In the Summer of 2020, a mint green coffee cart appeared in Williamsburg’s McCarren park near the Greenpoint entrance — directly across the street from a Starbucks.
It was cute, and, at least to me, appeared to be a new independent coffee place. A few months later, when I saw that the cart’s parent company, Blank Street, had raised venture funding, I didn’t get it. Why on earth does a coffee cart need venture funding? Even upon finding out it was a chain, the math just didn’t make sense to me. Venture capitalists don’t generally seem to like brick-and-mortar businesses. Nor do they like asset-heavy companies. This looked like both.
But Blank Street claims to have cracked the code on how to make a chain of more than 65 physical coffee shops have the right metrics to attract venture capitalists. They recently closed on a $20 million Series B round amid a year where fundraising has taken a nosedive — even for companies with low overhead costs.
Blank Street was founded in 2020 by Vinay Menda and Issam Freiha who previously co-founded Reshape Ventures. Reshape invests in tech-enabled businesses that need real estate to scale, according to Crunchbase. The pair adopted their own thesis to try to fix the issue of consumers wanting better coffee but not wanting the higher prices usually associated with it.
Of course, Blank Street isn’t the first VC-backed coffee shop. Luckin, Blue Bottle and CafeX came before it. But for Menda and Freiha the key to doing this was to create a business model that leaned on scale — over everything else.
Blank Street opened dozens of outposts in less than three years and partnered with local vendors so it could buy inventory in larger quantities and thus keep prices low for customers. Blank Street also focused on small-format stores and carts to keep overhead costs low, and the locations use specific espresso machines — not exclusive to Blank Street — that largely automate the process, allowing baristas to serve as many people as possible.
“Customers have been demanding more quality,” Menda said. “But the issue with ‘third wave,’ and where mainstream is still winning, is price point.” Third-wave refers to a movement in the coffee world that emphasizes high-quality beans, also known as “specialty coffee.”
This pitch has landed the company nearly $100 million in venture capital from Tiger Global, Left Lane Capital and General Catalyst, among others, in its brief history.
Jason Fiedler, a managing partner at Left Lane Capital, said that he was skeptical of Blank Street’s business model at first and passed on early rounds, but changed course after he saw how much the company had been able to scale in such a short time. Menda being an LP in Left Lane probably didn’t hurt, either.
“At the end of the day, it is a super high-repeat, high-margin business,” Fiedler said. “These coffee shops don’t need to spend a ton of marketing dollars. The efficiency allows you to scale faster without burning so much cash.”
There are a lot of things Blank Street seems to be getting right: Having tons of locations makes it easy to turn a visitor into a repeat customer; its choice to focus on breakfast tacos definitely differentiates its food menu from other coffee establishments; and the chain’s membership program, which allows customers to spend $12 a week for unlimited pours, is certainly enticing.
But I’m having a tough time seeing how this model will attract a large enough long-term customer base to sustain its more than 65 — and growing — locations. It’s hard not to see Blank Street as a company designed more for investors than customers.
For one, it’s not looking to make the best cup of coffee, the founders have been quoted saying numerous times. Instead Blank Street wants to make a cup good enough for you to ditch Starbucks — they say they are looking to improve here — and at a price that would tempt you to skip your local mom and pop shop, too.
That alone would turn off many die-hard coffee fans, and I’m not speaking about myself here, as I don’t drink the stuff. Of course this would be attractive to others who really are just looking for a step up in quality and a totally valid approach if the prices were actually substantially cheaper — but they aren’t.
For cold brew, a bestseller according to Menda, Blank Street charges $4.50 for a regular size (16 ounces), and $4.75 for a large (20 ounces). That’s 25 cents cheaper than one shop in my neighborhood and 25 cents more expensive than the other. For comparison, Starbucks offers $4.75 for a grande (16 ounces) and $5.25 for a venti (24 ounces). I’m not sure that, at most, 50 cents is enough of a difference to drive a real change in consumer behavior.
While the membership program could be a way to drop the price a bit, it’s exclusive, invitation only and intentionally kept small, meaning that most of Blank Street’s customers aren’t getting a substantially lower price than the existing options. Blank Street says they are looking to expand it.
Another potential roadblock to growth for Blank Street: its stores. Menda said the company was able to scale fast due to a combination of pandemic-priced leases and the smaller stores, which cost less to rent and to run. But many of the small-format stores don’t offer much seating — some don’t have any at all — which largely eliminates the ability for Blank Street’s shops to be meeting places or places for folks to work for a substantial amount of time.
Menda says that Blank Street doesn’t have any competitors, and in many ways, he’s right, despite the majority of the chain’s locations — at least here in New York — being within a stone’s throw of either a legacy coffee chain or an independent store, and sometimes both.
The company’s goal of blending fast convenience and specialty coffee places may be the sweet spot between the two trends. Or it may find itself targeting a void between two sides.
Menda said the company is doing well with many of the individual stores turning a profit, but the chain is too young to predict what that means in the long term. Maybe the chain will garner a cult-like following as La Colombe or Blue Bottle has, or maybe it will lose its customers to the next coffee shop that opens down the block.
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