B2B Payments

Why Small Coffee Shops Are Thinking Big About Digital

Why Small Coffee Shops Are Thinking Big About Digital

Independent coffee shops weren’t totally tuned out when it came to digitization in the pre-COVID-19 world, but it wasn’t an area of focus for them, according to Tim Griffin, founder of small business payments platform Cloosiv and chief product officer of its new parent company, Odeko. Griffin told PYMNTS in a recent conversation that local shops were, mostly to their credit, focused on customers and their status as neighborhood meeting spots and community hubs.

“Starbucks, for all intents and purposes, pivoted to high-volume, high-scale, mass-serving coffee, and there's only so much you can maintain from an environment perspective at that scale,” Griffin said. “So, these independent shops really became a haven for that intimate, personal experience.”

But then COVID-19 hit and the world turned upside down. Local coffee shops had to close their doors due to shutdown orders and found that they needed to rethink their entire operational plans just to survive.

Griffin noted that mom-and-pop coffee shops don’t usually have IT departments or teams of developers to build new digital features overnight. They generally can’t afford that and didn’t have much need for it — until COVID-19 struck.

But the pandemic changed everything as independent coffee shops saw a tsunami of change coming at them and began diving toward digital. “Overnight, we had about a hundred new coffee shops sign up unprompted to join the platform,” Griffin said. “And it’s been all hands on deck ever since.”

Cloosiv aims to help small businesses make the digital shift more easily, particularly since the company merged in August with Odeko. The Odeko platform integrates mobile ordering and pick-up into small businesses’ current systems on the front end. And on the back end, it taps into AI technology to streamline, optimize and centralize supply chains.

Keeping Independent Players in the Game

The problem with being a small independent coffee shop facing a big drive toward digitization is that a lot of the platform options available come at very high prices. Griffin said the big delivery marketplaces — Uber Eats, DoorDash, Grubhub etc. — start with a baseline commission around 20 percent, then add payment processing on top of that.

He noted that part of that high cost is understandable, in that operating a fleet of drivers ready to deliver an order at a moment’s notice is both costly and logistically complicated. But Griffin said part of the cost is a matter of big platforms charging such high fees simply because they can.

Larger chains and brands can afford it, but for small players, it’s nothing more than a margin-destroying way to get their products online. The big platforms are simply not built to meet their needs.

By contrast, Griffin said the Odeko offering was built to be more scaled to what small coffee-shop owners actually need. The company can support delivery services in its app, but doesn’t run a delivery service itself, which means its fees are lower.

Odeko only charges a 5 percent fee on orders, and that includes the payment processing cost. What shops get in return is the ability to take orders digitally. Moreover, users can customize orders not only in terms of content, but also in scheduling a pick-up time and having orders brought directly to their cars.

“The curbside feature was the most important thing we could have rolled out in early spring as COVID hit,” Griffin said. “It was something that was just critical for these shops to have, [and] it has been incredibly popular since then … If the shop is offering it, it tends to account for more than 50 percent of the orders coming through.”

What Happens Next 

Seeing half of orders delivered curbside presents an interesting question: Will small coffee shops ever return to their previous status as community hubs and meeting places, or will customers just order their java to go?

Griffin said that as of today, there’s no clear answer that applies to all shops. He said many of Odeko’s coffee-shop clients are “in the middle of nowhere.” Their roads to recovery will look different than those of independent shops in New York or other major cities.

But Griffin said that when a stimulus ignites the first big wave of a new technology’s adoption, consumers don’t tend to go backwards once they’ve made the leap. That means a lot of the commerce digitization that we’ve seen is going to stick.

However, Griffin said that’s actually good news for small coffee sellers, as “it doesn't mean people won't go to their local coffee shops.” Instead, it just means that how customers navigate interactions with those shops could change somewhat.

As Griffin noted, that creates an opportunity for small shops to grow their brands beyond the confines of their four walls.  With more interactive touchpoints and improved data, they have an opportunity to build better community hubs than existed pre-pandemic.

And given what Griffin has seen in his work with independent shops so far, he believes the majority will find ways to seize those opportunities and hold onto their customer bases.

“I will say, having rubbed shoulders with plenty of tech entrepreneurs, they don't hold a candle to small business owners in the grit and general passion they have for what they're doing,” Griffin said. “It's far easier to go out and try to raise millions of dollars to build a piece of technology than to bootstrap something on your own and try to build it within your community. It takes guts. We shouldn't underestimate the general grit behind a small business owner.”

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NEW PYMNTS STUDY: ACCELERATING THE REAL-TIME PAYMENTS DEMAND CURVE – NOVEMBER 2020

About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.

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