(Bloomberg) -- In New York City, where a custom latte can easily cost you $7 and more than five minutes of waiting, Matto Espresso is having a moment. The upstart chain, with roughly 30 locations in and around Manhattan, is luring college students and office workers with $3 coffee drinks and reliably speedy service. Now it’s readying its first funding round with ambitions to grow to 300 locations nationwide in the next five years.
With a new outpost at Brooklyn College and a location coming to Rutgers University in New Jersey, expansion beyond its hometown is now underway. Its $3 menu, which is available only through its app and accounts for 53% of the company’s business, extends to more than half of the brand’s offerings — including matcha and pastries.
The company’s name, which means “crazy” in Italian, “is about being crazy generous,” said Jennifer Maman, who launched Matto with her husband, Mosche Maman, and his best friend, Shlomi Levi, after working in equity marketing at Morgan Stanley.
Matto has been able to maintain its bargain menu prices by running a tight operation. Its flagship university location at NYU is nestled into a 100-square-foot nook in the business school.
It’s key to what Maman said is her strategy for winning the cost game: being “small and efficient.” Its stores are on average 200-to-400 square feet and often without seating. Prospective franchisees are told to find a space under 1,000 square feet for new locations.
Matto launched in 2016 with a focus on dense hubs, such as spots near New York University and Rockefeller Center. With an average of just two workers at each store and a centralized kitchen dispatching pastries across the city, Matto is offering something basic for customers who want coffee cheap and fast.
The coffee blend Matto uses is 80% robusta, a cheaper bean variety, whereas major chains like Starbucks Corp. use higher-quality arabica beans. Though prices for both have surged this year because of dry conditions in key growing regions for each variety, robusta beans remain cheaper.
Consumers’ pockets are already being squeezed, including for things like food and other essentials. So price may become just as important as taste when deciding where to get a morning cup of coffee.
Mixed Reviews
Some office workers Bloomberg spoke with at a Matto in midtown Manhattan liked the coffee. One customer drove into the city from Queens just to get a cup.
But the praise is far from unanimous.
Franklin Rivas only made a Matto run because the Chase branch where he works ran out of coffee. “I’m not gonna say taste is the best quality,” he said. “It was just a backup.”
College students, a target market for the brand, were equally lukewarm on the coffee drinks.
NYU sophomore Sunidhi Srinivas only orders from the $3 menu. She says the coffee is “hit or miss.”
“Once in a while, it’s only bearable,” she says. Her friend, senior Cara Peddle, says she got hooked freshman year because she “didn’t have enough money to go to the more expensive places.” Peddle adds: “It does the job.”
‘Room Below Starbucks’
Matto is trying to expand its empire in the face of competitors that include behemoths like Starbucks, Dunkin’ as well as a ton of small chains and large fast-food brands like McDonald’s Corp. and Wendy’s Co.
The majority of its stores (27) are franchise-owned. But while the current roster of franchisees consists of Matto fans and previous funding was provided by family and friends, Maman said she’s eyeing more experienced restaurateurs to run future locations.
Still, scaling up a franchise business based on inexpensive coffee-on-the-go will be challenging in a crowded market. The hurdle is made higher by mixed product reviews.
“You can do things in New York City — just because of the density of the population there — that are more challenging to do outside New York City,” said Mark Kalinowski, chief executive officer of Kalinowski Equity Research. Expanding nationally “will be difficult and part of it is simply lack of brand recognition.”
Matto’s first venture into Brooklyn closed due to poor traffic in the area. The company’s new Brooklyn College cart is thriving, Maman said. Matto is now charting an expansion route with colleges and high-traffic areas like airports in mind.
“There’s room below Starbucks for an experience that’s not meant to be premium,” said Kalinowski, though that role is typically filled by chains like McDonald’s and Dunkin’. Even those fast-food offerings aren’t “meant to be like the super cheap experience either,” he said.
--With assistance from Dayanne Sousa.
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