Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How a 50-Year-Old Coffee Chain Survived the Collapse of Breakfast
Transcript
- Lucas: So there's this number that's been stuck in my head for weeks: by the middle of 2024, one of the largest coffee chains in the US had lost nearly 40 percent of its morning traffic compared to pre-pandemic levels. Luna: Forty percent. That's not a dip, that's a structural break. Lucas: Exactly. And what made it scary for them is that breakfast had been their cash cow for decades — roughly 70 percent of revenue came before 11 AM. The whole real estate strategy, the staffing models, the supply chain — everything was built around the morning rush. Luna: And when remote work became permanent for millions of office workers, that morning commute ritual vanished. People started making coffee at home. Lucas: Right. The chain I'm talking about — let's call it Franklin Coffee, though it's a composite based on several real companies — saw same-store sales in the breakfast daypart drop 22 percent year-over-year by early 2024. And they realized pretty quickly this wasn't a temporary blip. Luna: So what do you do when your core daypart collapses? You can't just open later and hope. Lucas: They went in the opposite direction. They decided to turn their stores into destinations for the afternoon and evening. The idea was to reposition the chain as a 'third place' — not just a pit stop on the way to work, but somewhere you'd actually hang out after work. Luna: That's a massive operational shift. You're talking about different staffing, different menu, different vibe. Lucas: And they rolled it out in phases. First, they expanded the cold beverage lineup aggressively — cold brew, nitrogen-infused teas, customized lemonades. Those drinks have higher margins and appeal to an afternoon crowd. Then they started testing beer and wine in about 300 locations. And they partnered with local bakeries and sandwich shops to offer food that felt more like a meal than a pastry. Luna: I remember seeing headlines about the beer and wine test. Some analysts called it a desperate move. Lucas: It was controversial internally too. But the data started to shift. By late 2025, the afternoon daypart — from 2 PM to close — had grown to account for 30 percent of sales, up from about 18 percent pre-pandemic. And the morning share had dropped to 55 percent. They'd essentially rebalanced the entire revenue mix. Luna: Still, 55 percent from morning — that's still the biggest piece. They didn't replace breakfast, they just made the rest of the day matter more. Lucas: That's the honest read. But here's the thing: total revenue per store actually stabilized by mid-2026. The decline in traffic was offset by higher check sizes in the afternoon — people buying a sandwich and a craft drink instead of just a two-dollar coffee. Luna: They also closed a lot of stores, right? I think I read they shut down about 200 locations in 2024. Lucas: Two hundred and twelve, to be precise. Mostly in dense urban areas where office occupancy was still below 50 percent. That was painful — a lot of those leases were signed at peak rents. But it freed up capital to remodel the remaining stores with more seating, better lighting, and dedicated bar areas for the evening program. Luna: So they shrank to grow. Classic pivot logic, but hard to execute when you're a public company and every closure makes the news. Lucas: And the CEO took a lot of heat. But what I found really smart was how they used their loyalty app to drive the behavior change. They started offering afternoon-specific rewards — double points on purchases made between 2 and 5 PM, free upgrades on cold drinks after noon. Luna: Retraining millions of customers through incentives. That's not a quick fix — that's a multi-year behavioral experiment. Lucas: And it worked because they had the data infrastructure. They could see that a customer who normally came in at 7:30 AM and bought a drip coffee would, after a few afternoon offers, start showing up at 3 PM for a cold brew. The habit actually transferred. Luna: That's fascinating. But I want to push back a little — labor costs have been rising fast, especially in states with higher minimum wages. An afternoon model requires more skilled baristas, longer shifts, and more labor hours per dollar of revenue. Did the numbers hold up? Lucas: That's the open question. Their labor cost as a percentage of sales went from 28 percent to 33 percent between 2023 and 2025. But they offset it partly by reducing store hours in the early morning — some locations now open at 6 AM instead of 5. And they invested in automated espresso machines for the high-volume afternoon rushes. Luna: Automation in a premium coffee shop — that's a tough sell for the brand image. Lucas: Which is why they only deployed it in about 20 percent of stores, mostly in suburban locations where customers care more about speed than barista flair. The urban flagship stores kept the manual machines. Luna: So it's a segmented strategy. Different stores for different customer expectations. Lucas: Exactly. And that kind of operational nuance is what separates a turnaround that works from one that's just a press release. They didn't try to force the same model on every location. Luna: If these kinds of deep dives into how businesses actually navigate disruption are useful to you — if they've changed how you think about your own work or your own career — there's a really simple way to keep these conversations coming. Lucas: Yeah, we keep the show ad-free and fully independent, and that only works because of listeners who chip in a few dollars a month. It genuinely makes a difference. If you've gotten something out of the show, you can support it at buy me a coffee dot com slash fexingo. Luna: And it's truly a small thing that adds up. Okay, back to the coffee chain — one thing I haven't asked: how did the franchisees react to all this? Because they're the ones who had to invest in the remodels and the new equipment. Lucas: That was the hardest part of the execution. About 60 percent of stores are franchised, and the initial resistance was fierce. The company had to offer significant financial incentives — covering a portion of the remodel costs, reducing royalty fees for the first year of the new model. Luna: So they had to buy buy-in. Lucas: Literally. It cost them about $50 million in the first year. But the franchisee satisfaction scores actually improved after the first six months, because the afternoon traffic started showing up. One franchisee in Atlanta told me his evening sales tripled after they added a small stage for local acoustic music. Luna: Music? That's a big leap from a coffee shop. Lucas: It is, but it's part of the broader shift from transaction to experience. They're trying to become a destination, not just a pit stop. And that requires giving people a reason to linger. Luna: Which brings up a bigger question — is this model sustainable if the economy slows down? If people start cutting back on four-dollar cold brews and eight-dollar sandwiches? Lucas: That's the stress test they haven't faced yet. The pivot happened during a period of relatively strong consumer spending. A recession would hit the afternoon daypart harder than the morning commute, because the morning coffee is a smaller, more habitual purchase. The afternoon visit is more discretionary. Luna: So the new model might be more vulnerable in a downturn. That's a real risk. Lucas: It is. But the old model was already broken. They had to do something. And what I admire is that they didn't just cut costs and hope — they actually changed the product and the customer experience. They bet on a different future. Luna: And the early numbers suggest the bet is paying off — at least for now. Same-store sales turned positive in Q2 of this year, after two years of declines. Lucas: Which is a remarkable recovery. But the real test will be whether they can hold that momentum through a full business cycle. If they can, this case study will be taught in business schools for a decade. Luna: I'd sign up for that class. Alright, next time we'll look at a company that tried a similar pivot and failed — and what we can learn from the wreckage. Lucas: That sounds like a good conversation. See you then.