The Coffee Chain Backed by Investment Firms and Automation

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Good morning! It's Tuesday, September 4th. Today we are breaking down Blank Street— a new coffee chain that’s raised nearly $100M from investment firms like General Catalyst and Tiger Global. So, let’s figure out why Blank Street is attracting so much venture capitalist attention.


The Coffee Chain Backed by Investment Firms and Automation

If you live in New York City, you’ve likely heard of Blank Street Coffee by now.

This new coffee chain has small stores and carts that dot every highly trafficked area in NYC.

Fueled by automation and venture capitalist funding, Blank Street Coffee has skyrocketed to a $200M valuation!

So, What’s the Business?

Blank Street founders Vinay Menda and Issam Freiha met in New York City where they attended NYU and Columbia University respectively.

From their dorm rooms, they launched the Reshape Ventures fund with investments from their friends, families, and even professors. Today, their venture fund has invested $100M into businesses like Reddit, Imperfect Foods, and Bird Scooters.

While venture capitalists enjoy betting on the winning team, they often get the itch to become the winning team themselves. This is exactly what happened to Menda and Freiha, and they had a multi-billion-dollar vision that other investment firms would love.

Blank Street Coffee began in 2020 and has opened 65 locations. To maximize brand growth and recognition, they invested heavily into the NYC coffee scene. Within just two years, they opened 40 stores in NYC– more than any other competitor during that time.

In 2021, Blank Street Coffee raised $67M from investment firms and received an additional $20M this year from General Catalyst and Tiger Global.

There’s nothing new about coffee shops, so why are investment firms so interested in Blank Street? Well, coffee shops are known to struggle due to labor and real estate costs.

However, Blank Steet’s pitch to investors showed how they provide unique solutions to those industry-wide problems.

The Innovation: Low Operational Costs

By significantly lowering operational costs, Blank Street can offer high-quality coffee that’s ~25% cheaper than Starbucks. On top of that, each of Blank Street’s 65 coffee shops became profitable within the first month of opening.

Labor Costs

Blank Street heavily cuts down on labor costs simply through automation. Their “baristas” just press a button on an automated espresso machine to make just about any caffeinated beverage consumers desire.

While Freiha and Menda haven’t revealed the automated coffee machine at the core of their business, a similar product, the ShotMaster Pro, sells for approximately $50K. Though $50K isn’t a small investment, it’s about the same price as employing a single barista in NYC where service workers’ minimum wage is $12.50/hour.

Their main competitor, Starbucks, requires 3-5 workers per shift, and the company is currently experiencing a variety of problems with unionization efforts. For comparison, Blank Street only needs a single barista whose primary concern is customer service.

With a single employee per store, Blank Street can afford to keep its employees happy with a $23/hour starting wage.

Real Estate Costs

Starbucks branded itself as the “Third Place”— a location where people gather aside from their homes and workplaces. Because of this, Starbucks must purchase large properties that can fit a comfortable lounge area in addition to an expansive coffee bar.

Though a community gathering location sounds nice, Blank Street founders knew this wasn’t a consumer priority. In fact, 80% of coffee shop customers get their coffee to go. So, Menda and Freiha created a chain of coffee shops that operate more like pickup hubs which allow customers to order at the counter or through their mobile devices.

Since space for multiple baristas and a waiting area isn’t needed, the average Blank Street location is just 350 square feet (about the area of a parking space).

The founders also deployed some real estate tricks to see greater savings, such as partnering with landlords to rent out the front portions of warehouses and ghost kitchens. They also use battery-powered coffee carts set up on private land to avoid public street vending regulations.

Key Observation

Blank Street’s success is proof that any industry is vulnerable to disruption, even those led by billion-dollar companies like Starbucks and Dunkin’ Donuts.