Sometimes doing good is its own reward--but sometimes it also gets you bargain rent in a prime New York City location.
In 2014, New York coffee shop Coffeed was invited to participate in an unusual competition: The New York Foundling, a not-for-profit that owns its own office space on the edge of Manhattan's Chelsea neighborhood, was offering part of its lobby for use as a coffee shop. Rent would be $6,000 a month--about half of the estimated market rates.
The Foundling, one of New York's largest providers of foster care and adoption services, promised to award the space to the applicant who would do the most for New York's poor children. "We wanted a focus on empowerment, not gloom and doom," says Bethany Lampland, the non-profit's chief operating officer.
Ninety-four coffee shops responded to the Foundling's proposal, and most offered to donate a share of revenues or profits to the Foundling or similar non-profits. But Coffeed, which has a deep (if not long) history working with not-for-profits, got more creative: Yes, it would donate 10 percent of beverage sales, and five percent of food sales, to the Foundling. But it also said it would allocate 25 percent of the café's interior space to information about issues of poverty and disadvantaged children. Where appropriate, it would give first priority in hiring to the Foundling's clients.
The shop, Coffeed at the Foundling, opened in February. "It is going amazingly well," says Frank Raffaele, who goes by the childhood nickname Turtle and opened his first Coffeed, in Long Island City, three years ago. "Our average sales are more than $2,000 a day and growing every week. We expect to hit $3,000 a day within a few months, which is great for a location of that size."
Each of the six Coffeed locations has a relationship with a different nonprofit, which is baked into the business plan from Day One. "It becomes a super-great experience where everyone's interests are aligned, and they want us to do well," says Raffaele.
A Crowded Market
In an increasingy competitive market for caffeination, Coffeed is hoping that its philanthropic activities set it apart. "Our social mission actually drives our corporate mission," says Raffaele. "I think shareholder value and fiduciary responsibility is bettered because of our social focus."
Coffeed's flagship location is in the same building as the non-profit Brooklyn Grange, which runs rooftop vegetable gardens, so Coffeed sources produce from the one-acre urban farm on its roof. Another Long Island City location donates a share of revenues to the Hunters Point Parks Conservancy.
Coffeed opened New Leaf Restaurant, in New York's Fort Tyron Park, in April, and will use that location to support both the New York Restoration Project and Fort Tyron Park Trust. The Port Washington, N.Y. outlet works with Community Mainstreaming Associates to hire adults with disabilities to do much of the chain's baking and juicing. Raffaele's still working out the charitable partners for a Staten Island location, due to open in September, but says they'll include a branch of the Foundling as well as the Historic Tappen Park Community Group.
And Coffeed is going international, thanks to a partner of Raffaele's who had a friend from South Korea who was interested in a licensing deal. A location in Seoul's Gangnam neighborhood, still in the soft-open stage, has worked with non-profts that benefit disabled children.
Raffaele doesn't worry that time spent managing all these relationships could be better spent elsewhere. "There's plenty of time in the day," he says. "To nurture these relationships is something I'm excited to do, happy to do. It's just another facet of the company."
Revenues last year were about $1.5 million; this year he's expecting $4 to $6 million. Besides the store openings, Raffaele says his next big challenge is to put a great operational structure in place. For him, operations is at least as much fun as food. "I was a science guy in college," he says. "I love the idea of learning and figuring things out and exploring."
He knows top-notch operators when he sees them: "I love Starbucks' operational systems," he says. "I go to Starbucks and watch for hours on end. I go to Panera and do the same thing."
After that, it'll be time to raise money. In five years, Raffaele hopes to have 15 to 20 locations. He wants to jump-start that with an investment of about $5 million. He says he's been approached by investors, but wants to wait until the busy summer season is over (his headcount goes to about 100 people in spring and summer, compared to about 40 off-season) before he really starts fundraising.
"When people come to Coffeed and ask if it's a chain, it makes me feel good. It makes me feel like we’re doing something right," he says. "If we ever get to a bigger level, it would be proof that you could be both extremely profitable and extremely charitable."