I did a coffee kiosk once. It went well, but required a large amount of energy and focus.
We did a little twist on the business model. Starbucks sells nice places to sit down. We sold drugs. The model, from logo design to promotions, was designed to create a habit loop where people would get their morning coffee from us.
It was so profitable that I seriously considered making it my full time career, expanding cafes all over the country. The only thing that changed my mind was 1) the startup boom 2) dealing with minimum wage workers is extremely depressing. The tech industry has its abundance, whereas with food and drinks, it was clear that income was limited and had to be managed carefully.
Did you consider paying more than minimum wage? I wonder if a higher wage would enable you to expand your talent pool to folks who would enjoy slinging coffee a couple days a week on the side to improve their situation while actually finding it fulfilling work. The math does seem fixed, there is only so much time in the day and the inputs have fixed costs, but if you can get it all well tuned to the point where effort and time in is worth it then it can just run for a long time until some change in conditions makes you walk away instead of tweaking again. It always seems to me like spending more for a better product should be the first tweak attempted rather than the race to the bottom so many places undertake.
Our value proposition was that we just provide tasty enough caffeine. It's a psychological boost - first thing on a tough day, end of a tough day, before a class on linear algebra.
We weren't competing with other cafes. We were competing with cigarettes. We aimed to be daily, unlike Starbucks.
Our key metric was quantity:
1. The more purchases they make, the more the lock themselves into the habit loop.
2. More quantity means we could negotiate cheaper prices for beans, cups, marketing, etc.
3. The main factor for quality was bean freshness. If a bag is opened for more than an hour, it rapidly loses 70% of its flavor. The faster we go through a 1kg bag of beans, the higher the quality of the next cup.
4. By selling 100-200 cups a day, our baristas skill up far better than those selling 30 cups a day.
Unfortunately, this process requires little skill other than the team being charismatic and pulling in more loyal customers. The race to the bottom is part of the business model. With food & beverage, you start at 20% profit margin and save money by controlling the supply chain (roasting, etc).
The system let us create a better product than the competition, but we couldn't really charge more because the target market just didn't have the money.
I'd love to read more about how you positioned your brand, especially on the design decisions that you made to entice customers come more regularly and how you manage to sell more cups than your competitors.
Habit loop: cue, routine, reward. This is how all habits form, whether it's shampooing hair or gambling/gaming addiction. Once a habit sets in, people can only control the routine, not the cue and reward.
Starbucks is an entirely different thing. As mentioned in other comments, ours was closer to cigarettes in market size and problem solved.
Reward: Caffeine
Reward: Coffee flavor
The caffeine acts as the bubbles in your toothpaste, it's there to remind you of the loop without being too strong.
Cue: Entering work/class, before 9 AM. Promoted with steep 'discounts' during this period - it was already profitable and looked cheap anchored against overpriced coffees like Starbucks.
Cue: Seeing logo on cup. The coffee was all in paper cups, not sitting down. It saved a little money on rental area and training. But the main reason is that people would walk away with the cups and throw it in a trash. They'd bring it up to their offices and their friends could see it. Students would take it to other buildings. We didn't have to put up any banners - the cups were the banner. The logo was bright yellow and black, designed to be highly visible.
Cue: Stressful periods - after classes, before exams, at the end of the day.
Marketing? It was quite straightforward for us. If saw someone walking by, we'd ask them to try. Especially if they were staring at the menu.
Those who were hesitant, we'd offer a 100% refund if they didn't like it. Nobody ever requested a refund.
First day, we sold 100 cups. After that, many were repeat customers. A lot of people are afraid to approach strangers. But if you do it playfully and without any pressure, they never get angry.
Note that I mean profitable comparing to a developing country tech job, not to Silicon Valley standards. Also most of the profit is if you scale it to multiple spots.
One cup made about $3* unit profit. We sold 75-300 cups a day. $5k to $20k of profit a month to start with, 5 days a week. Rent is about $1k. So let's say $4k-$19k, with it more likely being around $6k/month.
Peak hours were 6-7 AM, 12 noon, 7 PM and it takes an hour to open and close. We can't miss any of these periods, and often have lines too long to manage. But that's a 14 hour shift or two 7-8 hour shifts.
To sell 100-200 cups, the minimum team size is two, because people get sick, go to the bathroom, pick up kids, etc.
If someone wants to do an 8 hour shift, that boils down to an average value of $1500/month. If they can do 14 hour shifts, we could pay them $3000 instead, but we lose some benefits of redundancy. I'd be paying 2x for a 1.8x gain or so.
Scaling the company means more quantity. If I had 5 kiosks, I could negotiate 10% better prices and push the 20% margin to 30%. My $3 profit margin becomes $4.50. I can give raises, but not double salary.
Let's say salary and rent totals $5000/month. At 1 kiosk, we'd take home about $1000 on an average month, lose $1000 on a bad month, take $10000 on a good month. If I paid them 20% more, that makes it $-2k/$0/$9k. There's a huge incentive to pay as little as possible.
If we expand to 5 coffee spots, it becomes more like $1.5k/$4k/$9k per kiosk because of economy of scale. Multiplied it would be $4.5k per month pessimistically, $20k realistically, $45k per month optimistically. Scale to 20 or 200 spots, and it does become hugely profitable.
In the tech world, if you pay 2x, you'll often bag a 3x programmer. Quality scales very well with salary. The output also scales.
With coffee, not so much - we sold great coffee at low wages, the kind that people come in skeptical and end up buying two cups a day, or take a bus from the other faculties just to buy. If we improved quality by a lot more, I doubt they would buy three cups a day instead.
* not actual dollar value, just normalized for simplicity
Yes but seeing the numbers I think this person could have paid workers more and still make a profit. I don't know if it's greed or robot like optimization
Well, look at it this way, by increasing salaries 20%, we'd double losses on a pessimistic estimate, and make no profit on a realistic estimate. Of course everyone starts a business being optimistic; businesses are gambles after all. But nobody wants to lose money.
It's more fear than greed. As an employee, you're always working hard trying to not drown. As a business owner, that feeling is multiplied. You don't just have to feed your kids, you have to feed your employees' kids. You can lose $500/month as an employee or $2000/month as a business owner.
But even if the pay was doubled, it would still barely be a "living wage". There's an argument that traditional businesses drive down prices and drive wages up, which is true, but it's still pretty bad.
I'd rather focus on startups, which creates few jobs, and destroys other jobs, but there's plenty of incentive to pay people well, and their salary scales well with the company's success.
Freshly brewed coffee is exactly one of the many, many things you can buy at Japanese convenience stores, which are franchises open 24/7, at walking distance from any inhabited neighborhood.
Also comparable to Italian coffee shops or "bars" (different meaning from standard English usage) which are also found at walking distance from any inhabited neighborhood. But not open 24/7, because of cultural and regulatory differences.
I'd be happy to share. But your email address doesn't seem to be in profile. If my responses in the other comments haven't answered your questions, feel free to email me.
We did a little twist on the business model. Starbucks sells nice places to sit down. We sold drugs. The model, from logo design to promotions, was designed to create a habit loop where people would get their morning coffee from us.
It was so profitable that I seriously considered making it my full time career, expanding cafes all over the country. The only thing that changed my mind was 1) the startup boom 2) dealing with minimum wage workers is extremely depressing. The tech industry has its abundance, whereas with food and drinks, it was clear that income was limited and had to be managed carefully.