"Welcome to Five Senses Coffee"

During the last few months, the economy has dominated the news, both in Australia and overseas. Share values across the world have tumbled and economic forecasts seem to be becoming increasingly pessimistic. Major economies, such as the United Kingdom, are forecast to be in recession by the end of this year, and, in Australia, industries such as banking are making major staff cuts.

The Australian coffee industry is certainly not immune to this economic downturn. Changes in the economy will flow on to everyone in the coffee industry, including the café owner. There are a number of ways that a café owner can expect the current economic environment to affect their operation.

The biggest impact on a café owner is the price of coffee. In recent months, the economic situation has had a major effect on the price of coffee imported into Australia. The two biggest factors which impact the price at which coffee is imported into Australia are the USD exchange rate and the coffee commodity price. The decline in the USD exchange rate (which has dropped 35% in six months) has put enormous pressure on the price of coffee imported into Australia. But it’s not all bleak news. Fortunately, the coffee commodity price has dropped over this same period as well. However, despite the falling coffee commodity price, the overall price of coffee imported into Australia has risen by approximately 15 – 20% in the past six months. Here at 5 Senses, we work hard to source the highest quality products at a price that is fair to both the grower and you, the café owner.

Other expenses are also on the rise. For the 12 months ending 30 September 2008, the inflation rate was 5% compared to 1.9% for the 12 months before that. Low unemployment has meant that attracting and keeping quality employees is very competitive, therefore attractive salary conditions need to be offered.

On top of these pressures on costs, Australian businesses are now confronted with a drop in consumer confidence due to the world economic situation. The Westpac-Melbourne Institute survey on consumer sentiment in June this year found that consumer’s confidence levels were at 16 year lows.

All of this can paint a somewhat dark picture, but it is vitally important to note that it is not all doom and gloom. There are some seasonal lights at the end of the tunnel! In October 2008, the Commonwealth government of Australia announced a $10.4 billion stimulus package aimed at improving confidence and stimulating economic growth. A large portion of these funds are being directed at families and pensioners, through lump sum payments distributed in December 2008. That’s right about now! These groups are expected to spend most of the lump sum they receive, which, the government hopes, will help to ensure that the vital Christmas trading period is strong.

And there’s more good news! Interest rates have been cut by the Reserve Bank of Australia by a full 2 base percentage points in the last three months. This move is again aimed at improving consumer confidence, and trying to ensure that the Australian economy does not contract to the point of recession (defined as two consecutive quarters of negative growth).

In light of all of this economic turmoil, it can feel like the small business owner has no control over the situation, and, of course, to some extent this is true. But there are things we can do. It is vital for small businesses to ensure their accounting practices are sound. Effective cash management, ensuring debts can be paid in a timely manner, is essential. The production of realistic forecasts and budgets, with regular monitoring, can help identify drops in performance quickly and assist in the making of sound and timely decisions.

In addition, the café owner can focus on the quality of the product they are delivering. The café owner who is willing to continue producing top quality products has the ability to continue attracting consumers, even when times are harder. It’s easy to view the current economic situation as a crisis. However, for those who are willing to work hard at their business’s management and quality issues, the situation is not a crisis at all, but rather an opportunity to make the most of the situation. The glass is also half full — and when it’s a glass of top quality coffee, people are still buying!

“The Chinese use two brush strokes to write the word ‘crisis’. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger — but recognize the opportunity.” John F. Kennedy