A sideways look at economics
Having grown up watching zillions of re-runs of Friends on TV, I always felt that every coffee shop in the world ought to have a nice big leather sofa like the one in Central Perk. It’s somewhere for all those zany best pals to laze about, joking, teasing and simply goofing around. That sofa and armchairs are central to what the best coffee houses are all about, aren’t they?
But wait a minute — maybe not! Earlier this week, I took a slight detour from my regular commute into the Fathom office to try out Blank Street, a new coffee chain I’ve noticed popping up in various locations across the city. From the outside, with its pastel-coloured branding and minimalist décor, it doesn’t look much different from any other coffee shop on the block. But what sparked my interest in the company was reading online that the New York-based start-up has raised almost US$100 million in funding from high-profile venture capital funds and investors. That’s certainly a lot of coffee beans! But what makes this coffee chain any different to its competitors, in what is already a very saturated market? Surely it’s more than the absence of leather sofas and hangers-on?
Blank Street first hit the coffee scene in the summer of 2020 when it opened a small battery-powered, mint-green coffee cart in the garden of the Wythe diner in Brooklyn, New York. At that point COVID-19 lockdowns were forcing many small businesses across the US (and across the world too) to shut down, leaving storefronts empty. This briefly reduced rental costs and helped Blank Street’s rapid early expansion. And expand rapidly they did — in its first two years, the company opened 40 locations across New York, as well as sites in Boston and DC. Hoping to make London its ‘second home’, the company opened its first London locations in Fitzrovia and Shoreditch in July 2022. Today, it already has 20 locations across the English capital with plans to expand further.
But what was it that made Blank Street’s proposition so unique that it was able to attract so much lucrative attention from Silicon Valley investors? These investors typically look to invest in ambitious founders who seek to change the status quo, to come up with a bold innovation that threatens to disrupt existing industries, so-called ‘high-risk, high-reward’ investments. Do we really need another coffee chain on our high streets when we’ve already got so many?
Looking at the UK coffee market, for example, analysis by Citi Group in 2017 predicted that the UK coffee market had only 4 to 5 years structural growth remaining. Up until then, the number of coffee shops on UK high streets had been increasing rapidly. According to research from Allegra World Coffee Portal, in December 2007 there were fewer than 10,000 places to buy coffee in the UK. By December 2016, the number of coffee shops increased to 22,000. The analysis by Citi Group suggested that the industry’s pace of expansion would not continue, and could in fact stop all together as we’ll have more than enough coffee shops to satisfy demand. In other words, we’ll have reached ‘peak coffee shop’.
What makes Blank Street’s proposition so unique is its business model. Its founders, Issam Freiha and Vinay Menda, have a background in tech start-ups, not coffee. Having previously worked together at Reshape, a venture capital fund, they saw first-hand how successful mobile-first, food-retail businesses had been in Asia, and wanted to replicate that in the US where they found the coffee experience to be slow and overpriced.
Soon, the idea for Blank Street was born: “a micro-cafe that would be cheaper and more welcoming than Starbucks, with better coffee than Dunkin’ and more ubiquitous than any independent coffee shop or chain”.[1] The main feature of every Blank Street store is the Eversys espresso machine which automates a large part of the coffee-making process, from grinding coffee beans to steaming milk. Created in Switzerland in 2009, and since taken over by Italian De’Lhonghi Group, these high-end machines range in price from US$17,000 up to US$47,500 for the Shotmaster Pro model which can produce 8 products at the same time and up to 700 espressos per hour. Automating the beverage-making process allows the company to save significantly on labour costs — each store typically has only 2 employees on shift at any given time — as well as allowing employees to focus more on customer service than on coffee.
The company also saves when it comes to rental costs. Whilst it has moved on from the original coffee cart to actual bricks and mortar stores, the average size of these stores is 350 sq ft with only a handful of seats. Instead of being a spot for socialising with friends, like Central Perk, Blank Street is designed for busy urbanites on the go. The company is more focused on bringing in repeat visitors than customers who will linger long over their caramel crunch Frappuccino.
And it seems to be working. Freiha and Menda say that all of the company’s New York locations have been profitable on a per-unit basis within a month of opening.
While this all sounds positive, as with any new company launching in the era of keyboard warriors, it has received its fair share of criticism — some perceive the company as a symbol of gentrification, resenting the use of Silicon Valley money to rival local independent coffee shops. The focus on automation could also lead to job losses, an area Fathom has studied in some depth.
Criticism aside, how would I rate my Blank Street experience? Well, I pre-ordered my go-to, oat flat white via the app, which prompts customers to order ahead to skip the queue. I asked for my coffee to be ready at 8am, my estimated time of arrival at the store. Lo and behold, my coffee was waiting for me when I got there. I took a seat (one of only four available in the whole coffee shop) and watched as other commuters came in to grab their morning coffees. There was a continuous flow of customers, but the line was never more than three customers deep. From my 20 to 30 minutes in the shop, I’d say no customer waited more than 60 seconds to receive their order. One lady took a seat beside me after placing her order only to hear that it was ready as soon as she had sat down. “Gosh, that was quick!” she said.
Whilst I do love a cup of coffee, I’m no expert so I’ll leave the in-depth taste review to the experts. I will say that I certainly enjoyed my morning pick-me-up, a well-needed caffeine boost to start off my first day back at work after a short break. My oat flat white cost me £3.20, which is in line with the average price for a flat white. What’s more, the oat milk came at no additional cost, unlike other cafés that can often charge up to 50p extra — a nice touch, which is sure to get a bonus point from Gen Z!
Whilst the automation of coffee houses may not be for everyone, it certainly seems to be a trend that’s here to stay, as many coffee chains look for ways to adapt to significant challenges facing the industry, including staff shortages and rising overheads. As someone who enjoyed my quick, one-off Blank Street experience, I can’t help but think that had it been the coffee shop in Friends, the show would necessarily have been that little bit different. There would have been no Phoebe, for example, lounging on the sofa in Central Perk singing mournful songs about Smelly Cat. But hey — I could certainly live with that!
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