The COVID-19 pandemic has had a devastating impact across the South African economy. The effects of which have raised the unemployment rate to 34.9%, the highest it has ever been. The restaurant sector was not spared with the franchise sector reporting that during the pandemic in 2020, the food and beverages industry posted an estimated revenue of R720 billion, which was R14 billion less than 2019. This number is likely to be far worse for independent coffee shops.
Coffee shops may have been impacted but the coffee sector as a whole has not experienced a decline. The opposite is true, according to Insight Survey’s latest South African Coffee Industry Landscape Report 2021. It shows that the size of the market has increased by 2.1% YOY with the future of growth being around 2.5%. This is largely driven by the change in consumer behaviour with a significant switch to at home coffee consumption. Which begs the question:
Is the Coffee Shop Model Broken?
Coffee shops are surely seeing the declines in the number of cups dropping month on month. Yet, there appears to be light at the end of the tunnel for SA, with experts predicting we have some level of herd immunity. However, it may be challenging to get everybody back into the old ways of life in the short term.
New Product lines targeting the consumer.
More consumers are looking to elevate their home coffee drinking experience by experimenting with different at-home products and brewing methods. This is particularly prevalent among South African consumers, who are becoming more educated on home-brewed coffee, as well as having increased access to home-brewing tools. Larger coffee chains have seized this opportunity with chains like Starbucks having introduced new product ranges for the home market.
Using Technology to sell more cups!
While it may be difficult for smaller coffee companies to develop new product lines. The use of technology should be on the top of the list. According to insights released by Uber Eats, the average amount spent on coffee orders per month on the app doubled in April 2020. This was due to more South Africans working remotely and ordering coffee for home delivery.
Coffee subscriptions
Coffee Subscriptions are becoming a new game changer. The wine industry has already adopted this model successfully. Coffee companies are now signing consumers up and shipping out monthly bags of beans and coffee to their customers. This usually comes with great value added products to help the home barista make that perfect cup. Certain coffee subscription services also offer additional features, such as instructional videos and access to roaster employees.
Changing the distribution model
Starbucks has shaken its business model up through its collaboration with Shoprite Checkers’ FreshX supermarkets which it approached for a partnership during mid-2020 at the height of the pandemic and a change of strategy. It has strategically shifted from larger stores to smaller kiosk-format locations. A move that has allowed the Starbucks brand to gain renewed momentum in South Africa. This partnership allows them to extend the Starbucks offering into places they otherwise might not have been able to reach. Small owners should not fear this but look at their options. Partnering with other businesses that have foot traffic such as hair salons may be a good option.
The coffee shop model has evolved, and perhaps it is time to embrace it. The numbers are still stacking in your favor! If you are considering opening a coffee shop now is the perfect time to start!
