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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | SEPTEMBER 17, 2002 SMART ANSWERS By Karen E. Klein A Coffee Shop's Grounds for Concern Sales are well below what the proprietor hoped when he opened for business. Was his business plan flawed from the start?
A: The first question is fundamental: Is $250 per day, which probably translates to around 100 cups of coffee/100 customers, really so disappointing in a town of 4,000? Did your business include higher revenue projections? If so, on what research did you base those estimates? What plans did you have to attract more customers? The reality could be that this volume is as much as you can expect given your location, vehicular traffic, and the population of your town. Does your area see an increase in tourist traffic? Will business pick up in the spring or winter, or at a time when there's something special going on that would bring in out-of-towners craving their morning java? If so, you could take steps to boost sales and lift annual revenue. A good way to figure out whether your sales are really lower than they should be is to shop your competition. Take a couple of mornings off and sit in the coffee shop across town (or have a friend or employee do it) and count how many customers they serve during peak hours. What are their customers buying? How do your menu, prices, portions, and quality compare to theirs? You may be surprised to find out that you are doing much better than they are! If you're not, then analyze what makes the opposition establishment more successful. Do they advertise? If so, how? Take note if they are using newspaper ads, coupons, flyers, and the like. LOCATION, LOCATION, LOCATION. If you discover that your sales are lagging far behind those of your competitor, location could be your problem. People usually want to pick up their coffee, then get on the road. That's why successful drive-throughs are typically located close to major highway entrances and exits. Could it be that you are so far over on one end of town that you're missing potential customers heading in the other direction? Art Manask, a restaurant consultant with Manask & Associates in Burbank, Calif., puts it this way: "Assuming you are offering comparable menu, quality, and pricing, it would seem the competitor has a better location." The other issue he points out is that drive-through coffee stands are a relatively new innovation and may not serve your customers well. "If you are 'drive-through only' or 'drive-through primarily,' maybe...this is not as popular as the more traditional approach with indoor/outdoor seating. In this regard, you have to know and understand your prospective customers and what they want. You might think they want drive-through coffee and maybe they do not," Manask says. Going to your customers to find out what they want and need is definitely a good research technique, says Bob Phibbs, a consultant with The Retail Doctor, based in Long Beach, Calif. "Usually, your customers are your best source for building your business," he advises. "Ask them what you could be doing better. Is the wait too long? Is the service really great?" THOSE LITTLE EXTRAS. Phibbs advises that you track your number of daily and weekly transactions, number of items per transaction, and dollars per transaction. "You don't make money in the coffee business if you aren't adding on to every order: A shot, a muffin, a larger size. Once you have the sales-tracking information, you need to find ways to increase both the number of items and dollars per transaction through add-on sales." You also need a marketing plan that you're willing to invest some funds in. But be warned: Don't spend a lot of money on advertising and couponing until you have determined that you really have a good location, that you're giving your customers the quality, variety, and pricing they want. And most important of all, make an honest appraisal of your drive-through concept. Is it the right idea, at the right time, and in the right place for your community.  Have a question about running your business? Ask our small-business experts. Send us an e-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 46th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally. Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | SEPTEMBER |
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