My first taste of coffee came when I was in grade four. I was eight years old, and my mother (God bless her soul) used to wake up at 4:00 am to prepare breakfast for five children. I was the youngest and had quite a difficult time staying awake over the breakfast table. One morning, my mom decided to fix me a cup of Nescafe. She took a teaspoon of the instant coffee granules, added 1 teaspoon of brown sugar, poured hot water until it was 1/3 of the cup, and then mixed in chilled fresh milk until it was tempered down.
The sweet, buttery, caramel flavor of the warm coffee made my toes curl and my dimples dig deeper with every smile induced by the sumptuous brew. It transformed my breakfast meal of rice, fried egg, grilled tomato, and “tuyo” or dried salted fish into a religious experience. I was hooked and coffee became part of my morning ritual. It didn’t matter that friends were telling me coffee would stunt my growth or make me look old; it didn’t, but then again this was the 70s. Coffee was the best way to start my day. How could it get any better? Coffee on a rainy day with Harry Gasser on RPN-9 announcing classes would be suspended!
Forty years from that first cup, I don’t believe I have gone through a single morning without a cup of my favorite brew.
As I am writing this piece, I am actually enjoying a piping hot mug of Batangas Brew.
Why do we love coffee?
Some people would even go further and say that coffee is “addictive.” The word addictive has a negative connotation and is used to describe a dependency on a bad habit or illegal substance with adverse consequences. According to science, caffeine stimulates the central nervous system or CNS, whereby regular intake of coffee may lead to a level of physical dependency. The idea of having a caffeine addiction may have come about with several people expressing withdrawal symptoms, such as headache, anxiety, irritability, depression, and the inability to concentrate after being weaned from coffee for a few days.
Inevitably, we love coffee because it makes us feel good. I like to drink my coffee black with a teaspoon of raw sugar or muscovado. My preference is to drink a strong blend, that is, French Roast or fresh ground full-bodied flavor of Arabica coffee from Ethiopia or Philippines. The strong, bitter flavor is certainly a great way to blow out the cobwebs first thing in the morning! Coffee can also be a pleasant weekend treat. On Sundays, I like to sweeten up my usual bitter brew by making my version of Vietnamese coffee with condensed milk or an Italian-inspired coffee affogato, that is, brewed coffee with a scoop of French vanilla ice cream.
Studies have also supported numerous health benefits of coffee, some of which are listed below:
- Improves focus and concentration
- Lowers the risk of prostate cancer in men
- Lowers the risk of Type 2 diabetes
- Lowers risks on certain forms of cancer
- Prevents the onset of dementia
Here’s another reason why we love drinking coffee: It can help you burn fat and lose weight!
Several research papers have investigated how caffeine contributes to your fat-burning/weight loss efforts. Without going into much technical detail, caffeine helps you lose weight by:
- Elevating metabolism
- Suppressing appetite
- Increasing insulin sensitivity
Recent studies have investigated how mixing brewed coffee with unsalted organic butter and extra virgin coconut oil not only improves cognition but also exponentially burns up body fat. Seeing people in popular coffee shops scooping a tablespoon each of unsalted organic butter and extra virgin coconut oil into their favorite brew is not uncommon nowadays. I have done this myself and can attest to its positive effects on cognition and its wonderful taste.
So now, there are more reasons to love coffee!
There are even more reasons why it’s a good idea to start a coffee business.
When it was announced that Starbucks was opening outlets in the Philippines, more than hundreds of people were skeptical on the viability of the franchise. Critics alluded to the Philippines being a tropical climate and that selling beverages generally served hot would not be ideal to a nation of people where an air-conditioner is considered a necessity. But these critics saw only the coffee bean and not the entire coffee plantation. The act of drinking coffee in the Philippines is not a fad; it is a culture.
Within a few years from the opening of Starbucks, Philippines welcomed a few other franchises into the industry, both foreign and local.
In 1996, I did a study on operating a coffee franchise in the Philippines. We applied for the master franchise license for Second Cup Coffee, which is a coffee house from Canada. While we were going through the application process, we eventually went toward another direction in the food retail business. Looking back, Second Cup Coffee would have been the better option.
While the findings of that initial project study may no longer be relevant given the changes in today’s coffee industry and coffee-drinking market, some of its basic tenets remain true. I will also share my experiences at few of the best coffee houses in the Philippines and in other countries that are not named Starbucks!
1. Ready market of coffee drinkers
How much coffee do Filipinos drink? Statistically, Filipinos consume 60,000 metric tons of coffee, but the country can only produce 30,000 metric tons. Thus, Philippines has become a net importer of coffee. This scenario creates a good argument in favor of acquiring a coffee franchise, because large coffee chains can secure supply contracts with major coffee producers around the world. One reason why coffee production in the Philippines has declined is the availability of land. In 1989, the allotted land for coffee production was 130,000 hectares. In 2006, the available land was reduced to 75,000 hectares. Coffee is an agricultural product with a long plant-to-harvest cycle. Compared with coffee, other crops generate faster yield and are more attractive to farmers. Second, coffee is best grown in cool climate, thereby making the Cordilleras an ideal province to produce coffee. The Department of Trade and Industry has plans to incentivize coffee growers to produce large amount of coffee and to meet increasing world demand.
Starbucks is acknowledged as the largest coffee chain in the world with 20,891 outlets in 62 countries. In the Philippines, there are 206 Starbucks outlets; this number is higher than that in Turkey, Thailand, and Germany. Starbucks has become a favorite meeting place for business and pleasure. Its warm interiors, friendly staff, and the availability of Wi-Fi service make Starbucks an ideal place to work or renew acquaintances. These are also the reasons why finding a table at Starbucks is difficult!
Since Starbucks has come to Philippine shores, other coffee chains have set up shop in the Philippines. Some are already gone, which may present problems in market share although you would be hard-pressed to find a coffee shop with available tables before and after lunchtime. The strategy would be to present a different product from the usual offerings of Starbucks and other popular coffee chains.
One of the best new coffee franchises I’ve come across in the Philippines is Highlands Coffee, a coffee chain from Hanoi, Vietnam. The coffee they serve is very strong, full bodied, flavorful, but smooth. It is slow dripped through a stainless steel filter as doing so is traditional in Vietnam. My understanding of the process is it removes most of the oil, thereby producing the smooth but pronounced flavor of the coffee. Although traditional Vietnamese coffee includes using condensed milk, my preference at Highlands Coffee is to experience the taste of the coffee itself.
2. Low food cost
Food cost is one of the largest problems in the food and beverage retail industry. What is the food cost of coffee? Let’s take for example the Batangas Brew blend I am still delightfully sipping as of this writing. I bought a half-kilo bag for Php250, which comes out to Php0.50 per gram. My ratio of ground coffee to water per eight-ounce cup is one and a half scoops or approximately 35 grams. The cost of ground coffee per eight-ounce cup is Php17.50. Add Php15 to cover water, sweetener, creamer, and packaging and you have total production cost of Php32.50.
Compared with Starbucks, its Philippine variety Kape Vinta retails for Php95 for the short serving. In the local coffee house at my son’s school, a short Americano sells for Php85. Assuming I sell my Batangas Brew at Php85, my food cost at Php32.50 is only 38%. In fast food, food cost averages 50% to 60%!
But wait! All of my cost components were computed at retailer’s price. Coffee houses buy beans and other ingredients at wholesaler’s price or have arrangements directly with producers. Thus, I can even reduce my food cost by another 20%. A franchise giant, such as Starbucks or Coffee Bean and Tea House, can get high discounts because of economies of scale.
Coffee shops also have very low incidence of wastage or spoilage. Most of the food that is served on these popular coffee chains are on consignment basis; they only pay for what is sold on premises. Some coffee shops sell or give away used ground coffee to customers as fertilizer. Therefore, the coffee business is not only profitable but also sustainable!
3. High-profit margins
With food cost kept below 50%, assuming that the profit margins of coffee shops are comparatively higher than those of food retailers should be safe. I used to wonder why coffee was so expensive at a coffee shop when I could brew a good one at home at less than half the cost. One of the reasons why brewed coffee is priced high at these establishments is because coffee shops are generally defined as having low customer turnover.
In 1996, I did several turnover studies at selected Starbucks outlets. From 7:00 am to 11:00 am and from 2:00 pm to 6:00 pm, customers averaged two hours at a Starbucks outlet. Approximately 80% of them were just nursing one cup of coffee during the two hours and would fill it up with milk that was freely made available at the dining counters. In a fast-food restaurant, customer turnover would average every 30 minutes. Take note that this was in 1996, which was before the popularity of laptops and notebooks. Fast-forward to present day, people are probably spending large amount of time whiling away at a coffee shop with their smart phones and tablets!
The great thing with coffee though is that it is portable. If you can’t find a table, just take it with you to the office or find a place where you can sit and enjoy your brew.
Another reason why food cost has to be kept low is to allow the high profit margins to accommodate variable costs, such as electricity and water. Some coffee outlets operate 24/7 to cater to graveyard shift office workers.
4. Interesting concepts
Not all coffees are created equal, and so are the concepts for coffee shops! I have come across several interesting coffee shop concepts here and in other countries.
One of my favorite coffee shops is Timothy’s Coffees of the World. When I was working in Boston, Massachusetts, in 1997, I would spend my break hours lounging around their outlet at The Prudential Center. The first thing that catches your attention at Timothy’s is the sheer variety of coffee available for customers. Upon entering Timothy’s, you will be greeted by a long table, which is approximately 10 feet in length adorned with several coffee machines that were brewing coffees from different parts of the world! You just have to grab a disposable coffee mug with different sizes, which is located at the start of the long table and help yourself to your brew of choice. If you prefer specialized concoctions, such as cappuccino, you can proceed to the cashier station on the right. Food can be purchased from the left cashier.
Another interesting concept I found was Curious Liquids, which was also located in Boston. The baristas were all dressed in Gothic make up, that is, spiked hair and facial piercings. Despite their Halloween appearance, the staff was very polite and friendly. Coffee was good and served in one size: a mug that was actually a bowl. Most of the seats were available in the basement although the shop placed a pair of barber chairs at the store front window! The basement seating area was divided into two sections: reading and philosophizing. And there were indeed people discussing metaphysics when I was there. Unfortunately, Curious Liquids closed shop in 2000.
5. Availability of variety
Coffee has many varieties from all over the world. The Philippines is home to Arabica, Robusta, Liberica, and Excelsa. France, Ethiopia, Brazil, Italy, and Columbia also produce several interesting varieties of coffee. One of my favorite varieties is civet coffee, which is sold as kopi luwak in Indonesia. Urban legend has it that civet coffee is the most expensive coffee in the world. I’ve come across features and reports stating that civet coffee sells for as much as US$300 a pound in North America! The demand for civet coffee is derived on the novelty of the product; it is made from coffee beans that have been excreted by a civet cat. Farmers believe that a civet cat has the instinct to consume only the best coffee beans. Its stomach acids are supposed to ferment the beans differently, thereby yielding a unique flavor to the coffee. People are reviled by the thought of drinking coffee made from beans extracted from an animal’s waste. But the husks are intact and cleaned thoroughly.
The first time I tried civet coffee was at Café by the Ruins in Baguio City. It was sold for Php150 per cup. I find civet coffee to have a pleasant, smooth taste. I drank it without any sweetener and found it very friendly and flavorful on the palate. I bought a 200-gram bag for Php650, and I made it last an entire year. Good-quality coffee does not lose its freshness as long as you keep it sealed in a tight container at room temperature.
With an established market base of drinkers, a strong culture, low food cost, and several interesting ways to present the product, setting up a coffee shop appears to be a viable business venture. The next question is, should you start your own chain or opt for a franchise?
If you have the financial resources and deep pockets to support the business, going for a franchise is advisable. Assuming this franchise is well known and reputable, you no longer have to worry about building the brand, and you have the advantage of scale to lower costs of operations. But coffee franchises, such as Gloria Jean’s Coffee, which is a consistent top 20 franchise, came and went in the Philippines.
Personally, I would prefer to start my own chain of coffee stores. The concept would be homage to my love of coffee as an 8-year-old boy wanting to break free from the welcome arms of slumber.
My mother would be so proud!