The coronavirus pandemic has had a profound effect on small businesses throughout the country, but perhaps no other subcategory has suffered more so than restaurants. As a subset of these, local coffee shops are suffering, too.
Independent coffee shops often get their edge over well-known chains, not just for their superior product, but for their ambiance. Freelance workers often set up shop in a coffee house to plug away at a project, while colleagues and friends alike will often congregate at coffee shops to vent or catch up while sipping on artisan lattes and scones.
But the lure of the independent coffee house is waning as indoor dining continues to be a precarious, if not impossible, prospect. While larger restaurants may have the ability to move tables and seat customers six feet apart or more at limited capacity, coffee shops may not be able to make similar accommodations.
Often, coffee shops are filled with comfortable, cozy furniture that lends to conversation -- couches shared by strangers and small tables to allow for chitchat but also encourage turnover. Many independent coffee shops have minimal square footage, especially those located in cities where rent comes at a premium, and limiting indoor capacity means to virtually allow not more than a handful of customers to enjoy their beverages at a time.
Of course, independent coffee shops could benefit from takeout orders. But with so many people working remotely, the idea of stopping in for a morning coffee no longer has the same appeal. It therefore begs the question: Will independent coffee shops survive the pandemic? Or will they fade into oblivion, leaving caffeine lovers to support larger chains?
The demise of small coffee shops
The combination of operating restrictions and limited resources has left independent coffee shops in a very precarious spot at this stage of the game. While larger chains, like Starbucks (NASDAQ: SBUX), may have the capacity to weather a temporary downturn in revenue, smaller shops don't have the same means or access to capital. And while small businesses funding in the form of Paycheck Protection Program (PPP) loans may have helped some local coffee houses stay afloat earlier in the pandemic, the PPP's well-known limitation is that it mostly benefited businesses that were very payroll-heavy.
Coffee house employees don't exactly bring in the big bucks, and many rely more on tips than employer-paid wages to make a living. And for independent coffee shop owners, their most prominent expenses tend to come in the form of rent, supplies, and overhead. While PPP loans can cover some of those costs, they've fallen short for businesses that spend less on payroll.
It's not surprising, then, that the number of independent coffee shops in the U.S. is already declining for the first time in nine years. And while that may give businesses like Starbucks an edge, it can have a profound impact on neighborhoods and the dynamics they aim to uphold.
The bottom line
Of course, the loss of independent coffee shops could impact not just caffeine enthusiasts but also real estate investors. At a basic level, commercial landlords who rent to small coffee shops could find themselves with vacancies as these establishments are forced to permanently close. And shopping center operators could face pushback from existing tenants if they attempt to replace independently operated coffee shops with chains.
At a time when so many retail stores and other small businesses are closing their doors, losing independent coffee shops is a blow investors just don't need. But even the most innovative coffee shop owners may ultimately struggle to survive the blow the pandemic has dealt.