It's not all doom and gloom. It's time to deliver value for money, that's all.

by Reiss Gunson on Wednesday, 13 May 2009 02:18

Despite the dire predictions of the newspapers, it isn’t all doom and gloom out there.

I’m not a pushy marketing man with an axe to grind, I’m not about to tell you that houses are gaining value and the world is all returning to normal. What I am about to write is based on what I have personally observed as I beat the streets of London visiting the cafes we serve and the cafes we would like to serve in the future.

There is a near perfect correlation between the cafes that appreciate the quality of the products and services we offer, and success. I can hear you saying, “ah yes, well he would say that”, and while I am a hard bitten cynic too, it is the truth.

The businesses who are struggling are those who like to blame external factors for their troubles, for example, “oh we can’t change from Illy because we need an international brand to compete with the Starbucks next door”. On this particular occasion I then paid for a cup of their Illy coffee to try it. Lets be quite clear, I may think Illy is over-priced, but correctly treated it can make an acceptable cup of coffee; i.e. I am not an ‘Illy-basher’. But this coffee was terrible! Why? Nothing to do with Illy! They had paid a premium for the brand, but they were lazy. So neither the machine nor grinder had been maintained, they skimped and used the tiniest amount of coffee (‘b/c we are struggling we have to cut corners runs the logic’), it was prepared by someone who didn’t want to be there, and so on. They still firmly believe they are struggling b/c of the Starbucks next door, the economy, etc.

As an outsider who had not visited the cafe before I saw things differently. I have driven past the cafe many times, and the daft thing is no Illy branding is visible so they are paying for a premium brand yet it is not visible until you are in the shop. The shop looks attractive as you pass by, it looks inviting enough. Yet the Starbucks next door is full and this cafe is empty. Why? Well it cant be the economy can it? I mean if people really didn’t have any money they wouldn’t be in Starbucks either.

The money exists, it hasn’t gone anywhere. All that has happened is that it has been redistributed (typically from young (buying prop)to old(selling prop)) and people’s expectations have changed. So people might not be throwing their money around with gay abandon as they did when they didn’t care if they lost their job as they would quickly find another, possibly on better pay, or when their house was appreciating at 15%pa.

They are still spending, albeit more cautiously. So the competition has increased. You just need to ensure they spend their £ with you, not your competition.

Example: Eating in a cafe is no longer inexpensive; today I had a citron tart on a take-out basis for which I was charged GBP3.20, which I thought was rather a lot, but you know I have had them numerous times before from this particular cafe and I really like them. I am still thinking that it was rather extravagant, which it was, but if you really enjoy it you feel you have received value for money & next time you pass that shop there is a good chance you will almost subliminally find yourself opening your wallet again, perhaps not even on the citron tart, you might think oh the citron tart was so good, the raspberry whatever looks good, I’ll try that instead this time. and so it goes. Conversely, if the citron tart was disappointing it is a long time before you go back again, especially in the current environment.

The favourite game in the London cafe scene is to sell crap to the passing tourist trade. ‘Its crap’ you say. ‘We know’ they respond, ‘but who cares b/c they have gone to Heathrow another 1,300 plane loads of tourists arrive from Heathrow tomorrow’. Well that attitude really grates with me and I see no reason why you shouldn’t go out of business if you live by that mantra.

People talk. With new methods of instant communication like twitter they talk a lot, and quickly, to many people, all over the globe.

OK, so they mightn’t remember the name of the awful places that screwed them as they made their way across Europe, but you will be surprised how they note down and remember the places where they had a good time and left feeling that they had received value for money.

For me ‘value for money’ is a phrase that we should start thinking about a lot more if we intend to get through this recession. It doesn’t mean cheap. Something can be very expensive (i.e. have a very high price) yet be perceived as value for money. Obviously the higher the price the higher the customer’s expectations for the product(service) before they consider to have received ‘value for money’.

For me value for money is a concept of ‘fairness’. You leave feeling you have received fair value in return for the consideration you paid. The colloquial antonym is ‘ripped-off’ and there are businesses all over London still deploying this approach and wondering why life is becoming more difficult.

Businesses who are prepared to take an honest look at themselves and decide if they are really delivering their customers ‘value for money’ will survive this downtime. Those who really put their back into it may even thrive. This is not a fanciful notion. We supply a very well run cafe who is in the process of opening another location because they have so many customers they are turning them away, even on a Monday. How? Why? What!

Well they have operated in their current location for a number of years and built up a loyal clientele. They have a very focused menu and do what they do extremely efficiently. Efficiently here doesn’t mean ‘low quality’, it simply means the process has been refined and refined to eliminate wastage and inefficiency, hence the ‘focused’ menu.

The current economic climate has meant that previously inflexible landlords and their agents have modified their expectations. As a result premises that were previously priced out of reach are now a viable proposition. It will give our customer a second location in a prime retail location with much more foot traffic. It will almost certainly be a success because the owner is ‘sticking to the knitting’, not diversifying into something he knows nothing about. In addition the owner is hands on. He doesn’t pop in for an hour in the morning and an hour at night. He is always there, driving the business forward. At the same time he is gradually adding the systems and controls that will allow him to manage two locations, and refining continually to minimise the negative events.

I have almost come to the conclusion that the retail food business has become overly focused on certification yet still failing to deliver quality. A certified apple doesn’t mean it doesn’t go stale or that it doesn’t bruise. You can have organic this and UK5 that, and fair trade this, and rainforest that, but if the food doesn’t taste any good and you try to charge people a daft premium for it in a downturn, don’t be surprised if the business is a bit quiet.

How about simplifying it. Take a clean sheet of paper and consider item by item what you are going to sell. Don’t add a single item that you dont personally love. Don’t add a single thing that you are not prepared to personally enthuse about to your customer at length. When all around is grim it is a delight to speak with someone who really loves the product they are selling. Then work out what it is going to cost, add in all your variable & fixed, direct & indirect costs, add on a premium that you consider a fair and reasonable reward for you effort and see what you end up with.

If you are an existing business and things are tough go back to the Landlord and spell it out. Not in a threatening manner, but perhaps take some accounts or at least key figures for the last say 3 years with you and demonstrate how things have deteriorated. Explain that you want to continue the business, but the current level of rent is strangling the business and if you are unable to make significant reductions you will have to relocate or possibly close the business. Negotiate. An intelligent landlord will much prefer to reduce the rent than take a bet on how long it might take to find another tenant who is willing to pay the same amount as you are currently paying.

A classic mistake that I see so often is shops that stock far too many things. This is doomed to fail in my view. You are not a supermarket. It is especially problematic if you are dealing in perishable items. You must identify a theme or a niche. This doesn’t mean tacky, it means specialisation. It means becoming famous for something. One thing. As already mentioned, news spreads fast these days, good or bad. If you are in London and you become famous for something, don’t be surprised if you have people from all corners of the globe coming to experience your take on ‘value for money’ for themselves. Set your sights high. Lead by example as the owner.

Oh, and another thing I almost forgot. If you pay your staff the minimum wage, with absolutely no form of incentive scheme, don’t be surprised if they seem a lot less enthusiastic than you about your goals and objectives. The English may sniff at the Americans, and sure the commission based retail model can produce some pretty obnoxious scenes when executed poorly, but on the whole I think it is preferable. I firmly believe that people who work hard, shoulder more than their share of the burden, go the extra mile if you like, need to be rewarded, and why not some filthy lucre?

If someone has gone beyond the call of duty and furthered your global reputation for excellence in whatever it is you want to become famous for, then give them a share of the spoils. I fully appreciate that it can be difficult to get the balance right, but I do not accept this as an excuse for simply doing nothing. In its crudest form you may simply declare that it is a discretionary bonus that will be paid weekly in whatever way you see fit. Some weeks it might all be paid to one person, other weeks it might be split equally, and so on. Some weeks nothing may be paid at all, whatever, its your scheme, just make the rules clear and abide by them. It may not even be money, but it needs to be something of value to the person concerned that clearly conveys that their additional contribution is valued.

Leaving cafes aside for a minute, there are businesses like our own that still need goods and services to survive. Sure, we may buy in smaller more frequent lots, or spend more time looking for the best deal, but there are a lot of things that we still need. Life goes on as the saying goes.

Let’s ignore the media & the politicians, they won’t get us out of this mess. Most likely small businesses will. How? By knuckling down and ensuring their customers perceive that they are receiving ‘value for money’. Just remember that approximately 95% of employees in the UK work for a firm that employs 5 or fewer people. Small firms (10-50 employees) generate more than half of the UK’s GDP. Most people don’t receive huge bonuses. Most people are remarkably like you and I, so let’s roll up our sleeves and make a difference by creating ‘activity’ which creates demand for goods and services. The money hasn’t gone anywhere, it has just stopped circulating because people’s expectations are fragile at the moment.

If you operate a small business and would like to bounce ideas around feel free to get in touch….we’re real people.

« Send us a coffee question... New in: SWP Cascadia »