In the next five years, Brits will be spending £3.4 billion on coffee. With that kind of growth, the competition for customers will only get fiercer. How can independent coffee shops stay ahead of the game? It starts with knowing who’s playing.
Just as you can’t drink a perfectly poured flat white through the internet, a brick and mortar retailer can’t perform a competitive analysis online either. Even if you know that you have to evaluate your competition, many retail business owners simply don’t know how to do a competitive analysis. This in-depth guide will help you:
- Ask yourself strategic questions to get the most out of a competitive analysis of the coffee shop market
- Recognise details that will turn into actionable insights
- Apply those insights to improve your business and brew up success
The first crucial step to analysing the competition for business success is identifying your direct competitors. Small business guru Mary Ellen Tribby recognises two categories of competitor: direct and indirect. A direct competitor offers the same product or service to the same market you target; an indirect competitor sells something different but targets the same market.
When conducting a competitive analysis, you’re only going to evaluate the businesses that pose an immediate threat. Still, indirect competitors could become direct competitors in the future, so you should know who to keep an eye on.
Time to conduct your reconnaissance!
Recon - military slang for reconnaissance; inspecting or exploring an area
Once you’ve identified your competitors, it’s time to learn more about them. Your competitors are physical locations so checking them out online is not enough. You need to imagine the customer journey and recreate it yourself—with a discerning eye.
People go to places where they feel good, and customer service plays a crucial role in that. If someone is on their way to the office in a hurry, they want fast, efficient service. People who visit the coffee shop as a social outing are more likely to be open to a chat. When you get to the till, ask a few questions about the menu and pay attention to the service style.
Here are few things you can consider while they make your cuppa:
- How do they handle the order?
- What kind of added value do they offer?
- Do the baristas try to upsell? (e.g. Would you like a pastry with that?)
- How long did you have to wait?
- Do they offer table service, or do you wait by the bar?
- Are there bottlenecks in the ordering process?
- Do the baristas seem knowledgeable and skilled?
- Is there an option to order via a tablet or an app?
- What are the payment options?
- Is the owner around? Does he/she interact with customers?
Try to engage with customers offline to better understand what it is that they like about your competitors. What do they like about your coffee shop?
Aesthetics are the first thing people will notice when they walk into a coffee shop—colours, furniture, lighting, arrangement, imagery, and so on. Even if customers don’t think about it consciously, these things elicit certain feelings and tell them whether it’s the right place for them. They might feel at home or they might feel rushed; they could feel out of place in a shop with mismatched retro furniture when they’re used to sleek, professional designs.
Here are the questions you should ask when you enter the space:
- How did you feel when you walked in? What made you feel that way?
- Is the furniture comfortable and designed for long stays or is there little seating because they target high-volume takeaway customers?
- Do the displays invite customers to buy?
- What colours do they use and how does it influence the overall atmosphere?
- Is it an open-concept space or is it cramped or cluttered?
- Would you want to spend more time here or do you feel hurried?
Make notes on how you feel in the space—that will tell you more about their target market. Once you’ve spent more time in the shop, you’ll be able to determine whether they are reaching the right customers. If not, that’s an opening for you.
Retailers often think that the key to success is offering a wide array of options. However, psychologists have warned of the paradox of choice — the theory that the more options people have, the more overwhelmed they feel, and the less likely they are to make decisions. Look at the menu and consider the quality, prices, and selection they offer.
Consider the following questions to get you started:
- How many drink options do they offer?
- Is there selection of espresso blends with origins displayed?
- What options are there for non-coffee drinkers—like speciality teas?
- Do they offer cooked food or just pre-made items?
- Does the display invite you to browse and buy?
- Do they use fonts or size variations to emphasize certain products?
- What brands do they sell and who are they for? (e.g. vegans, locavores, etc.)
- Are there proprietary items such as fresh bottled juices or smoothies?
- Are the prices above or below market prices? If so, why might that be?
- Do they offer discounts or promotions?
- Are the products fair trade/high end/locally sourced, etc.?
Now that you’ve thought about the menu, choose a few things that you would like to try and get in line!
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Customers thrive on experience and great drinks—customers will walk past other shops to go to the place that pulls the best espresso, offers the nicest tea, and makes them feel at home (or gets them back to the office as soon as possible!).
Here are the questions you can ask yourself while sipping your tea:
- What coffee machine do they use?
- What are the opening hours?
- Is there Wi-Fi and is it easy to connect?
- Do they engage with the community through live entertainment or hosting events?
- Do they encourage social media engagement by displaying their handles?
- Do the baristas seem experienced?
- Do they offer gift cards or loyalty cards?
- Do people seem happy and comfortable spending time there?
- Is the tea and coffee good?
You want customers who are willing to walk those extra steps to find your shop. That means offering the best quality coffee and ensuring that they get the experience they want. While performing your competitive analysis, you’ll learn your competitors’ ‘brands’ and how they reinforce it through service, marketing strategy, and the products they sell.
Now that you compiled all this data about your competitors, it’s time to analyse it in a way that is going to give you insights to help you take your business to the next level. Once you’ve spent some time in each shop, you should know the market they’re targeting and how they are differentiating themselves for a competitive advantage.
Performing a SWOT analysis of a coffee shop helps you identify the Strengths and Weaknesses of your business and your competitors’ as well as recognize Opportunities and evaluate potential Threats to your success.
- What do they do well?
- What advantage does your competitor have over your business?
- What advantage does your business have over theirs?
- What is the weakest area for your competitor?
- What could they do better?
- In what areas is your competitor a threat and how can you improve it?
- What is missing in the market?
- What could be done today that isn’t being done?
- What are customers buying from them that they don’t buy from you?
- Can you offer an incentive your competitors cannot?
- Are there low margin items you can eliminate from your offerings?
- Do you see a change in consumer tastes or trends?
- What is the competition doing that might cause a challenge for you?
- What are the negative aspects of the current market?
By assessing their strengths and weaknesses with yours, you can uncover areas of improvement for your business. When looking for opportunities, consider aspects of the market your competitors have not exploited—or things they are doing but that you could do better. In terms of threats, you want to think about what’s coming and try to prepare yourself for it.
One thing to remember is that not everything is for everybody. Just because your competitor has found success with a certain strategy, doesn’t mean it will pay off for you. Don’t copy other business, use your insights to see how you can make your business better.
As a starting point, look at ways you can make some quick wins by improving coffee shop efficiency.
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The best way to remain competitive in a saturated market is by finding a gap and filling with something no one else has thought of. A thorough competitive analysis will help you see where you stand in the market and identify openings you can use to put innovative ideas into action.
What are you doing in your café to stand out from the crowd? What did your coffee shop SWOT analysis uncover? Let us know in the comments below!