What your local coffee shop can teach you about brand positioning
Not every piece of brilliant marketing has to come from a Cannes Lion winner
Welcome to all new Dispash subscribers. There’s been a lot of you in the last week. Hopefully this newsletter lives up to the low promises set.
Even if the main essay isn’t your cup of tea coffee, there’s a lot of interesting stories and questions in the links that follow the essay part.
Onwards.
What coffee shops in one Australian suburb can teach us about finding a gap in the market.
I think a lot about coffee. This isn't just because I'm permanently sleepy from juggling work, parenting, and trying to think of topics that might be of interest to Dispash subscribers.
Australia's independent coffee culture is unlike anywhere else in the world. This is a country where Starbucks failed quite spectacularly. Australians take their coffee very seriously.
Starbucks failed to understand the Australian market (marketing 101: know your customers) and sunk big losses before downscaling to a handful of stores.
And yet in almost every suburb in Sydney you'll find multiple independent coffee shops, often occupying the same strip. Some mornings, as I wait idly for my flat white, I sometimes wonder how sustainable the cafe culture is, and how a new entrant would fare.
And, as it happens, my local suburb has just provided a masterclass in differentiation. I have no idea if the owner of my suburb's newest coffee shop has a background in marketing. But their strategy and tactics come straight out of a classic marketers playbook.
To understand why, it helps to set the scene - and to see how coffee shops are an excellent microcosm of marketing theory in practice.
Coffee shops in Sydney suburbs: a crowded marketplace
Until recently, there were six coffee shops in my local suburb (see the map below). Coffee shops A and B are, as far as I can tell, the two most popular shops in the suburb.
Coffee Shop A, my favourite, has the largest outdoor space of any of the cafes. It's not the cheapest shop in the suburb but is reasonably priced, serves good food and cakes (my daughter loves the kids' breakfast), and has friendly staff. There's a box of toys for children to play, so you often see a lot of families, and the coffee from a brand I love is excellent.
Along with Shop B, it also has the advantage of being the first coffee shop for the western part of the suburb. Laziness and habit are part of the reason why they see a not insignificant amount of my salary each month, although they can be slower than other cafes, so I tend to go elsewhere if I'm in a rush or heading into the office.
Coffee Shop B is a lot smaller, more of a hole in the wall with a couple of seats and serves toasties. It opens earlier than all other shops and the owner is well loved in the community. There's always a long line outside, as its location also makes it easy for residents in the south of the suburb as well as those in the west.
I don't mind the coffee, but my wife finds it too bitter and it's a bit small for kids, so we don't go there that often. As the smallest of all the shops and with a limited menu, I'd be curious to know what their margin is like, given the small space they inhabit and the fact they almost exclusively rely on coffees for sales.
Coffee Shop C is well positioned to pick up residents from the east of the suburb. There's a small amount of seating, so it's not ideal for kids and my personal perception is they're a bit expensive and the staff veer on the side of grumpy hipsters.
It has a very loyal local following, but it's the most inconvenient of all the suburb's coffee shops for me and it's not somewhere that's overly easy for us to go to as a family. My brother-in-law, a barista, rates the coffee highly, but he also tends to visit Shop C as there's rarely a queue.
Coffee Shop D, in my view, has the best coffee in the suburb, and possibly the best food too, although my wife thinks they're a bit hit and miss with their long blacks. They're at the bottom of the main street to the train station, have friendly staff and do a very brisk trade.
My normal walk into work cuts off the corner they sit on, but I'll often stop by if I know I have limited time until the train. Daughter prefers Shop A but there's plenty to keep her happy here.
Coffee Shop E is immediately opposite the train station. It's the cheapest of all the cafes in my suburb, and the quickest too. The clientele veers towards retirees as they leave communal newspapers out. I'm not sure they have good air conditioning, as it gets a bit hot sometimes, and the coffee is a little on the sweet side for my taste.
It's not that big, so not entirely practical for young children, but because they're so quick, I'll often grab a coffee if I'm in need of caffeine and have a short amount of time before the train arrives.
Coffee Shop F is diagonally opposite the train station. It feels very organic and sustainable, although location means they don't get as much passing foot trade. The food I've tried has been exceptional and their coffee is nearly as good as Coffee Shop D. But, they're a little bit more expensive.
They're also not super quick and despite having a very pleasant courtyard, my daughter gets grumpy as it's not Shop A and has had a few meltdowns. It's more of a treat, or if I fancy a change and want to stretch my legs when working from home, although truth be told, I tend to forget about Shop F.
So what does this all have to do with marketing?
There’s plenty of marketing theory at work here. The 4Ps - Product, Price, Place, and Promotion - are all present in varying degrees. Other coffee lovers in the suburb will have their own assessment of the six shops, but it will still revolve around the 4Ps.
Even if you have the best product, it’s no guarantee that you’ll be the biggest in market. Having the cheapest product doesn’t guarantee mass adoption. Physical availability is only part of the challenge.
And perception really matters. For all I know, loyalists at Coffee Shop C may hold similar negative perceptions towards Coffee Shop A as I do towards their favourite shop. It doesn’t matter that their core offering is largely the same or coffee is essentially a commodity. The two shops market themselves very differently.
There's also plenty for Byron Sharp fans to get their teeth into. Customers can and do get their coffee from multiple coffee shops, all coffee shops will lose customers to other coffee shops, and the smaller shops will lose customers to the bigger, more popular shops.
The NBD-Dirichlet Model also makes an appearance, as each coffee shop is effectively wanting to target all coffee lovers, light buyers become heavy buyers and heavy buyers become light.
Not that I'm framing my coffee choices as the model for all coffee buyers in the suburb, but a spot of ethnography mixed with some qual and you've got the basis of a few hypotheses.
How one shop carved out a very different audience
I'd be surprised if the owner of Coffee Shop G, who have recently opened a few doors down from Shop E, had done their research to this level but their positioning is seriously smart. The kind of smart that, if this were a large brand, they would win a lot of awards.
Look across the range of pricing, coffee of quality, and shop location. There doesn't seem to be an obvious gap in the market. I was wrong. There is. And it involves Lebanese pizza.
Because the new coffee shop doesn't position themselves as a coffee shop. They're a Lebanese-Italian bakery who also happen to serve coffee. Their speciality is manoush, a Lebanese flatbread topped with za'atar (and other things, but the za'atar is the best).
They also offer takeaway pizzas at half the price of the local award-winning pizzeria, but also are open earlier and close before the pizzeria's evening service starts. The coffee's pretty good too, and in the mid-price range.
The shopfront is quite unlike anything else in the suburb, with Lebanese and Italian flags and assorted trinkets that you can buy. And at the centre of it all, the coffee machine gets a lot of use as the Lebanese and Italian diaspora in the neighbourhood queue up each morning for their flatbread and coffee.
I have no idea about the margins and profitability of the shop, but my entirely unscientific counting puts them at least third or fourth out of all coffee shop foot traffic in the suburb at 8am.
The coffee shop analogy serves as a good reminder of two golden marketing rules. Firstly, never assume anything. It would have been easy to assume that better coffee or cheaper coffee would be the best way to position a new shop. But that's what you think, not what the data says.
A few people telling Coffee Shop G's owner that they should open a Lebanese bakery and coffee shop in the locality is still a data point. It opens up an insight that the food from all the other coffee shops in the area is largely the same fare of bacon and egg rolls and avocado on toast.
It already gives Shop G's owner an opportunity to prove or disprove the hypothesis with further research (which could be as little as asking a few more people if they'd like a manoush shop in the area).
The second and most obvious rule: know your customer. Shop G knows their audience. They're not trying to be the same as Shop A. Both shops are still competing for the same large audience of coffee lovers in the suburb, but Shop G's advantage is they're very different from all other competition.
Shop G may still fail. It's only been open for a few months and brisk trade isn't the same as profitability. But I hope they do succeed, not least because their food is delicious. It also shows that even in a crowded, commodified market, clever people still find a way to stand out.
Of course, if somebody wanted to be really successful, they should follow the example of Coffee Shop H, who are the only coffee shop on the other side of the train tracks. The majority of commuters from the north side of the tracks have to walk past Shop H to catch a train. But that's a totally different discussion.
‘What if everything Netflix thought it knew turned out to be a lie?’
The market is getting very jittery about Netflix’s ability to make more money, and Netflix is, in turn, getting very jittery about where growth will come from, which is why it’s raising prices and cracking down on password sharing. Part of the problem is that streaming is becoming a commodity and Netflix isn’t guaranteed to continue to churn out hits. But a bigger problem is the TAM (Total Addressable Market or number of potential household subscriptions globally and the limit to how big any one streaming service can grow).
Nobody’s quite sure how big this is, but it may be less than Netflix originally assumed. It’s why Disney are considering adverts and why Apple and Amazon are probably a little less worried by TAMs. Matthew Belloni has a very good breakdown on the TAM problem at Puck (worth registering to read this). For those of you in Australia, Ben Shepherd breaks down TAMs and SVOD in the local market. LINK - PUCK. LINK - AUSTRALIAN (TIM) TAMS.
Where do advertising budgets go?
Benedict Evans is a much smarter man than me. His most recent essay attempts to unbundle modern advertising budgets. If budgets are moved from traditional media such as print, where do they go? Facebook (Meta) used to be the obvious answer, but increasingly its Amazon. And given that brands themselves are becoming both advertisers and media platforms, what does this mean and who will win? LINK - BEN EVANS.
Gaming is the new TV part 76
Speaking of advertising budgets, games company Unity report that in-game advertising rose by 27.6% last year. Of course, this could just as easily be generated from Candy Crush or even Wordle as Fortnite, and the two are quite different propositions, although both are closer to advertising in whatever the metaverse is than either Mark Zuckerberg’s vision or Decentraland. Gaming may eat into OOH or TV budgets or it may remain a large but niche advertising channel. Either way, it releases up more inventory. LINK - WARC.
Facebook’s regulatory challenges part 742
The ACCC - Australia’s equivalent of the UK’s Competition and Markets Authority who occasionally stray into Advertising Standards Authority territory - have gone after Meta for allowing fake celebrity cryptocurrency endorsement adverts on Facebook. Meta has long taken a hands-off approach to adverts and can be bewilderingly inconsistent in applying their rules, as any social media manager will confirm.
This also raises other questions, such as does this mean other platforms such as Google and Taboola will also be regulated? Does this mean formal regulation as opposed to the current piecemeal approach? Is it the ACCC’s job to regulate adverts on Meta, and if not then who should get that job? And if each local jurisdiction has local laws, how do you regulate an advert targeted to Australian users through an American-owned platform placed by advertisers (or scammers) in a third country? LINK.
Covid, China and supply chains
Many countries have now taken the decision to open up and “live with Covid”. China, meanwhile, is still pursuing a zero Covid strategy, which means localised lockdowns. This will continue to cause disruption for any business that relies on China as part of their supply chain until either China changes their policy, Covid ceases to be a threat due to mutations or global vaccinations, or the businesses move the chain to another country. Mutations in scenario two may happen but is impossible to plan for, scenario three will take time and will continue to add costs onto consumers, and scenario one depends a lot on a few people and could be complicated if China opts to fully back Russia. Who says geopolitics don’t affect everyday living expenses? LINK - THE ECONOMIST.
Latest NFT non-venture: restaurants
A LA restauranteur plans to open up a venue based around a Bored Ape Yacht Club (BAYC) NFT he purchased for $267,000 USD. As a brand extension for BAYC it makes a sense to take a virtual club into the offline world and become a global version of Soho House or, less exclusively, Planet Hollywood. As a proof concept for NFTs, it’s nothing that couldn’t be done by submitting paperwork to the US Patent and Trademark Office. NFT enthusiasts are very good at inventing scenarios and use cases that are already serviced perfectly well by non-crypto technology. LINK.
Thanks for reading this far. Hopefully you’ve found it mildly diverting. Like what you’ve read? Forward it onto somebody and ask them to subscribe.
Playing us out this week: Lana Del Rey - White Dress from the album Chemtrails Over The Country Club. A better song than Video Games, in my mind. And I like Video Games a lot. But this is much more mature songwriting.