Coffee Subscriptions (CaaS)

Covid19 has massively changed our usual routines, but why are so few businesses changing their business models?

Working from home requires creating your own work schedule, and for many of us who were used to leaving the house every day, commuting and grabbing a coffee on the go, this new home routine has been adapted to include a morning walk to a coffee shop. There are three good coffee shops within walking distance of my flat/home office, and each morning I have to decide which one to go to. All three are equally good, but two of them offer loyalty cards and are slightly closer, so they tend to win most mornings. But both cafes would benefit from having me as a repeat customer daily, yet neither are able to capture my custom full time. In fact, neither has tried to do anything different.

Cafes are missing an opportunity by not looking to subscription models, aka ‘anything as a Service’ for ideas. Forget sending bags of remotely farmed single origin coffee beans once a month to customers homes, why aren’t coffee shops and cafes embracing real subscription models, like Netflix, Amazon Prime and SaaS companies? There is serious revenue being generated from these models and in light of Covid19, businesses should be looking for new ways of operating. Cafes are one example of businesses that have potential to pivot. Now more than ever, they should be targeting customer loyalty and maximising repeat purchases by using the subscription model that has proved so successful elsewhere; may I present to you Coffee as a Service (CaaS).

“ There’s always room to re-imagine service, especially in the coffee industry.” — Andrew Atkinson, Intelligentsia’s former regional retail manager of new markets.

The core tenants of CaaS:

• Customers pay a monthly subscription fee to access the ‘platform’ (aka the barista)
• Customers can use the service as often as they want as long as they are paying for the subscription
• Additional ‘logins’ can be added to the main account holder (or the subscription could be offered as part of perkbox)
• Optional different tiers; Morning: 1 coffee per day, Caffeinated: 2 coffees per day, Unlimited: all you can drink
• The provider ensures there is always enough coffee/milk/sugar etc. available, so the customer doesn’t have to worry about ‘maintenance’
• The cafe is hosted centrally, so multiple subscribers can access it
• The interface (aka coffee) can be adjusted to customers taste.

What surprises me is that nobody (except Burger King) has looked at offering a coffee subscription model, where for around £100-£200 per month, coffee shops offer customers unlimited coffee. My idea is that it would be in the form of an exclusive card that gets handed over when ordering (and can be used to track customer’s preferences). The £ number may seen expensive to some, but if you are a 2 cup a day person then £3 x 2 cups x 30 days = £180. If you are a 3 coffee a day kind of person, then suddenly you’d be saving a considerable amount of money with a subscription. I would argue that the coffee shop would still be making more money from a coffee subscription then they would otherwise, because they 1) get the money up front so can plan, invest, buy in bulk for discounts, and 2) they guarantee the customer comes back every day to their shop — and if the customer goes elsewhere, they don’t lose a sale. This is especially important in the uncertain world of today, where the hospitality industry is suffering so badly that the Government has had to step in. The Mayor of London touched on this idea with his ‘ Pay it Forward ‘ concept, but the best reward available was a cafe offering 3 coffees for a £5 donation.

Some readers would suggest to just drink coffee at home to save money, but they don’t account for the ritualistic pleasure that goes into going for a walk and visiting a cafe every morning. All three of the cafes I visit have queues every morning, so I am not alone in my morning coffee sourcing. And while cafes might shy away from the idea that the scheme will be abused, in reality, how much coffee can one individual drink? Offering a 3 month minimum subscription (just like a gym) will probably see users binge in the first month, before averaging out on a reasonable amount of cups per day, (or even reducing as customers go on holiday or fancy a change of cafe scenery).

The FT estimates that 25p per coffee is profit, 35p if you don’t have milk, but the majority of the cost of coffee goes towards rent. With cafes now finding themselves with a lot of empty seating space, offering a separate station for subscription customers as takeaway only might bring in more business and help them stay afloat. Plus once a customer is in the shop, they are more likely to buy pastries, bread, or whatever else you are offering, which leads to additional sales. And a busy coffee shop is always a shop potential customers are more likely to try.

What about the loyalty cards? They are beneficial to the customer, but with everyone offering them, it doesn’t seem very beneficial to the cafes. If I am switching between cafes, I still end up getting my free coffee, just a little delayed as I am using 2 loyalty cards. However, with a subscription I have already paid and so there is additional incentive for me to stick with one cafe, but the cafe still benefits if I visit a different one. The graph below shows how much Covid19 has hit loyalty schemes, but cafes must also reassess the new routines of their customers and how they can best serve them in the near future.

With the majority of the world working from home, they are exploring their local cafes more (and using ‘ going out for a coffee ‘ as an excuse to leave their homes for a break and change of scenery). A loyalty card is a step in the right direction, but why not help the customer return to you day after day, and allow them to walk around the local area with your branded cafe cup — that’s great advertising. Perhaps CaaS wouldn’t have worked so well when customers were travelling to offices (although it might have served larger chains like Starbucks, who have multiple branches), but now that our working habits have changed, offering coffee subscriptions are a good idea to keep customers loyal to your coffee shop, and help your cafe survive in the post Covid19 economy.

Would you buy a coffee subscription? Do you drink enough coffee for it to be worth it? (and how many cups a day do you drink?) Is there a cafe near your house that you would love a coffee subscription for? Tag them in the comments and maybe they will consider offering you CaaS……

Originally published on linkedin.com.