Coffee Shops Don’t Like Being Offices. Opportunity?

The NY Times ran a great story today entitled The New Coffee Bars: Unplug, Drink, Go. There’s a trend amongst coffee shop owners to not allow computers or wi-fi. A few interesting quotes:

Name aside, this Café Grumpy is not a cafe. It is, unmistakably, a coffee bar.

“I don’t think I’d ever do a bigger space with tables and chairs again,” Ms. Bell said. “I appreciate the idea of when you go someplace and it feels like a home away from home, but I don’t think it should be a home office away from home.”

Hers is one of a growing number of coffee bars that have opened recently around the country, particularly in New York. Instead of idling at a chair, customers at these establishments stand or perch on a stool to down a cappuccino or an iced coffee at the counter. By doing away with the comfy seats, roomy tables and working outlets that many customers now seem to believe are included in the price of a macchiato, the new coffee bars challenge the archetypal American cafe.

And:

Earlier this summer, the Bluebird Coffee Shop in the East Village replaced half its tables and most of the chairs with two counters and a few stools.

“A coffee shop should be a place to meet your friends and hold conversations and cultivate ideas instead of — I’m going to get in trouble for saying this, so I have to be careful — instead of sticking your head in a laptop,” said Mark Connell (who owns Bluebird with his wife, Jessica), before adding that computers are always welcome at the few remaining LP-size tables.

I’ve noticed this trend myself – about a year ago one of my favorite local coffee shops, Uncommon Grounds, (that also has great salads and sandwiches), decided to ditch wi-fi during lunch hours after the owner noticed that there weren’t enough tables available for patrons coming in for lunch. As much as I love Uncommon Grounds, I haven’t been back there since because I don’t feel completely welcome walking in and working for a few hours, even if it’s not during lunch and I spend $10 or $15 on food and drink.

Interestingly enough, Starbucks is going in the opposite direction. They’re now offering free wi-fi all day long in hopes of encouraging people to sit there all day and buy lots of food and drink.

I’m not sure where I come out on this. On one side, I completely understand where the business owners are coming from and respect their right to mold and shape their business however they want. However, as more and more people work remotely, there’s also clearly a need for somewhere for people to go where they can work, hold small meetings, and get something to drink/eat. I think the problems discussed in the article all come down to expectations – Starbucks has led us to expect that every coffee shop be a secondary office, and that’s not fair. Still, those of us who don’t work from an office sometimes need somewhere other than home to work.

Coffee shops have played a big role in my life the past few years. I can’t even begin to tabulate how much of our productive work as a company has been done while at a coffee shop, particularly our collaborative projects and our meetings. I definitely work remotely less now, but that’s because I’ve got a nice big quiet office in my apartment. When I lived with my parents after I left my job, or at my next apartment where I only had a small bedroom, that wasn’t the case. I probably would have gone insane if I didn’t have coffee shops to escape to and throw my headphones on and zone in to my work. Obviously I’m not alone when it comes to this. There are all sorts of students and professionals who get their best work done remotely. I’d hate to see that taken away from them, especially those in difficult living situations that really rely on the escape to be productive.

With that said, it seems to me like there’s a huge opportunity here. As much as I love Starbucks, they’re all kind of small and over-crowded and there aren’t many outlets available. There needs to be something that’s a blend between co-working spaces, the coffee shop, and the library. My partners and I have discussed over and over again how big of an opportunity this could be, and with the trend of coffee shops going the way it seems to be going, and the ever-increasing number of people telecommuting, the opportunity is just getting bigger.

23 comments on Coffee Shops Don’t Like Being Offices. Opportunity?

  1. Anthony says:

    Good post.

    I’ve always wondered how the model could be profitable. If a patron spends $10 in a 3 hour time period, then by the time you add up fixed costs plus the variable cost of the patron’s food and beverage, and electricity used – how much profit is left? And what’s the opportunity cost of pissing off a customer who’s willing to spend the same amount of money, only wants to sit down for 15 minutes, and can’t find a damn seat? It doesn’t seem realistic to me.

    I just think the idea of “real estate customer” and “food and beverage customer” should be separated. At a certain point, I think we can all admit that when we sit in a coffee shop for 3 hours and buy 2 coffees, we are not buying coffee; we are buying real estate.

    So — perhaps coffee shops (or whatever new business comes along) should start charging accordingly. Charge for the goods, and charge separately for the tables. Or create a monthly subscription fee that allows you to “hang around”. It’d be hard to enforce without coming off condescending; that’s the problem. But whatever company can pull it off will, I feel, will be the only company that’s actually able to properly profit off of this “home-away-from-home” phenomenon. In the meantime, you just have a bunch of coffee houses in the business of selling dirt-cheap real estate

    • Adam McFarland says:

      Yes, great points Anthony.

      I know I’m paying more for the real estate than for the tea that I drink. I personally have no problem paying for that in some way, shape, or form, and I don’t necessarily think others will either, so long as the benefits and rules are clearly outlined. Most small local coffee shops I’ve visited just add a router and advertise free wi-fi and don’t realize what they’ve gotten themselves into.

  2. Dale Ting says:

    Completely with you here Adam… I’m at a Panera bread right now. I blogged about this (http://corporatepreneur.blogspot.com/2009/04/places-to-seefad.html) a while ago, but I don’t even like their food. I can honestly tell you that I’ve spent hundreds, if not thousands, of extra dollars at Starbucks and Panera that I wouldn’t have if they didn’t have free wifi and a nice place to sit (I don’t even drink coffee). I’m eating a Panera salad only because I happen to see it advertised when I was here on one of my times here where I only bought an iced tea.

    It might be because I’m in Ohio, but there really isn’t a problem with wifi folks crowding anyone out here. From a business standpoint, it’s bringing in incremental income during off-peak hours. I wouldn’t go to a Panera at 3 PM on a Saturday unless I was working. I think many of these business owners are being a bit short sighted.

    I’m up for opening up a place for people to work. I’ve had some brainstorms of things you could do to cater to these customers but also make money. Be happy to join you!

    • Anthony says:

      Dale,

      Don’t know about Ohio, but here in NYC, Philly, and nearly all suburbs within a 100 mile radius, it is definitely a problem. Coffee shops are smaller because of the dense urban landscape, and foot traffic is higher. In addition, it’s not just about space, but atmosphere. When someone is working, they’re either clacking away at the keyboard, or talking loudly about some business. It’s completely distracting and annoying for the customer that’s actually going there to enjoy a cup of coffee or a salad, nothing more nothing less. A lot of times, even if a shop is only 50% full, one must ask himself – “is this place not full because of coincidence, or because the atmosphere is not relaxing enough to attract anybody but techie business folks?”

      As I pointed out earlier, this is about real estate, not refreshments, and right now, these coffee shops are having a classic real estate issue. There is a high supply for their seats in dense areas, and they’re charging close to nothing for them. Something’s gotta give.

      To demonstrate the issue at hand, think about this — The salad you discussed in your article probably costs about the same amount of money in NJ as it does in Ohio (close enough anyway), but the real estate of the seat itself is valued much higher. When you operate on the basis of revenue/profit on goods sold and ignore that what you’re actually doing is selling real estate, then problems like that become evident. And while many parts of Ohio may take a while to “catch up” with this problem, that doesn’t make the problem any less significant; in fact, I’d venture to say that if Ohio coffee shops should be looking at what’s happening in denser areas and asking themselves, “how long before it’s us?” Depending on the answer, they may be wise to follow suit sooner than later

      • Adam McFarland says:

        Good comments guys.

        I should point out that the shops in the article were in NYC, so to Anthony’s point that problem is magnified in larger cities and that’s where it’s now becoming a problem more so than it is elsewhere. It may never become an issue in certain cities.

        The whole thing is a double edged sword, which is why it’s interesting to look at. From one standpoint, Dale wouldn’t be sitting at Panera at 3PM and spending money there regularly if it wasn’t for the wifi. I know I’ve frequented many places and spent lots of $ there just for the wi-fi or to meet up with my partners to talk business. The reason places originally started offering wi-fi in the first place was to attract more business. For some businesses, it’s worked out well. Then again, some places like Uncommon Grounds and many of the places mentioned in the story, are losing business because people are squatting for hours and there aren’t tables available.

        There’s a clash of cultures. It’s not bad to want to have somewhere to go to work, but when that conflicts with the people who are spending as much (or more) money and not using space and resources, it becomes a problem. I’m OK with shops not wanting the wi-fi crowd, that’s their choice, and in many instances it probably makes sense to do without it. But I hope that in turn a new breed of place like I mentioned in the post pops up. The demand is still there. Right now Starbucks is the only one trying to meet it.

        Charge monthly for wi-fi, or make me spend $x per hour, or something else. I’m not sure of the model, but at it’s core you’re basically renting space and offering additional goods (refreshments). Both things should be profitable if done right and done in conjunction with each other properly. The only requirement I can think of off hand is a large space…which the coffee shops in the article clearly do not have.

  3. Tim says:

    This is an interesting discussion. It is amazing how Starbucks has turned around their Wi-Fi mode of operation, weren’t they the ones who charged something foolish like $9.95/day for wi-fi? Now they are giving it away and the ones who were giving it away before are thinking of removing it or charging to use it, very odd. The primary reason I never had meetings at Starbucks is because of the lack of internet access, for that reason I’ve been to Starbucks exactly one time, and that was on a thruway rest stop and my co-pilot insisted that we stop. I’m not anti-Starbucks, in fact now that I know they offer free Wi-Fi I’m likely to stop by and check them out, see what I’ve been missing for the last decade.

    In terms of the real estate usage, what’s the difference if 4 people are there working or 4 people are there socializing for 2 hours? The only difference is with uncomfortable chairs and no internet access you’re likely to have neither show up and are left with an even bigger problem. There are plenty of places to get middle of the road coffee quickly, for a coffee house that business should be secondary and focusing on getting people to return more regularly and increase the average ticket price should be the main goal. Reducing services and charging the same seems like a very poor excuse to solve the problem.

    For people who do not live in major metro areas, real-estate is not an issue, living is pretty cheap in many parts of the country and the people who live in those areas should not be punished because some people live in expensive parts of the country. The concept of nation wide business practices like this are foolish and irresponsible, the needs of people in various parts of the country are not the same. I live in rural NC and there are no shortage of coffee shops who are eager to accomodate with wi-fi and lounging needs, and they are genuinely happy for the business.

    • Adam McFarland says:

      Good points Tim. There’s a big difference between NYC, Boston, and LA, and smaller cities like Albany, and then smaller rural areas. I think smaller rural areas like where you live are OK with things the way they are. There is enough space for people to work and to eat/drink without being on top of each other.

      One of the reasons I think Albany is ideal for a new type of space is that it’s in the middle. Lots of business and government, tons of colleges, but still pretty cheap space relative to NYC. Uncommon Grounds proves the demand is there. You could get a relatively cheap space that’s huge and give it a shot. Much harder in big cities.

  4. Dale Ting says:

    I agree, if the bottleneck really is lack of table space, then it makes sense to put in methods to keep people moving. The point above is a good one, what’s the difference between buying one drink and spending an hour in with a laptop and spending an hour talking with people?

    I don’t buy the argument about “a place to meet your friends and hold conversations and cultivate ideas instead of sticking your head in a laptop.” I’ve got my head stuck in a laptop and I’m holding a conversation with 5-6 people I don’t know all across the country. That said, the coffeehouse can do what it wants to encourage or discourage certain behavior since it’s a private business.

    The idea I had was to have a gift card linked to a credit card. You refill the gift card according to how much time you use the wifi… maybe $5 an hour. Maybe it’s more for peak hours. You then can cash in that gift card for drinks, etc. Another thought is maybe you offer it like a buffet… in the off-peak hours (maybe 2 PM to 5 PM) you charge $5 and offer all you can drink coffee and all the leftover bagels, doughnuts, what not from the morning.

    • Adam McFarland says:

      Dale –

      I like the gift card idea. It’s essentially what Starbucks used to do. You had a card that you prepaid for to use on drinks and food, and by having that card and using it within the past 30 days, you were allowed 2 hrs of wi-fi access per day and I’m pretty sure you could pay if you wanted more (I never did so I’m not sure).

      If I’m at a coffee house having lunch or just chatting, I personally don’t get offended by someone sitting there with their headphones on typing away. It’s just part of the atmosphere to me.

      I think the bigger issue is just the real estate for some of these shops. Just from my observations, on average someone with a laptop spends more time than just a couple chatting or someone reading…not always, but I’d bet on average it’s at least double.

  5. Rob says:

    Very good post, some good issues raised in the comments too.

    Firstly, I don’t think any one solution will fit all locations, as large suburban or rural shops are likely to be different to high volume city centre ones.

    I’d be interested to compare takings per head per hour with and without the wifi and see what the impact is. Is it a huge change? Which way? We can conjecture all we’d like, but at the end of the day it’s probably about profits and it’s interesting that Starbucks is going one way when everyone else is going the other.

    I think it’s unfair to use the facilities disproportionately to the amount you’re paying, so to get the per-customer-hour takings up you can do a number of things. There are lots of different ways of trying to achieve that end, so they shouldn’t lose sight of that figure to the point they get too wrapped up in the minutae of how big the tables are, whether they have power outlets or not etc.

    Why not look at it backwards and just have a subscription? You pay for x hours of internet, and with that you get $y credit to spend on bagels, tea or whatever. When your hour is up, the system shuts of your internet. I know it’s not ideal, as there might be people working offline, but I think it could be a workable model.

    • Adam McFarland says:

      Definitely Rob. That model would work in my opinion, especially for the mom & pop shops that want to get a better return on their 1-cup-of-cofee-sit-at-a-table-for-3-hours-using-wi-fi customers.

      I am also intrigued by Starbucks going the opposite way. I’m not sure if they’ve figured something out that others haven’t, or if it’s just that they can play by different rules because they have a larger infrastructure that allows them to do everything cheaper than everyone else. They also have locations everywhere in every type of town/city. You wonder what types of patterns they’ve noticed in the smaller places that make up the majority of the country.

  6. nethy says:

    What Starbucks don’t have is flexibility. Takes a lot of money to outfit one of their shops. I’m sure it’s possible to set up a cheaper urban coffeeoffice on a tight enough budget but the result mightn’t be nice enough to make people want it.

  7. Mike Bonde says:

    I own a Coffee House in Idaho and have a problem every day with business people having meetings for long periods and never buy anything. Some actually plug in a lap top and want a free glass of water. By the time they leave I lost money not made money. They feel it’s a free lounge. Like today two people came in had a 1-1/2 hour meeting sitting on $800 leather chairs, when asked what I could get them they said “I’m OK”. Why do business people think it’s OK to promote their business in my business and not buy even a small coffee? I spent $20,000 on nice furniture and decorations to have some classy seating for 35 people, but some think buying something is not expected? When the couple left today I thanked them for their business, the man left and came back pissed that I made the comment. I asked if he would have a meeting at a restaurant without buying a meal and he said NO, so then why didn’t you at least buy a small coffee for $1.60? They just don’t care about my business, only having a place to promote their own for free. WTF it gets old when this goes on every day. I have even gone to the extent of putting in a tab for $5.00 table lease but they just don’t get it. How do I attract customers that spend money and get rid of the campers that cost me money?

    • Anthony says:

      I liked this thread when it started and find your comments interesting, too, Mike.

      My 2 cents is that you’re looking at things in a very myopic/standard way:
      “I have a coffee house, and therefore, all of my customers should want & pay for coffee.”

      But as you’ve painstakingly become aware, many people do not go there for coffee. They go there for real estate, atmosphere, and a change of pace. Trying to capitalize on that by selling those people coffee is like a pizza shop trying to capitalize on its customers by selling them ice cream. It probably won’t work.

      Meanwhile, your analogy to a restaurant is painfully accurate, but irrelevant in the real world. It is going to be impossible to get people to psychologically change behavior. People wouldn’t sit down in restaurants for hours and not order anything for the same psychological reasons they wouldn’t go to a store and take 5 CDs off the shelf. But we all know what just a slight change in context can do to a person’s behavior. Put albums on a website and people will steal them all day. And put a leather chair in a room without a bus and boy & with a strong correlation to Starbucks – who *does* let them sit there all day – and your patrons will feel it’s a-OK, because society tells them it generally is.

      So what’s a modern-day coffee shop to do? I don’t think the answer is to try to change behavior. There is only one guy I’m aware of that succeeded in doing that in the food/hospitality industry, and that’s the infamously inhospitable Soup Nazi. Unless you’re going to turn your anger into a brand in and of itself, then fighting society is probably a losing battle.

      The answer is to innovate. Accept that the coffee shop of 2011 doesn’t make money the same way as its ancestor in 1980. And be slightly agreeable to the idea that someone sitting in your shop all day makes your shop look busy. That’s not a bad thing. The challenge is making money off the people who are attracted to a bustling shop and are willing to pay. If you are offsetting the $0 tab with a $5 tab, then you’re making $2.50 per head, and of course you will have gripes. The goal shouldn’t be to figure out how to get everyone to pay $5. It should be to figure out how to get most people to pay $10 so you don’t have to worry about the non-paying bums. Maybe you do that with coffee, but most likely you do it some other way — rent out iPads by the hour, sell newspapers, set up interactive displays and/or games, or possibly just push upsells that compliment your coffee, so that the average coffee drinker feels a greater desire to splurge on the cupcake as well.

      In addition, there just may be a way to get even the cheapskate business folks to pay — like I mentioned in the first comment of this thread, what about a subscription model? Many tech startups & individuals are willing to pay a few hundred bucks a month for an “incubator” – an office to go to a couple days a week. The same sort of mental escape a coffee shop provides. Why not figure out some plan whereby, for $X/mo (must be far less than a few hundred), an individual gets a few hours in that expensive chair a couple days a week, and unlimited beverages throughout the day. Everybody loves paying a highly consistent monthly fee for what amounts to a flexible hall pass; it’s why people rent through movies through Netflix and drive cars on leases. And if I had to take a guess, I wouldn’t be surprised if nearly every industry in the next few decades dabbles & generally succeeds with subscription-based models. Why *not* a coffee shop?

      I realize the examples above are just examples. They may or may not work for you and your unique situation. But I do hope the above insight leads to some deep thinking & brainstorming. The key to remember is — don’t turn your back on human behavior; rather, make it your utmost priority to learn the psychology behind it. Once you understand it, you can capitalize on it.

      • Adam McFarland says:

        Great comment Anthony. Just saw Mike’s comment and hopped on to reply but I think you nailed it and then some.

        • Adam McFarland says:

          Mike –

          I thought about this a bit more last night and I did have one idea to add. Anthony is definitely right in that you’re not likely to change people’s behavior. There are always going to be people who take advantage of your free wi-fi without buying anything. However, if you really do want to stop it, one thing I’ve seen a few local coffee shops do is hand out the wi-fi password to customers with a computer when they make a purchase. That way no one can connect to your network without having made a purchase. This would take some work on your end. You could rotate the password every few days or once per week. Then create a small batch of cards to hand out, or figure out a way to print it on your receipt.

          Just wanted to throw it out there as an option. As Anthony said as well, having people hang out at your shop and make it look busy isn’t the worst thing in the world. I read your website and you go out of your way to invite people to come and hang out, so doing this could rub people the wrong way. You also have great reviews on your Google Places page, which is one more reason to think strongly before making any move that might make people feel less welcome. Just because they didn’t buy something this time it doesn’t mean that they won’t in the future – after all they did choose your place over a Starbucks!

          I think all of the other ideas Anthony mentioned above to add more value to the customer experience while also improving your bottom line are probably more worthwhile to explore first.

          • Anthony says:

            Yeah, I think it’s like your mentors always tell you growing up – focus on the positive, not the negative, and you will succeed. So the way to get past this problem is to not focus on fixing it, but to focus on improving what works.

            Focusing on problems, not bright spots, is exactly why the music industry (an analogy I used in my last post) screwed itself over for the longest time. They spent so much time focusing on DRM that they forgot about making the digital music experience a good one. They focused on what was wrong with digital music, not what was right/promising.

            In the same way, blocking WiFi, I’d assume, would be equally as bad a road to go down. Not only would it piss some people off, as Adam alluded to, but it would also be downright ineffective; I, for example, have a WiFi hotspot built in to my phone. Not only is it faster than most public WiFi, but it’s also more secure. So I use it everywhere, and no coffee shop can block me from using my own internet, at least not on a technical level. These portable hotspots are becoming more and more common, especially with business professionals.

            In other words, all the time & mindshare you spend figuring out how to solve the problem could very will prove ineffective anyway. The way to truly “win” is to redefine the challenge. The challenge is figuring out how to make more money. And the best way I know how to do this is by using the 80/20 principle. If 20% of your customers abuse your real estate and 80% do not, then focus on what works with the 80%, and make it work better. The 20% are nothing more than distractions – red herrings that are the most personally rewarding yet least financially rewarding entities to focus on.

  8. Mike Bonde says:

    Thanks for the imput. I already have a network key that prints on the bottom of our receipt, so when they come up and ask for it we simply state it prints on the bottom of your receipt (hint hint BUY SOMETHING) that seems to have worked. What we see now are the same faces weekly that NEVER buy anything and have 2 hour meetings. These are the ones that get to me. What we do now is walk up and ask them “what can I get for you?” if we get an “I’m ok” them we ask them if they will just be leasing the space for $5.00 and go from there. I guess it gets to me that these people are so chicken shit to run their business out of our coffee house but have the balls to never buy anything. My God a small coffee is $1.60, 80 cents an hour rentel is too much?

  9. Mike Bonde says:

    To me it’s the principle, I was raised better that that. Some people just have no class and I guess I just need to try and not let it get to me so much.
    Thanks again guys

    • Anthony says:

      On a personal note, I completely agree, Mike. It’s pretty messed up. Especially when it’s a small, privately-owned shop.

      • Adam McFarland says:

        I second that. It’s hard to understand how people think that it’s OK to use your space without making even a small purchase.

        If it helps at all, from my experiences, this will always happen no matter what business you run. We routinely have customers contact us with ridiculous requests, and they do so in a shockingly rude manner. We always joke that if we gave them their products for free and had them delivered yesterday they’d still be upset. As Anthony alluded to, the important thing to remember is that it’s only a small percentage of your customers. If you care – as we all do – it does sting a bit and feel like a personal attack. The only way I’ve gotten over it is to remind myself that they’re just one person and that the majority are thrilled with our service. We have a testimonials page that I check out that puts things back in perspective. I’d imagine reading some of those positive reviews on your Google Places would do much the same to you. Best of luck to you Mike!

        • Rob says:

          I think Anthony has got the right idea – focus on the profitable customers, try not to worry about the problems. Your headline problem should just be increasing your bottom line, by whatever form that ends up taking. Yes you could kill the wifi, or make it only work for an hour per purchase, or remove the outlets, or the tables, or bug people to buy stuff, or plenty of other negative things other places try. Or you could go the other way, and offer a private quiet office at the back only available with a subscription, you could do more take-away coffee, or add new flavours to attract new customers or plenty of other things.

          On a related note – I’ve never felt entirely comfortable working in a coffee shop. I can never relax and always worry I’m pissing off the owner. Even when I’m buying drinks and food etc. & the place is empty… I think that’s probably more reflective of me than of the environment though.

          • Adam McFarland says:

            I’ve never felt entirely comfortable working in a coffee shop.

            I agree…especially when I’m alone. If I’m with one of my partners and we’re eating, talking, and working I don’t feel so out of place because I’m socializing, which I think is something shop owners want more than someone buried in their laptop. When it’s me by myself though, I try to stay 2 hours or less and make sure I buy enough and tip well. I also watch for how many open tables/outlets there are. If I/we are blocking other people from sitting and working, I’ll usually try to wrap things up quicker.

            Starbucks is probably the only place around here that really encourages you to stay and work, and that I’m not worried about pissing off the owner since it’s such a large corporation. I still try not to hog a table for too long, but I feel more comfortable ordering a $3 drink and working by myself for a few hours. Any longer than that and I have to pee…and I don’t trust people to watch my computer 🙂

            I do find the change of scenery every once in a while helps me quite a bit, which is why I do it in the first place.

            This kind of ties back into my original post: I think there’s some opportunity for a coffee shop / co-working space, especially in big cities and near universities.

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