When you compete against national chains, your face almost overwhelming odds. Your rivals already have name recognition, and they have much lower cost than you do.
They also have expertise when it comes to picking real estate and hiring employees. Basically, simply being big gives you a better cost structure and makes it harder for anyone to compete with you.
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Back when Dunkin’ Donuts, now just Dunkin, was rapidly expanding in the 2000s, it seemed to have a strategy of opening near the local donut place. It generally did not take away the hard-core local business, but people just passing through had expectations of the brand.
If they had time, or did some homework, they may want to visit the local brand. But, most people passing through just want a cup of coffee and something to eat.
They assume that Dunkin’ or another national brand will do that cheaper and more efficiently than a local brand.
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That’s probably true, but the local brand almost certainly had a better doughnut and back then, a much better coffee selection.
It didn’t matter. The national chain could sort of slowly choke out the local chain.. iIt might take months, it might take years, but it was inevitable.
Local coffee houses are a dying tradition
To compete as a local chain, you need to find a niche that the larger players aren't filling and aren't likely to fill. Just offering a better experience is probably not enough.
Lucky Perk, which was once a thriving chain, leaned into its being local.
“Locally owned and operated, Lucky Perk is the perfect study spot, meeting location or lobby to catch up with loved ones. Our baristas are trained and ready to craft you a delicious specialized drinks, or a popular signature or seasonal special. Grab a pastry while you're in and enjoy an Idaho Original company and winner of the Best of Meridian business competition,” it shared on its website.
The problem is that being local isn't really a competitive moat, Yes, some customers will support that, but many will just as easily go to Starbucks it it's convenient.
Retail bankruptcy:
- Iconic auto repair chain franchise files Chapter 11 bankruptcy
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Lucky Perk, which opened in 2017, grew into a six location regional powerhouse, but it has quickly shrunk back to a single location.
In May, the chain had a liquidation sale at its Silverstone location, but stressed that while five of its six stores had close, it would still be open on Cherry Lane and Linder.
Are local coffeehouses doomed?
The United Stats keeps drinking more coffee and adding cafes/coffeehouses
“The value of the United States coffee shop market grew 8% to $49.5 billion over the past year, resulting in a 4% increase in the market’s pre-pandemic value, according to the newly released Project Café USA 2024,” Daily Coffee News reported. “The annual report produced by the Allegra Group’s World Coffee Portal also said that the number of U.S. coffee shops has for the first time surpassed 40,000, which is approximately 7% above pre-pandemic levels.”
The problem for local and regional operators is that most of the growth came from larger chains.
Starbucks, for example, added 494 net new U.S. stores in the past 12 months), Dunkin’ (172 net new), Dutch Bros (164 net new) and Scooter’s Coffee (224 net new).
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It's a challenge for smaller players when Starbucks has 40% of the total market and a number of smaller chains are growing quickly.
That's not the death of the local coffeehouse, but operating more than one store, unless you grow very quickly, has become a very challenging model.
