About Success Builder
How do you find your place in life? How do you find something to do that both comes naturally to you and makes you happy? The answer is that you have to apply the knowledge you’ve gained from university and from life itself correctly. The Success Builder Project features HSE University graduates who have discovered themselves through an interesting business or an unexpected profession. The protagonists share their experiences and lessons learnt and talk about how they’ve made the most of the opportunities they were given.
Cafes and restaurants in Russia currently find themselves in a very competitive environment, which is why a lot of new formats and ideas arise. In the latest edition of Success Builder, the founders of Jeffrey’s Coffee, Alexey Mironov and Alexey Karanyuk, discuss what makes a ‘good’ café, why it’s important to go see what competitors are up to, and what the prime costs of a double espresso are.
Have you been friends for a long time?
Alexey Karanyuk: We lived together in the dorms in Dubki (Moscow). That’s where we met, became friends, and decided to work together.
Is this your guys’ first experience with cafes? What were some of the first bumps in the road?
grains of coffee are enough for one portion of espresso
Alexey Mironov: Before cafes, I had had only one business experience – I had started an online English school via Skype. I did this because I had to. I needed the money. I’m from Izhevsk, and after I completed my bachelor’s degree there, I had to decide what to do next. My dream was to study at HSE, and I wanted to get a good degree in economics from a prestigious university. That’s when the question of finances arose. This was back in 2009. I made some money and in 2010 got into a master’s programme at HSE. After completing it, I returned to Izhevsk and opened up a time café.
When you got into HSE, did you think that you’d be doing this in order to start a business?
Alexey Karanyuk: I remember something Alexey said, ‘either way I’m going to work in business.’
Alexey Mironov: I might have said that, but I didn’t think everything would work out so quickly at first. After graduating from HSE, I initially went to work in economic analysis, but I started the business in parallel. That’s just how everything worked out.
Alexey Karanyuk: This ‘parallelism’ often displaces what you were planning to do. This happened to both of us – the business gradually started pushing our main jobs aside.
Alexey Mironov: In the end, we quit our main jobs. It was a little scary giving up that stability.
That’s understandably the risk. How did things go when you started?
Alexey Mironov: At first you only see the idea. It inspires you, but you are slowed down by not having enough information. You don’t know how everything is set up, what prices suppliers are working with, what problems might arise with taxes… There are so many things to do and so many bumps along the road.
Alexey Karanyuk: What’s scarier than all of the things you have to do is the fact that you don’t know what other problems might arise. You can’t even foresee them.
Moscow has 50 players and a competitor appears, but you don’t care. Then outside of the city you have two competitors and a third appears, and now your revenue falls 20%
Alexey Mironov: The best way to start a business is by networking. Go to lunch and talk to people who know what they are doing. The first thing I did was remember that I have an acquaintance from my old dorm who’s an administrator at an anti-café. I learned a lot from her. I got a good picture of how this business actually functions. The more information you have from market participants, the better you are able to understand what a potential business will look like.
And what did you learn from her?
Alexey Mironov: I learned about procurements and about how everything is prepared and served. It’s not even about the revenue. There’s an entirely different economics at play. In Moscow it’s one thing and in Izhevsk another. For example, I learned about margin, where the expenses are, how personnel works, who the target audience is, and I cleared up a lot of marketing and operational questions.
Not an administrator, but a Stierlitz…
Alexey Mironov: Maybe she didn’t know a lot herself, but I asked the right questions and got some information, so it was worth it.
Alexey Karanyuk: There’s a lot of borrowing involved in this business. Go look at a location, visit a competitor, get an idea of the flow, drink a coffee, and look at the check. You can also take a look at the number of punched checks – go in the morning, then in the evening and see the difference. Next go meet a barista; their smile and level of formality will give you all the necessary information.
That is, spy. Is this a normal thing to do for future businessmen?
Alexey Karanyuk: Yes, everyone does this. A lot of people come spy on us too.
Alexey Mironov: I’d call it reconnaissance.
Alexey Karanyuk: Actually, the majority of entrepreneurs, particularly small business owners, are fairly open to communication. I don’t see anything shameful in just consulting with them and talking about how to move forward. They’ll give you an answer 50% of the time.
When did you start working together on the Moscow cafe project?
Alexey Mironov: Things were going decently for me in Izhevsk. I opened a second café there, began growing the franchise, and understood that it was time to open something up in Moscow. Of course, this is much more difficult due to local rental prices and the amount of competition. But Moscow also didn’t have time cafés at the time, and I asked Alexey if he wanted to work together on the project.
What might a regional businessman find new about the Moscow market?
Alexey Mironov: Here, all market participants are professional. Rent is very high, even if you compare it with other European capitals.
Alexey Karanyuk: But there’s another advantage compared to the regions – the market [here] is huge. Moscow has 50 players and a competitor appears, but you don’t care. Then outside of the city you have two competitors and a third appears, and now your revenue falls 20%.
It would appear that larger cities are taking on a certain coffee culture now. Do you think coffee has already become a component of image?
Alexey Mironov: Actually, there’s a coffee culture in smaller cities in Russia as well. There are also a lot of people who sit with their laptops all day, meet their friends, and go from café to café with a takeaway cup; it’s just that their finances don’t allow them to do that all the time. The market in Izhevsk is 40 times smaller than that of Moscow, where there are several hundred good coffee shops.
What makes a ‘good coffee shop?’ There’s Shokoladnitsa for example…
Alexey Karanyuk: That’s more of a café than a coffee shop. Sure, it’s a good school for baristas, even a great school, but people go there to eat, not to drink coffee…
Alexey Mironov: Yes, it’s not like Double-B, the concept of which is to be purely a coffee shop with an emphasis on the quality of coffee. They do have food, but they are a classic coffee shop. The time café format is a somewhat different business.
Coffee is profitable, and if I’m not mistaken there aren’t any duties you have to pay on it, no?
Alexey Mironov: Correct. It’s profitable to open up a coffee shop.
Alexey Karanyuk: Coffee provides nice margins. But the margins are going to gradually start falling because competition is increasing. The thing with this type of business is that the margins are higher, but rent is also higher. That’s the economics. From what I know about food, the margins at Burger Heroes are 50%-60%, but at Starbucks they’re 80%. But Burger Heroes is able to save on rent.
Is coffee less of a headache than food?
Alexey Karanyuk: A ton of factors impact the quality of coffee. You open the window a little, the coffee cools off, and you have to reconfigure the grind. Depending on the manoeuvrability and overall level at which the establishment operates, you might need to reconfigure the grind once every hour. And that is just one of many factors – grains, milk, the work of the barista, and even water… Plus, now the consumer is more knowledgeable about everything. Demands are increasing, and this is more of a headache. It’s hard to believe that just two years ago you could serve someone Robusta [the cheapest and lowest quality coffee]. But still, food standards are even higher, in my opinion.
How did you become so knowledgeable about coffee and the equipment?
Alexey Mironov: We are still learning, and we have actually taken on a new strategy for improving the quality of our product. We need five or six months to improve the entire process. That includes implementing a system for setting Bitrix tasks, implementing the IIKO system, changing architectural plans, setting up equipment, and buying new things for the interior.
Where does this change stem from?
Alexey Karanyuk: Process is money. If you have a bad process in place, the quality and speed of your service suffers. You can use fibre for the coffee machines, but you can’t use a terry towel. But you can, and should, use a terry towel for the holder.
Alexey Mironov: Those are the details. But ergonomics can significantly improve service. If the coffee machine and milk are closer to a barista’s workstation, this improves efficiency by 40% as far as the speed at which customers are served is concerned. This is really important for us. We have locations at malls, where demand is high and where there can be long lines. There are also huge crowds at HSE between lectures.
We don’t yet understand the correct way to sell tea – how to make it popular and get the younger crowd to start carrying around to-go cups
Alexey Karanyuk: Now at HSE, we’ve learned that we need to move the refrigerator that holds the milk so increase the speed of our service. If a barista takes two steps instead of one and a half, for example, then over time this totals dozens of un-served customers a day.
I heard that baristas learn how to foam milk by practicing on Fairy dish soap.
Alexey Karanyuk: And that’s true. Milk is an expensive pleasure.
What are the production costs of something like a double espresso?
Alexey Mironov: The market average is between 14 and 30 rubles with a margin of 70%-80%.
Why is there such a variance in the price?
Alexey Mironov: It depends on the coffee, which is understandable. We actually have our own KOF roasters with special equipment that is in line with the highest international standards. The team understands everything very well, and they get the processes behind everything and help us fine-tune our process.
Alexey Karanyuk: The purpose of a roaster is to balance the density to acidity ratio in order to give the coffee the best flavour. Roasting is a complicated process, and there are very few professionals on the market. It’s important that the process be stable and high quality. Grains are always different, so they have to be roasted differently, which is tough.
Do all coffee shops buy coffee from a roaster?
Alexey Karanyuk: The majority of coffee shops buy coffee made by large producers from suppliers, which is how we differ from everyone else. But there are also those who are large enough to do their own roasting – places like Coffee House and Double-B.
Can you talk a little about the time cafe format?
Alexey Mironov: We started out with specifically time cafes in Izhevsk in 2012 when there were already a few chains, Tsiferblat being one example. It’s very convenient to have a coffee shop and co-working space in the same location; you can go there on a date, meet friends, work… There are just more opportunities than at an ordinary café. We changed our approach. In certain ways, it became more professional compared with what existed for that segment at the time, and this gave us some competitive advantages and allowed us to expand. We now have two brands, New York Coffee and Jeffrey’s Coffee.
of people in Russia consume ground coffee, while 85% drink instant and 5% – coffee drinks
Alexey Karanyuk: A time cafe is a purely Russian thing. Russia is also unique in that we have more ‘subcultural’ and narrow places, but then there are things like our time cafés. The magazine Afisha wrote about us, and readers came to check us out, but left. We just aren’t for an audience like Afisha’s. But there are a lot of other channels where we are beating competitors.
We have tea. Why don’t they offer it at most coffee shops? Of all the chains, only Starbucks is able to regularly keep tea lovers happy…
Alexey Karanyuk: That’s the fourth question I’ve gotten about tea in the last three months, and I’ve thought about it. We don’t yet understand the correct way to sell tea – how to make it popular and get the younger crowd to start carrying around to-go cups. Take hookah for example. Russia was one of the first countries in the world to expand on the hookah market. Now the Americans have started doing it. Maybe there will be a similar situation with tea. In Russia, the food industry is a competitive field, and new ideas and products are always arising. We are soon going to open a location in Great Britain. The blini chain Teremok has already opened in America, and Novikov in Dubai and London. This is not by accident.
Did you spend a long time thinking about the name?
Alexey Mironov: Jeffery is a very American name. It’s like Vasily in Russia. We needed to connect ourselves to an American conception because we are a version of a simple American coffee shop. There’s no big philosophy to glean from this. Our mascot of sorts is a moose, and this is a way for us to start a conversation with the consumer. Jeffery’s is a true coffee shop, and this is a big conceptual change. It’s really cool when a coffee shop has a concept behind it.
So coffee – is it good or bad for you?
Alexey Karanyuk: I’ll tell you the truth – no one knows. I took some classes with our roaster once, and I had to drink 20 espressos a day. That definitely isn’t very good for you.