November 9, 2021

How can coffee shops diversify into offering different products?

Cafés and roasters have a core product that is – and always will be – the focus of their business: coffee. Selling drinks and bags of beans is naturally a key part of their business model. But what about diversification?

In the modern coffee industry, many coffee shops and roasters have started to broaden their product range to diversify their income, differentiate their brand, and secure different revenue streams. As well as offering greater stability for the business itself, this also allows businesses to sell other products that represent their brand’s values and identity.

To learn more, I spoke to José De León Guzmán and Agnese Idà of Kofra Coffee Roasters. They told me about product diversification in the coffee sector. Read on to find out what they said.

You may also like our article on how coffee roasters can diversify their income.

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What is product diversification?

José is the CEO and founder of Kofra, a specialty coffee roaster with four locations in Norwich, UK. He explains how Kofra started to diversify away from coffee.

“In the beginning, I didn’t really want to [sell] anything else other than coffee,” José says. “Not even pastries. I just wanted to sell retail bags [of coffee] and coffee drinks.

“After a while, the staff told me they were frustrated by saying no to people that wanted to buy baked goods.”

Although a focus on sourcing, roasting, or brewing high-quality coffee should be a focus for any successful coffee brand, restricting your product range can leave the business vulnerable. This is why many coffee brands diversify.

Product diversification is a simple concept. By selling adding new products, you can implement new revenue streams and ensure some level of future stability if you have any issues with your core product. For cafés and roasters, baked goods, brewing equipment, and merchandise are common options.

Agnese is the wine buyer and Head of Luxury Product Sourcing at Kofra. She notes that product diversification is not solely about selling more to increase revenue, but also about aligning new products with your established brand.

“We spend a lot of time sourcing not just interesting products, but products that make sense for us,” she says. “We want to complement our ethos [with] quality produce, and [products that are] from people we love to work with.”

The benefits of diversification

The immediate and obvious benefit for any successful diversification strategy is some kind of increase in sales and revenue. However, over time, there are a number of medium and long-term benefits.

“By creating new product lines, you add diversity,” Agnese says. “Rather than just being a café, you can become a one-stop shop for fine products and a haven for food lovers, for instance.

“Through product diversification, we’ve become the go-to place for carefully curated, high-quality goods that you can’t get at your local grocer.”

By offering new products that align with your brand identity, you can clarify and hone in on what your business is passionate about, and subsequently communicate that to customers. You can also demonstrate an ability to keep up with changing consumer tastes and demands.

“In some cases, it can be about finding things that you wouldn’t otherwise find in other stores,” José says. “Now, people that come to Kofra shops have a feeling like shopping with us is a special occasion.”

Diversification can also have a wider community impact, too. Partnering with other local businesses – such as bakeries, farmers, or even artists – can boost the local economy and communicate that you’re passionate about doing so.

“Sourcing locally is definitely desirable,” Agnese explains. “That’s why we source many of our products from near our stores. We offer beef that we dry age in store and milk from local farms, for instance.

“However, we are firm believers that local doesn’t automatically mean better. Quality is a large factor, and we also look to work with companies that are making more sustainable and environmentally friendly decisions.”

Food and beverage products

So, now we’ve looked at why coffee brands diversify into different product categories. But how should you do it? And which products should you choose?

Firstly, while coffee should naturally remain the key focus of any café or roastery, branching out into other food and beverage categories can ultimately be a natural or organic process.

One great example is wine. Parallels between the coffee and wine sector have been drawn for years now, with concepts like terroir, palate, and experimental processing common between the two.

“At Kofra, our wines are all organic, biodynamic, and low intervention,” Agnese tells me. “This means there’s as little interference with the product and process as possible: showing the true expression of the grape and the terroir.”

Natural (or low intervention) wines use little to no additives (such as sulphites, sugars, and acids) in the winemaking process. The lack of stabilisers often creates more fruit-forward and complex flavours – similar to what you’ll get in natural and experimental processed coffees.

“After finding similarities between our wines and coffees, it soon became a labour of love,” Agnese tells me. “It’s now a separate outlet of expression for the team and the company as a whole.

“We started with only a handful of bottles, and now [have] over 100 wines from around the world, from a much-loved classic Chianti to some pretty funky blends,” Agnese states. “The same is true for our craft beer selection. With the industry growing so rapidly, there is definitely more of a demand for excellent beers.”

José says that this is another natural step, and that many consumers with an affinity for specialty coffee also appreciate craft beers. For him, this is likely because there is often what he calls a “small batch ethos” behind both products.

“If you like good coffee, there’s a chance that you [also] like good beer,” he says. “It was a natural progression for us. Soon, our beer started to sell really well and we realised that there was great synergy between beer and coffee.”

Research from Business Insider shows that craft beer sales increased 15% from 2012 to 2013 and IPA (India Pale Ale) sales alone grew by 40%. Moreover, the global craft beer market is expected to hit US $200 million by 2026.

“Kofra works with two, three, four breweries maximum [to keep prices] fair and make the products more accessible,” José says. “[A few years back], a lot of breweries were using espresso as the base for stout, so we created a cold brew stout. 

“We won the gold medal for the best flavour category in the UK national competition,” he adds.

Cakes, pastries, and other baked goods are commonplace in most cafés as they pair well with coffee. However, José explains that in Kofra, the food products are slightly different; in particular, he highlights their dry-aged beef.

“It’s a premium product because that is what specialty is all about,” he explains. “It’s [about] traceability. We buy beef from local grass-fed cows that are treated well.”

Selling equipment and merchandise

This is another area that cafés and roasters can diversify into. Stocking and selling equipment – home grinders, scales, pouring kettles, and brewers, for example – became considerably more popular are a new product category during the Covid-19 pandemic.

Sales of coffee equipment rose by 11% in the US, with a median price of US $139. This showed one thing above all else: growing consumer interest in brewing café quality coffee at home.

However, José warns against focusing too much on equipment sales. He notes that there are almost always larger retailers who can offer better prices.

“We don’t sell coffee equipment because we can’t compete with Amazon,” he explains. “What we can do is sell products that are related to our brand.”

Another option is merchandise, which is a way of diversifying your product range and promoting your brand at the same time. You can add your logo or slogan to mugs, hats, t-shirts, or jackets, for instance.

However, José emphasises that quality should still be at the forefront of all products, including merchandise.

“Merchandise should be something that you earn,” he says. “It can’t be just [sticking] a logo on some t-shirts that you’re selling. People have to make that attachment, but you have to give them the quality you are promising.

“For example, the story behind our t-shirts is simple. We found the best printers in Norwich and asked them for the best shirts they had to test them out. I kept mine for six months and wore it to make sure it was high-quality!”

Finally, he also notes that Kofra partnered with a local artist to create prints of each of its four cafés. These, he says, are all available online.

“The prints are from an artist that comes to Kofra every afternoon, so she [made] one for Christmas that we send to our regular customers to say thank you,” he tells me.

How can café owners diversify successfully?

In order for product diversification to be a profitable exercise, you naturally need to start by marketing your new products. 

Agnese tells me that using social media to announce new products has been useful for Kofra.

“Social media has taken over for advertising,” she says. “It’s now our go-to when we inform our customers about new lines and products.

“It allows us to post quickly and easily as soon as a product arrives. It helps us feel connected to our communities, and in return, they feel more connected to us and the content we share.”

Product announcements via social media or email newsletters are especially useful for reaching a broad base of customers quickly. This is especially the case if you’ve seen a number of requests for certain new products.

Beyond that, partnering with other local businesses that you trust with values that align with your own can give you great ideas and inspire you.

“It’s through inspiration,” José says. “The inspiration is visiting other places, not necessarily to copy, but to learn and see where the trends are going.”

Agnese adds: “We travel, we eat, and we seek people who are making a mark in their field when it comes to quality and sustainability, just like us.”

Finally, José says that one of the most important factors for success is simply trusting in your new products.

“You have to be proud of your products,” he says. “Then relate that to your customers. Create synergy. It doesn’t matter what the product is, it matters that you’re proud to tell that story.

“When I hired our first baker, her cakes really complemented our coffee. The flavours represent Kofra, and I’m proud to sell them.”

However, José concludes by noting that the focus of your business should always be clear. “Ultimately, don’t forget that you are first and foremost a coffee shop,” he says.

kofra muh and books

Adding more products is an exciting prospect, but it is also a process fraught with challenges. Keeping your brand front and centre and making sure quality permeates throughout every product you sell will be key to any success with diversification.

“We keep searching so that we can present products that are high quality and on-brand,” José concludes. “That’s the future of the coffee shop: giving the community a high-quality one-stop-shop.

Enjoyed this? Then read our article on serving food in specialty coffee shops.

Photo credits: Kofra Coffee Roasters

Perfect Daily Grind

Please note: Kofra Coffee Roasters is a sponsor of Perfect Daily Grind.

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