny onboarding one new wholesale client a week on average!
And, Matt’s adaptable business mindset encourages employees to seek out new ideas that can be accomplished with the resources and personnel the company already has available. This lateral strategy enables MudPenny to test out proof of concept before fully investing or scrapping it for the next idea.
“I just let employees come up with ideas and we use them… it’s either we found a treasure there that we didn’t know we had and something takes off. … And if it doesn’t, then it’s a good learning opportunity.”
The Recipe for Success
Spoiler Alert:there’s no one definitive path to cafe success.
Instead, all of our guests recommend using the following principles to guide your cafe business model:
- Explore what resources you already have and try to make money from day one.
- Foster a culture for employee empowerment.
- Understand what you don’t want your business to do.
- Always produce a high-quality product.
And, remember—you don’t have to follow the status quo when it comes to opening a cafe! Find what works for you and run with it.
Learn More About Coffee Business Models
Coffee Startups: How To Build A Coffee Menu From Scratch
Is Coffee Roasting Profitable? A Profit Margin Deep-Dive
The Complete Guide to Setting Up Your Coffee Ecommerce Store
How To Launch Your Coffee Subscription
Why Coffee Shops Should Start Roasting Coffee In-House