We all miss our favorite coffee shops. It's part of our routine. It's habitual. Coffee, or any caffeinated drink, also happens to be addictive. So how are coffee shops surviving during this pandemic? This pandemic has highlighted our need for convenience and minimal touching. With one click, we have our favorite drink ready for pick up, without the need to touch anything! This is the future of digital payments that we've seen work really well in countries like China.
In today's episode, we learn about the coffee shop business and how they relate to the evolution of digital payments. We sit down with Tim Griffin, founder of Cloosiv, a payment platform focused on coffee shops. We learn:
-Why the US is behind in digital payments in comparison to China.
-How Starbucks created one of the most used payments app.
-How the coffee shop business works, and how they're adapting during COVID. Why contactless payments are the future.
This is our last episode of the season, but we'll be returning soon after a short break. Thank you to all our guests from this season for participating. Thank you to Olivia Briley for producing and to Maia Tarrel for editing the podcast. Thanks to my wife for doing all our pre-rolls and editing these notes. Thank you to our listeners, for sticking with us and giving us your time. Stay safe out there.
On this week’s episode of Talk Money, we’re asking the hard questions. Namely: how do you take your coffee?
MESH VO: Hi everyone, Mesh here from Talk Money, and welcome back to The Price of a Pandemic, our series where we discuss how the coronavirus is affecting the economy, business, markets & investing.
A few weeks ago, we set out to learn how the restaurant industry is coping with state-wide shutdowns. As the economy slowly reopens, restaurants are trying new business models and strategizing to keep themselves afloat. But what about coffee shops and cafes? For many of us, coffee runs are more than a habit - they’re comfortable and reassuring, with familiar faces that make us feel like part of a community.
We all have our own morning routines. I know mine. Go down to Butler Coffee by the Brooklyn Bridge with our dog Lola. The barista, George, already knows my order: 2 almond lattes, decaf for me, regular for my wife, and a peanut butter treat for Lola. I miss that. Immensely.
With low ticket orders and not much food to bolster deliveries and pick-ups, how are coffee shops surviving this pandemic? Coffee is an addiction, and that hasn’t magically disappeared - it’s just something we do at home now.
But even before the coronavirus, companies have been innovating the coffee experience to make it faster, safer, and more secure. Can digital payment options and pre-ordering on apps be the saving grace for this industry? In today’s episode, I talk with Tim Griffin, founder of Cloosiv, a digital payments platform focused on coffee shops...that aren’t Starbucks. And business is brewing. Let’s get started.
Tim: [00:00:58] My name is Tim Griffin. I am the founder of Cloosiv. We are building an app that lets you order ahead for coffee and snacks from independent coffee shops. So it's best to think of it like the Starbucks app, but for everyone else. // [00:02:16] It allows them to skip the line. And we have a rewards program baked into the app that allows customers to earn discounts.
Mesh: So [00:02:30] you're basically making a seamless process for people to buy coffee and for the coffee shops to serve those people through this payment system.
Tim: [00:02:39] That is correct, yes.
Mesh: [00:02:41] And can you tell us a bit about America's current payment system in comparison to the rest of the world? I believe you mentioned to me that we are a bit behind when it comes to payments.
Tim: [00:03:01] Yes. So the original idea behind Cloosiv was to create this unified payment application that you could use to pay with your phone wherever you are for whatever you were buying. And the impetus behind that was looking at more developed countries like China, where they have apps like a WeChat pay, Ali pay. They're referred to as super apps and they allow you to do everything from order your Uber get [00:03:30] food delivered to you pay for a shirt in a retail store. And that doesn't exist in the US primarily because of the infrastructure we have on the payment side. The way that we've pivoted from cash to credit cards and debit cards and plastic in general [00:03:46] made it difficult to then make the transition to mobile friendly digital payments.
Mesh: [00:04:11] And so what you mean by that is, the reason why we haven't moved completely into digital pay is because the ease of use of credit cards has created essentially some type of monopoly by the people who control it and there's really no reason for us to move into digital pay.
Tim: [00:04:39] And I think if we look at why other developed countries like China have adopted mobile payments so readily, it's primarily because they skipped over cards. They went from cash straight into digital payment. So moving the entire [00:05:00] economy from one mechanism to another is incredibly difficult unless there's a very clear value, and right now there's very minimal difference between using a credit card and using your phone primarily because you still have to wait in line and check out.
Mesh: [00:05:15] So in countries like China, what is the advantage of having mobile pay versus credit cards?
Tim: [00:05:25] It actually started because there was this inherent distrust [00:05:30] between merchant and buyer that funds would be transferred appropriately. So companies like Alibaba, who owns Alipay, emerged to become this broker between the two and they would actually hold the money in the equivalent of escrow until the purchase was confirmed on both the merchant side and the customer side, and then the funds would be released.
Mesh: [00:06:08] And now you're providing this payment platform essentially to coffee shops. Can you tell us why you decided to dive into coffee shops versus others?
Tim: [00:06:40] We started with breweries and then we tried coffee and then we took a swing at launching this multi-vertical concept where we accepted payments in coffee shops, pizza shops, breweries, retail [00:07:00] stores and we were about to launch [00:07:03] in a restaurant when we came to the realization that the most traction was really within coffee. And in hindsight, it makes a ton of sense. We've got the most habitual purchase that people make every single day, multiple times per day. [00:07:24] And then you've got a product like this Starbucks mobile app, who at the time, was named the most used payment app [00:07:30] in the country. So there was all of this demand around the product so we made the decision at that time to just focus solely on supporting these independent shops.
Mesh: [00:07:50] And when we talked earlier, you mentioned coffee being essentially a legal drug. Can you explain what you meant by that?
Tim: [00:08:00] Yeah. I think that it's pretty well understood that caffeine has addictive qualities to it. If you try to quit drinking coffee cold turkey, you often find yourself with headaches in the morning until that dissipates. Coffee is considered a global commodity that's consumed daily by millions and millions, if not billions of people every single day. So it is something that represents this global opportunity to create this unified network across the world that goes toe to toe with the biggest coffee retailer in the world.
Mesh: [00:08:50] What was it about the Starbucks payment app that made it one of the most used apps in the country?
Tim: [00:09:10] I think there are multiple factors behind it, and we have to start by addressing the brand that they've built and the power behind that brand. [00:09:30] It's easier to do for a company like Starbucks because of that single brand. They're not in most cases franchises. [00:09:44] So by delivering this ubiquitous experience where I know that I can use the Starbucks mobile app to order ahead and earn rewards at my Charlotte location, or if I'm traveling up to Manhattan, I can use it in New York, and it's going to be the exact same experience. That [00:10:00] consistency is so important for consumers who are adopting an app that is supposed to have value. The other side of this is, especially in larger metropolitan areas like New York City, if you've waited in line at one Starbucks, you know just how long the wait can be in the morning. The ability to order that // product ahead of time and have it be ready when you arrive is such a critical feature. And then [00:10:30] the, the cherry on top is really the rewards.
Mesh: [00:10:52] And so you are providing this for Who is your ideal customer?
Tim: [00:11:05] I'd say we support everyone who's what would be considered a traditional mom and pop shop, you know, and places that you wouldn't think inherently have a big coffee scene all the way up to much larger what we would refer to as mid-market chains. Starbucks has 13,000 locations. Dunkin has about 9,000 US locations, and the next closest North American chain is Tim Horton's, mostly in Canada with 850 locations. So the drop-off is significant. // [00:12:00] So // we aim to support quite literally anyone that is not Starbucks or Dunkin.
Mesh: [00:12:06] And given that now we're in quarantine how has that affected coffee shops?
Tim: [00:12:20] This has been quite a hectic few [00:12:30] weeks we saw a significant increase in inbound signups from locations as soon as this started to hit. They are deemed an essential business. It does allow them to support takeout and delivery services. Coffee is a very difficult product to manage delivery wise. When we talk about [00:13:00] temperature sensitivity, lattes are best served quite literally when the espresso shot is poured. [00:13:05] So managing that expectation is very difficult on delivery. But offering a to-go pickup service is vital to them keeping their doors open right now. // The impact has been severe in many cases. So many shops have actually temporarily closed. They furlough their employees same as the restaurant space in general. But many of them have been able to hang on with the help of [00:13:30] either friends and family.
Mesh: [00:15:26] And can you just give us an idea of how the coffee shop business [00:15:30] runs? They don't serve liquor and they barely have food. How exactly are these people making money? Just from coffee.
Tim: [00:15:47] I think that coffee shops in general are somewhat misunderstood. I find it interesting when we hear coffee shop owners explain that they operate on incredibly thin margins. I would say, more holistically across the [00:16:00] restaurant industries, there's some of the higher margin opportunities within coffee if you've structured the business the way that I'm about to explain. We have good visibility, not only into what shops are charging from a regional perspective or even at a local level. But we know generally speaking, what their wholesale prices are, and coffee shops have been a great opportunity [00:16:30] to make a significant amount of margin on things like modifiers. [00:16:34] People like to customize their drinks, lattes with extra espresso shots or extra shots of flavor. Those flavors have an opportunity to be 500 plus percent profit margin // per shot, just given the costs associated with buying that syrup wholesale and the amount charged per pump, as they refer to it. All of that said, it can be difficult to build a very healthy business // because they are lower average tickets, generally speaking, because they don't serve food. So it means that you need to sell more products in the same amount of time that a restaurant might.
Mesh: [00:17:34] And that's why you see a lot of mom and pop coffee shops have more than one store sooner than later versus just having one?
Tim: [00:17:44] That's correct. We support a lot of local chains [insert “with?”] five, six, seven locations. That's the best way to build a very healthy, sustainable business in this space. But in this given situation, that also presents the most [00:18:00] difficulty because // a seven location chain is operating with maybe 50 employees and they have to furlough them because they can't afford to continue to pay them right now.
Mesh: [00:18:24] And what do you think happens? // Post-quarantine // when restaurants and coffee shops are able to open to the public again, obviously within limitations, where do you see coffee shops adapting to all of this? //
Tim: [00:18:47] // It's been interesting to watch some of these owners // make small adjustments and pivots to account for this change. For instance, one of the most intriguing aspects of all of [00:19:00] this is how some coffee shops have really become central bodegas within a community that offer wholesale items like milk or a toiletries that aren't available right now in grocery stores, but because they have wholesale relationships, they've been able to acquire them. [00:19:16] And these are of course, much higher margin products that // if they choose to adopt that model moving forward has the potential to [00:19:30] // completely change the landscape of what we see from a coffee shop and what we expect.
Mesh: [00:19:57] // Where do you see payments as a platform developing in the US especially post-Corona? // Does it give us the opportunity to develop on that?
Tim: [00:20:22] Absolutely. I think that what we are about to see is a behavioral shift in the way that consumers interact with // retailers in [00:20:30] general. // I do believe that there's going to be a primary shift // around contactless payment. // So it's not just products like Cloosiv // companies like Instacart and DoorDash are seeing a huge uptick in utilization the last few weeks. // As we genuinely understand the convenience factor, as well as begin to truly understand how easy it is to // spread germs and [00:21:00] bacteria to one another. The contactless payment component is // the most critical moving forward.
Mesh: [00:21:57] That's interesting because a lot [00:22:00] of the talk has been, hey, we are not making you sign you know, we're not making you have to use your finger on the pad people have stopped taking signatures, all because we don't want to touch anything. So in this case, it makes a ton of sense that if I can just use my phone or pay ahead of time we're just better off.
Tim: [00:22:27] Absolutely. I think what would be very interesting [00:22:30] and something that we've been exploring is just how you can enable built in functions like biometrics, around face ID and some print scanning into a more cohesive payments infrastructure. That's far more secure than anything that we have today. Handing someone a credit card and // having a signature on the back saying it's mine, there's really no validation for that. Right? But scanning your face or scanning your thumbprint is genuine [00:23:00] validation.
Mesh: [00:23:03] And who do you think helps us move further along this path? Obviously companies like Apple with Apple Pay was really pushing for this I think when they launched last year.
Tim: [00:23:27] I think that we'll see a [00:23:30] significant amount of innovation in the point of sales space, likely from those same companies that were focused on touch already. My hope is interchange processors like Visa and MasterCard view this as an opportunity to adjust the way that payment [00:24:00] fees are applied. For those who don't know, there is a universal transaction fee that's actually more expensive for merchants to process online transactions from a computer or from a phone than it is to process transactions in person, like I mentioned with a credit card. [00:24:23] If you think about it, when was the last time you were asked for ID associated with your credit card? The inherent [00:24:30] belief is that online transactions are less secure. Right? But we've evolved to this point now where biometrics play a huge factor.
Mesh: [00:24:59] I have one last question for you, Tim what would be the most profitable cup of coffee you could think of?
Tim: [00:25:16] I went out for coffee the morning of my wedding and my wife's bridesmaid sent the order and it was something like if you're familiar with Starbucks’s [00:25:30] ordering system, a trenta, matcha, ice latte, with a splash of oat milk, and cardamom or some type of unique flavor maybe three or four pumps of it, just to be sure, [00:25:47] And then some extra Stevia in there. You've got an expensive drink and some expensive modifiers. I would say that runs you about $13 in most places.
Mesh: [00:26:00] And that's a pretty high profit margin for the coffee.
Tim: [00:26:02] Oh, I would imagine. Yes.
Mesh: [00:26:53] Tim, thank you for all the insights in not only the coffee shop business, but [00:27:00] also into payments.
Tim: [00:27:08] Absolutely. And if I can leave anyone with this, it's to go support their local businesses, whether it's coffee, a restaurant, or a retail store, if they're offering a way to do it I highly encourage it. Otherwise they won't be here when this is over.
(Coffee voice memo outro montage)
MESH VO: I always thought a complex coffee order was annoying - for the barista and other customers. But if it’s the most profitable, maybe we should indulge our picky preferences a little more. Maybe next time I’ll add that extra pump of vanilla. Every bit counts.
Coffee shops might be the pioneer in digital payments in this country. With a tap on our phones, we can do away with the credit cards and clicking and communal pens. Count me in!
This pandemic has accelerated many industries, one way or another. I hope that founders like Tim continue to build companies that give our favorite coffee shops a fighting chance.
Thanks to Tim Griffin for giving us a glimpse into the coffee business and the future of digital payments. Since we spoke, Cloosiv has continued to add local chains like Birch Coffee & Kahwa Coffee to its platform. We wish them all the best.
We’ll be taking a short break as we prepare for our next season. But we’ll return soon to bring you deeper dives into wider industries, and even more stories of how we’re all making work...work. Stay safe out there.
Thanks to season 2 guests
This episode was edited and produced by Olivia Briley & engineered by Maia Tarrell. Our music is by Blue Dot Sessions. Sign up at thetalkmoney.com for further deep dives and to hear other episodes. We appreciate you sharing this with your friends, and of course subscribing to us on Apple, Spotify, or wherever you choose to listen. Until next time.