Coffee is eating the world

How to survive in amazonia

At the intersection of Kearny and California Street in San Francisco there is a coffee shop on each corner. The Northeast corner is occupied by Starbucks, which moved in three years prior, and has a bright neon sign in written characters to attract people’s attention. At the Northwest corner there is a Blue Bottle. Relatively small for their typical standard; there is no seating area but a few standing tables by the window. The South west corner has a Coffee Bar, and we, at Red Bay Coffee are going to take the South East corner of the intersection. There are so many coffee shops now in downtown San Francisco that it now seems that every shop is either a bank or a coffee shop, and sometimes they occupy the same place. As we drove around the block to prospect other areas, the real estate agent pointed out a nice corner shop with a sign that read KF Fashion, which was, apparently the site of a now defunct retail store. After a few weeks on the market, the agent pointed out, the store was to be converted into another coffee shop. Coffee, with its high margins, hot water poured over a few ounces of grounds, social nature; it’s a good place to get out of the office and meet with people; and its usefulness to the new nomadic work force, has staying power that other retail outlets do not. As Amazon and other software companies, continue to eat the world, leading to large scale closure of clothing outlets, cosmetics shops, and other places where it has become simpler to buy online, and where restaurants have food delivered from distributed shared kitchens by one of the delivery apps, the only viable occupants of storefront real estate in downtown areas are banks and coffee shops. While this may be a slight exaggeration, the number of coffee shops that our agent pointed out, that were once retail stores caused us to ask this question. Is coffee immune to software? Certainly, coffee can be delivered to offices. Luckin coffee opened 2300 stores in less than 18 months specializing in coffee delivery on motorbikes. But coffee machines have existed within offices since the dawn of time. People still want to have coffee outside. Coffee Shops, representing distributed office space, selling a product appealing to the base cravings of milkfat, sugar and stimulants, and staffed by capitalism eschewing minimum wage artists, generate consistent returns for investors, insulated from economic downturn and the robots of Amazon. As brick and mortar stores continue to fold, with real estate companies desperate for commercial tenants and building amenities, coffee shops will continue to find attractive deals in major cities around the world. Investors will exploit this arbitrage between weak commercial real estate demand and inelastic consumer addiction to coffee. For investors considering a diversification of their portfolios away from sectors that are vulnerable to Amazon, better yet, as they seek to disrupt brick and mortar, they should consider getting into coffee.