THE FUTURE FOR INDEPENENT CAFES IN AUSTRALIA
Not everything is as it seems, according to the latest review of the hospitality industry by the Coffee Commune. Phillip Di Bella, founder and CEO, says the review has raised serious question marks about the reasons why so many small businesses don’t last beyond five years, including many in the hospitality industry.
Bottom line for business failure, according to the Coffee Commune Report, is not only about red tape and compliance, or operational costs. While business owners might be pointing the finger in this direction, the real reason most businesses fall over, the Coffee Commune Report argues, is because most owners don’t have the skills or experience to create enough customers. Di Bella puts it more succinctly, “What we’re seeing in this report is not an operational failure, it’s a marketing failure.”
The Coffee Commune Industry Review – The Challenges Facing Small Business was commissioned through respected research analyst, Nick Parfitt, who recently returned to Australia after working in the UK for more than a decade. Parfitt conducted an exhaustive search through more than 9000 surveys, analyses, articles, academic papers, blogs and forums detailing findings about small business from the previous two years (post Covid) to identify the key challenges facing all small business, before charting how those challenges compared with specific findings from the hospitality industry.
Phillip Di Bella explains, “what we found didn’t surprise us, it really confirmed the belief we already had formed, that most small business owners kick start their business with a lot of passion and energy; their core skills are above the average, but they start to run into problems when they grow outside of those core skills. In our business, someone might be a great barista, but the skills they might need to survive are usually not operational, or how to make a great coffee, but how to build their brand to attract more customers. And the problems are compounded by the sheer growth in competition since Covid.
“During Covid the number of cafes in Australia declined to about 21,000. Since Covid the numbers have gone through the roof. More than 26,000 cafes are now operating across the country. In Queensland there are over 5000 cafes. But customer growth hasn’t kept pace with the growth in café numbers. The customers simply haven’t returned, and everyone’s being squeezed.
“The first reaction of most owners is to blame costs, or the amount of red tape everyone has to deal with. And they are serious problems, don’t get me wrong. But the real issue is the lack of experience, or the entrepreneurial skills to maximise their customer base, to grow their business beyond their traditional customers.
“So, how do you increase the number of customers? Is it just a case of differentiating your café from the one up the street? On the surface that looks easy enough, use a different brand of coffee, maybe roast your own, offer a different menu, there’s plenty of obvious things you can be doing. But then you have to navigate the minefield of technology, or the digital communication space which has become so fragmented even the experts hire an expert to help them. Once they’ve mastered the digital, then they have to find out more about their customers so that they bring more of them to their door. Along the way they have to learn the tricks of the supply chain, keep across food trends – building a brand is a full time job, never mind finding time to help out in the café.
“Where does the small business owner get that expertise, or the time. They might have had a career in finance, know a lot about algorithms, but they’re not the algorithms that will bring customers into a café.
“That’s the reason we set up the Coffee Commune, to help the industry survive and then thrive. This report tells me we’re on the right track, but we need to persuade the small business owners that while they’re putting all their energy into fighting the red tape, or trying to solve their operational cost blowouts, some of their customers have vanished into thin air, maybe, never to come back. And that’s a recipe for disaster.
“The solution isn’t an easy fix, but it is fixable. The Harvard Business Review put out a model some time ago that showed the step process every small business goes through to grow and survive. It’s called the Step Change model and it shows the progression of skill sets that small business owners have to acquire if they want to get their business firing. Most of us don’t have those skills when we set up in business, I didn’t. I had a fire in my belly, but I had to learn so much in those early days. I surrounded myself with good people. At the start they were probably friends who shared their knowledge. As I grew, I could afford to get smart people to run the finances, who understood how to read a balance sheet, while I got on with the business of building customers.
“I guess everyone needs a mentor at some point who they can trust to keep them on the right track. That’s how we want people to see Coffee Commune membership. We’re bringing together as many experts from the industry that we can who are prepared to share their knowledge and expertise to help the industry survive and thrive, and to help accelerate individual businesses achieve success.”
A summary of the Coffee Commune Industry Review – “The Challenges Facing Small Business” can be accessed here.