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Observation of the current small businesses & café environment.

Posted on February 18, 2016 by Ernest Tong

That quirky little café that you frequent ever so often during the week for your daily dose of a caffeine fueled beverage might just be in business for not much longer. It has been a long time coming and not something that is new to the industry of late as the large monetized machines of a corporation makes its move into the small café industry.

They creep in slowly, first filling the crevices with its entangling roots, then slowly it eventually makes an appearance right in front of you. They stand out and they definitely cannot be missed (due to their sheer size of convenience)

More and more front facing convenience stores are secretly masquerading themselves from the fact that they are a Supermarket with a café attached to it. Owned by the largest and boldest, they have minimal branding on their store front and a lot of them serve only to tell you the name of the street you are on.

These new concept stores are proving to be more than just competition in the small business/café sector of Melbourne. It really opens up a new ‘can of worms’. Our government claims to be supporting the small business sector but are they really?

Here are just a few of the competitive issues with larger convenience providers creeping into the small business market:-
  1. Rent and leases: With the larger corporations making a move into convenience concept stores/small café sector, landlords are silly NOT to take up the longer lease agreements these giants could afford to secure. Thus, pricing out potential and even more enthusiastic new businesses. It is definitely creating a harder environment for the small players to secure a lease.
  2. Uncompetitive pricing: A sales model which largely aims to offer convenience is coupled with ridiculous pricing offers to attract customers to the front door. It is no doubt a ploy to get customer eyes on their stores. E.g. 4 Large coffees @ $10, where the state(VIC) average sits at $3.58/cup. The buck doesn’t stop there with just coffee, it extends to a massive range of products which they can offer as well (think supermarket offerings).
  3. Pressure on suppliers to reduce cost thus reducing quality product offerings: It is without doubt that when the smaller businesses/cafes are affected, it will naturally put more pressure on them to squeeze suppliers for a lower price on their offerings. Because the only way they can compete in the long run is by pricing down. We do not need a brilliant imagination to figure out how suppliers can offer a lower price product now, do we?
This observation is well and truly happening in Melbourne. We would love to have a discussion with all of you if you agree or do not agree with our observations. If you are in this current predicament we would especially love to hear the facts from you and how you think this would affect you and your business in the long run.

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Posted in Australia, Coffee, Melbourne, Melbourne Cafe

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