- Amid inflation, businesses are cutting back on product quality and service while keeping prices the same
- This is a phenomenon called “skimpflation” – often exacerbated in the coffee sector by heavy investment in automation
- One example of automation is Blank Street Coffee, which raised over $87 million in funding
SKIMPING on quality and service in the name of efficiency and padding the bottom line has always been a go-to strategy for businesses, especially in times of economic stress – a phenomenon known as “skimpflation.”
The specialty and premium coffee segments have long differentiated themselves with a seal of quality. But as the coffee industry grapples with inflation, rising costs and ever-increasing demand, even they aren’t immune to skimpflation.
Over recent years, semi and fully-automatic machines have increased in popularity in the coffee sector, replacing the hand-crafted tenets of the industry with more efficient, consistent, and cost-effective alternatives.
Many prominent coffee shop chains are increasingly using fully automatic machines to drive expansion and improve productivity. International coffee chain Blank Street has expanded from New York to London with automatic espresso machines to “maximise speed and volume”, while 200 Degrees’ Coffee 2GO automated coffee machines offer a “barista in a box” experience to hundreds of locations across the UK.
Large chains and new start-ups are leading this trend, using automation to reduce wait times and improve product workflow. In 2022, Starbucks invested more than $450 million in its automatic coffee-making Siren System, and US-based start-ups such as Cafe X, Briggo and Truebird are investing heavily in the future success of “robot baristas.”
The growth of automation has grabbed the interest of investors – venture capitalists especially. Blank Street raised over $87 million in two funding rounds, taking it from a single coffee cart to an international empire in just a few years. With less staff and faster service than a traditional brick-and-mortar model reliant on human staff and hands-on preparation, these businesses offer the allure of substantial savings – and profit.
“Super-automatic machines are starting to produce better quality coffees than before and getting closer to a traditional espresso machine result,” says Bogdan Prunilla, Managing Director of Coffee Market Innovations LLC.
“There is also a lack of qualified and passionate workers today, and a workforce migration phenomenon. Companies invest highly in training and education and after a while, baristas leave. This tempts all big chains to move towards super-automatic machines and have ‘operators,’ which are easy to train and cost less than baristas.”
The global automation market is growing at a fast pace, projected to be worth over $400 billion by 2030. As more businesses embrace automation, their overhead costs improve.
Meanwhile, prices for their products haven’t gone down, and often match those of traditional coffee businesses – meaning many are paying an inflated price for a product of lower quality, with less customer service.
The “McDonaldisation of society”
Cutting down on overhead costs while maintaining the price of their products is one of the oldest tricks in the book, and a time-tested strategy.
In 1916, Piggly Wiggly became the first self-service supermarket, removing the service of helpers assembling groceries for shoppers but keeping the same product prices. Today, this has become the norm, but at the time it was a significant service downgrade successfully packaged as progress and novelty.
As technology advances, so does skimpflation – paving the way for the speed and convenience that consumers demand, and the cost efficiency that investors seek. In 2022, McDonalds opened a largely automated location in Texas, limiting interactions between staff and customers via touch-screens and “order ahead lanes.” The pilot has now been scaled across McDonald’s locations worldwide.
With most coffee shops heavily reliant on staff for product preparation, and margins that are often barely enough to make ends meet, it comes as no surprise that the sector has adopted skimpflation practices – eagerly or not.
While some consumers are excited by the concept of vending machines, robot baristas, and less staff interaction, many might baulk at having to pay the same price for a coffee made by a machine as they would by a skilled barista at a coffee shop.
“Consumers have always had the freedom to choose the place from where they buy their coffee. Migration to better quality coffee in a local or high-end café, for example, can be the antidote for stopping automation and cost reduction of coffee shop chains,” says Bogdan.
“Big chains gather data on consumer behaviour and see that consumers just need coffee, not a better coffee, so they use these tools to gain more profits.”
It’s not just hospitality businesses that are skimping. Sociologist George Ritzer in his 1993 book “The McDonaldization of Society” underscores a phenomenon of society adopting the characteristics of a fast-food restaurant where big, cheap, and quick attributes supersede quality.
He outlines the rise of authoritarianism, exacerbated inequalities, higher risks of poverty and famine, the dominance of giant corporations, and the increasing influence of big tech as major contributing factors that further alienate consumers from investing in or remaining loyal to brands.
As technology and convenience play a greater role in the way we consume coffee – as well as everything else – more “traditional” coffee business models may have to adapt to compete with businesses skimping on service and hand-crafted coffee.
“If we look at other industries like self-driving cars, auto-pilot, electric cars, and the whole tech accessories market, we see lightning development,” says Bogdan.
“The same is happening in the coffee industry. We must accept and embrace this wave of change and notice how it feeds into consumer trends, but at the same time, we must educate them on how to choose a better coffee.”
But consumers are just one part of the equation. For investors in these technologies, the idea of high-profit and low-expense is a dream come true, and automation provides a means to increase productivity and to quickly get coffee in the hands of customers.
But is this what consumers want?
“Skimpflation outrage” is brewing
Despite a growing demand for quicker, more convenient and consistent options – evidenced by the meteoric rise of RTD coffee – consumers still want bang for their buck.
Skimpflation may be good for companies’ and investors’ bottom line – but how long can it last if consumers get tired of paying the same for less?
A report by UJET claims that many consumers already report frustration with the use of chatbots and automated customer service, calling it a “complete waste of time.” And while a reported 72% of US consumers already use some automation when they purchase, only a small majority are willing to accept it in hospitality businesses, believing that humans are irreplaceable for “personalisation, empathy and safety.”
Another recent study by ESADE Business School found that while skimpflation is becoming increasingly prevalent, there’s a limited understanding of how consumers perceive it. It claims that consumers judge reductions in the quality of products to be substantially more unfair than price increase of reductions in the size of products, leading to “skimpflation outrage.”
While self-serve checkouts and touch screens may be successful implementation of skimpflation in some sectors, some believe that a combination of this outrage and the specifics of coffee preparation may mean that businesses will have a tough time automating the coffee sector.
“Most of the recipes are very accurate, and you can’t split or reduce one espresso shot or a cappuccino,” says Bogdan.
“But if you do, it will have a big impact on quality that will be impossible to overlook, even as a regular consumer, and that will lead them to move to a different coffee shop. I don’t think big chains will adopt this size reduction strategy, it’s too risky and will have a big impact on consumer perception.”
Although automation may seem like the right choice for coffee businesses to make – providing convenience and streamlined delivery of products – the benefits may not outweigh the costs that consumers have to pay.
At the end of the day, they’re paying to receive the same or lesser quality product, but have lost the interaction and craft that made the industry so popular in the first place.
“More and more home baristas are buying increasingly improved espresso machines and grinders, choosing carefully the roastery from where they get their coffee, checking the roasting date, coffee profile and so on,” says Bogdan.
“So I would say that consumers are getting tired of skimpflation already – the issue is that only a small percentage can afford to have an espresso machine at home, so the biggest percentage is still going to their regular places.”
Skimpflation will likely remain a divide between different areas of the coffee sector – with large chains opting for technology and automation to streamline their service, and small businesses banking on the human element and hand-crafted products to differentiate themselves.
Which of these models will most thrive is up to what consumers are happy to pay for. But as coffee consumers continue to become more educated about what they’re consuming, they’re sure to be more discerning about what they’re willing to pay for.
Coffee Intelligence
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