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Coffee: The fuel behind NZ hospitality’s COVID-19 recovery

Photo by Nathan Dumlao on Unsplash

Here at posBoss, we serve up software to hospitality operators, helping their businesses run smoothly. Our mantra ‘Here for Hospo’ is the “why” behind everything we do - including why we’re always pushing to find new ways to support our customers and provide value to our community.

Being the software behind thousands of Kiwi hospitality venues gives us access to unmatchable data - from how your customers are eating and drinking, to how NZ hospitality is ticking. Kicking off with a focus on coffee, here’s our first deep dive into some of the major trends we’ve seen in coffee drinking over 2020-2021.

How do Kiwis like their coffee?

Those cafe owners and baristas among you will probably have predicted that NZ’s signature brew is the flat white - topping the list of the most ordered coffees by a mile. We saw 1 million flat whites ordered in posBoss in the last 3 months, and just under 300,000 lattes, proving Kiwi customers are more susceptible to a milky coffee to start their day.

That said, Kiwis aren’t actually ordering their coffees until much later in the morning. We saw the most popular order time was between 10am and 11am. You may wonder, “Is this driven by more people working from home? Perhaps an increase in coffee pod and capsule machines for the home?” - but no, us Kiwis are just late risers, and this trend for a late morning coffee hit has gone unchanged over the last 2 years.

What snacks do we fancy with our brew? As it turns out, the nation’s favourite food items bought alongside a coffee between 6am and 11am  (that’s brekkie to us)  were scones, muffins and slices... now I’m hungry! Check out this tasty looking graphic while we grab a quick croissant... brb.

The bottom line on coffee

As of September 19, businesses using posBoss were averaging a cost of $4.39 for a standard flat white. Our recipe builder data shows that at the average profit margin of 65-70%, the standard flattie brings in a profit of between $2.85 to $3.07 for our hospo venues.

Photo by Daniel Yubi on Unsplash

Selling around 914 flat whites a month* at a 70% profit margin, the beloved flat white alone contributes a huge $3,000 a month (average) to a business’ bottom line… proving that coffee just might be the fuel that drives NZ hospo’s COVID-19 recovery strategy.

With profit contributions like that, it comes as no surprise that cafe owners are keeping their coffee prices steady, and are reluctant to rock the boat of demand too much. The average price of a flat white has stayed relatively...well, flat... over the last 2 years, rising only slightly from $4.21 in January 2020 to $4.39 in September 2021.

posBoss’ previous panel discussions on “The Price of a Flat White” posed the question “Are people prepared to increase their prices to feel more comfortable?”; the outcome was no, our operators don’t feel they’re in a position to charge anymore than they currently do.

So, did Covid change anything about NZ’s coffee habits?

As of September 19, posBoss customers have started seeing coffee sales creeping back up again, but they still have a way to go to perk back up to pre-restriction levels - and are tracking 47% behind the pre-Delta variant levels.*

Could this be driven by a rise in home-brewing? Are people squeezing every last caffeinated drop out of that new coffee machine they bought through lockdown?

Photo by Nathan Dumlao on Unsplash

That certainly could be the case in the USA, where a study by the National Coffee Association released in April this year, found that 25% of Americans bought a new coffee machine during Covid-19, resulting in an overall increase of 8% in the number of people having at least one cup of coffee at home since January 2020. That’s a huge 85% of the American population getting a coffee hit at home. However, the same study found that on-the-go and app based coffee orders were up by 30% compared to pre-Covid levels. So things are starting to look up for cafe and coffee grinders, and it’s click-and-collect apps like our very own Regulr that’s helping to get businesses trading again.

The future of coffee

We asked our posBoss CEO, and hospo venue owner, Jonny McKenzie, to gaze into the tea-leaves and give us his predictions on what the future landscape of New Zealand’s coffee industry might look like. Pour yourself a cup and have a read.

The challenge of raising prices

Jonny McKenzie, CEO of posBoss

Over the years I have had the opportunity to meet and discuss coffee prices with hundreds of operators. The conversation usually revolves around two consistent challenges: ‘What should we be charging for a Flat White?’ and ‘How can I manage staff costs?’ In the past year two new topics have become more apparent, these are plant based milks and automation.

Without a doubt nearly every operator wishes they could raise their coffee prices. It’s well known that prices have not really moved since the late 1990’s, yet costs have gone up immensely and competition is on every corner. This combination of increased costs with increased competition makes it challenging for an operator to be confident in changing their prices. What I have been able to show customers who use posBoss is the potential impact on profitability with a ~50ȼ change to their base prices. The increase seems obvious but this is not what gives confidence, it is the understanding that by raising your prices by ~50ȼ means you are still overall more profitable even if up to ~10% of your customers decide to go next door.

Staff costs will continue to be a challenge the industry faces. Again, as the number of venues continues to increase so does the demand for quality baristas. Throw in the loss of international visas and we now face a real issue.
The coffee game is a fine balance of quality over quantity. At a minimum you need to sell 20 coffees an hour, to cover all of your costs you need to be hitting around 30, and then to be profitable you need to be at 40 per barista.

Therefore, what always fascinates me is how operators view their counter layouts to optimise service. Coffee companies such as Coffee Embassy, Supreme, Flight Coffee and Allpress excel at using layout to guide the customer. It’s the layout that can impact your baristas’ ability to be hospitable while being an espresso pouring machine.

In the past two years plant based milks have become a rose or a thorn to operators. Those who embrace the plant based movement have found themselves a niche audience who are loyal and supportive. Others have adapted and are just trying to juggle fridge space and expiry dates. What is clear is that plant based options have opened up the ability to charge more for a coffee with very little push back from the customer, after all +0.50ȼ seems to be what the market has set as an OK increase to the base price. Personally, I am not sure this is going to last as plant based options move from being a speciality to a norm in our coffee menu. As a result, it could provide the perfect opportunity to increase the base price and balance the minimal profit drop from plant based with a profit increase from dairy.

At the Fine Food event held in Auckland this year there was a panel chat on the ‘Future of Coffee’. Five players in the game were on stage presenting their thoughts around where coffee was going. From these five experts, two pushed automation - be it auto dispensers, auto tampers, milk steamers, cup dispensers etc. Tools used to reduce human error and improve efficiencies in a venue. We only need to look at other industries to know that automation will be the answer to controlling coffee costs.

We have also recently seen a steep increase in the adoption of mobile ordering due to Covid-19 and that trend is looking to stay. Operators have also become more aware of their product and staff costs during these lockdown months.

When I look ahead to the future of coffee, what I am most interested in seeing is how the next wave of espresso bars and cafes embrace technology, and how this automation helps to stabilize their operating costs while improving customer service and overall customer loyalty.

References (*):

1. Based on a sample size of 618 posBoss venues in August 2021.
2. Based on posBoss customer data pulled in September 2021.