Bank Cafes Are a Terrible Idea

Heard about Capital One's cafes and thinking about opening a cafe at your institution? Wake up and smell the coffee. It's a terrible idea.

Two recent American Banker articles have focused on Capital One's cafes. In:

  • Community bankers fear big-bank cafes will eat their lunch, American Banker reported that bank's cafes "represent another threat to community banks as larger institutions rely more on their deep pockets and technological know-how to take market share. Since they are not branches, the storefronts are easier to open and less expensive to operate."
  • How lattes and AI fit together at Capital One, the bank's CFO was quoted as saying, "Our cafes allow us to both promote our brand and to have customers be able to interface with us on a personal basis. It’s a community center. There is Wi-Fi available, we see people coming in to sit down, have coffee and have a dialogue. It’s a strong brand positioning.”

I don't know who told AB that the cafes are "easier to open and less expensive to operate." My sources tell me they're way more expensive to open, and a lot more expensive to operate. And I believe it, at least based on the one nearest me in Lynnfield, MA (see below), with its expensive Italian granite and prime location in a high-end shopping center, just steps away from a Starbucks.

But other financial institutions could open and run cafes more cheaply than Capital One does. It wouldn't make the investments in cafes any more successful, however.

Coffee Buying Behaviors Run Deep

The reason bank cafes are such a bad idea has little to do with banking, and everything to do with coffee. Here's the reality of today's market: Coffee is not a commodity.

About a year ago, I was presenting to a group of credit union execs in Maine, and to make a point about something, asked how many of them had a Starbucks loyalty card (or the app on their phone). Very few hands went up. I expressed my surprise, but was quickly reminded by someone in the audience that I was in Dunkin Donuts country.

I've asked audiences at many conferences that Starbucks question, and usually get a majority of hands going up, because Starbucks is dominant pretty much everywhere (except for Maine, apparently).

Now, do you think a loyal Starbucks or Dunkin Donuts customer, going out to get their favorite coffee, is going to see a Capital One cafe and say, "ooh....I should go there instead of to my favorite place"?

Don't bet on it.

There's a Capital One cafe in an upscale shopping near where I live. It's empty every time I walk by. Why? It's three steps away from Panera, five steps away from Starbucks, and 50 yards away from Whole Foods (where the coffee line is usually 5-7 people deep).

People who know and like Peet's coffee (I'm sure there are people who fit that description)--and who know that Cap One cafes offer Peet's coffee (narrowing the universe even further)--might stop in. But the point is that they stop in for the coffee--not the banking.

  The point I'm trying to make is that getting people to come to a bank cafe means competing with established coffee brands (not just other banks) and ingrained consumer behaviors.

I get emails a few times a week from Starbucks with offers and incentives to go buy something from them. I get offers from Panera for a free bagel every day for a month to go in to their store. Dunkin Donuts is constantly badgering me to come in and order something. And you know I'm not the only one getting these things.

Yet, you--or Capital One--think that people are going to go to a bank cafe to have a dialogue? What kind of drugs help to create that kind of delusion?

Increasing Branch Traffic is an Uphill Battle

Over the past two years, BookingBug has surveyed US consumers, asking them what would get them to visit bank branches more often.

In the 2017 survey, not one of the nine factors asked about garnered even one-quarter of respondents saying it would definitely get them to come into branches more often.

In six of the nine factors that they did ask about, the percentage of consumers who said that they would definitely visit branches more often if banks improved those factors declined (the percentage in the other three factors remained constant).

Here's what I struggle with: If "improving staff knowledge" and "providing more access to trained staff" aren't enough to draw more traffic to existing branches, how is opening a cafe and competing with established coffee preferences going to change consumers minds?

BookingBug didn't ask about coffee, but I'm hoping they'll add that factor to their 2018 survey.

Branding is the Drug That I'm Thinking Of

Let's go back to that question of what drug is causing dialogue delusions. A clue was provided in Cap One CFO's quote in American Banker: It's Branding.

I suspect that what's driving Cap One's foray into cafes has less to do with solid economic analysis and forecasts, and more to do with a desire to create a certain brand image.

If other banks and credit unions have a desire to remake their brand image into "community centers" where people come in and have "dialogues," good luck to them. They'll have to compete with some pretty powerful retail brands, and some pretty deep pocket banks.

Ron Shevlin
Director of Research
Cornerstone Advisors