Q&A with Mat Falco: Broadening Your Business with On-premise Retail

Back in 2017, after nearly a decade-long career in the beer industry, Mat Falco shifted his attention to another space in the beverage realm – coffee. Falco, cofounder of the now-defunct Philly Beer Scene magazine, wanted to take his learnings and open up a micro-roastery and neighborhood gathering space. So along with his now wife, Falco opened Herman’s Coffee, converting a former auto repair shop in South Philadelphia into a 24-seat cafe.

In the years since, Herman’s Coffee, named after Falco’s grandfather, has become a community hub, drawing in a crew of regulars, as well as guest chefs that host dinners on Monday and Friday nights, and food trucks on weekends for brunch. When the pandemic hit, the community offerings only continued to grow, as Falco transformed his indoor area into a full-on artisanal market.

Today, Herman’s is not only a spot to grab a coffee and relax at an outdoor picnic table, but also a well-talked about destination for tinned seafood, ranging from chargrilled razor clams to Patagonia smoked mussels to your choice of 60 different cans of sardines. And Falco’s stocking thousands of other artisanal goods, too, including Japanese imports like black garlic molasses, chocolate from countries across the world, and 80-plus types of hot sauce.

We sat down to chat with Falco about the expansion of his cafe into a gourmet grocery and what he’s learned along the way. 

So tell me about the early days. What was your original goal with the cafe?

I owned the magazine then, and I spent all my time working out of coffee shops. I always wanted to own one, and I figured it could be my office rather than working at other people’s shops. My goal was to try to take what I learned from the craft beer industry and apply it to the coffee scene. Collaboration was always a huge thing with craft beer, and I think that’s what helped it grow the way it did back in early 2010. All the brewers were friends, they were working with everyone, doing events together, and it was just fun. 

So my idea was to make a brewpub style cafe where you could see the roaster, and share my space with whoever wanted to do things together. From the get-go, I reached out to my beer friends to see if they wanted to collaborate on coffee blends together.

What were your profit margins looking like back then? I Imagine that, out of necessity, the coffee shop did become your daily office.

I learned a lot the first couple years, that’s for sure. I don’t think I made any money. It was pretty much just a break even project, where I was just trying to stay open and get through the first couple years. That made staffing hard because you can only pay so much, and there was more turnaround because there were busier shops people could go to, and tips are unfortunately a part of it. But man, that feels like a lifetime ago, when there were tables inside and you could actually walk around.

You started hosting food trucks soon after you opened. Was that part of a strategy to attract more customers?

Two months in, we started having the food trucks pop up. It was something for the neighbors to enjoy. People were asking for food but there was nowhere to put a kitchen. It took off, so we started doing popup dinners, too. But I don’t think I ever looked at the events or pop-ups as a revenue source. Especially since the pandemic, I think I may lose money on them. 

You’re losing money on the food trucks – but you actually bought a permanent cart during the pandemic for chefs to use, right?

Yeah. I don’t like saying this with so many restaurants suffering, but my business went way up when the pandemic hit. Everyone was working for home, and our neighborhood wasn’t a neighborhood that got hit too hard. So there was nothing to do, and people would walk over and get a cup of coffee, and we were selling a lot more retail bags than we usually would. So I tried to use that to help people through buying a food cart – I pretty much just bought a free kitchen for anyone who wanted to use it. 

The cart was around $12,000, and I had to get it fixed up and deal with registrations and inspections. Now, I pay for cleaning, maintenance, electric, propane, and I don’t charge anyone to use it. We also open late for dinner with the cart, and I’m not busy – we sell maybe two cups of coffee. But there were zero goals of making money off of it. It was really just something to help people out.

So it’s more about the community aspect that appeals to you.

I meet a lot of cool people and different chefs, and I just enjoy it. Community’s been a huge thing for me since we opened. I’ve always wanted to be a neighborhood spot and bring people together. 

From day one, we rely on our regulars. Coffee shops are a daily routine kind of place, and the staff likes working there when it’s more friends coming in than just customers – a lot of customers become good friends. For a coffee shop especially, that’s important. You survive off that. And our market just adds to that, as something else I could do for the community. It gives people a place to go find random cool things they wouldn’t have found around here. 

Let’s talk about the market you’ve built out across the pandemic. It doesn’t sound like you needed it as an extra revenue stream, so I’m wondering how the idea came about.

The first month [of the pandemic], I don’t think we were even allowed to let anyone inside [the cafe]. We opened the garage door, and we’d just serve people from there. I hated that it was this big empty space behind us, so I thought, ‘Oh let me just put up a shelf and sell some fun things people might be interested in’. It started off with a tray of local cheeses and cocktail mixers. People were kind of interested. The space looked better. Then I just kept finding all these things I’d want to eat personally, so I’d bring them in to see if people would be interested. 

One thing led to the next, and I slowly converted the whole seating area into a store. I don’t think the staff or I ever really felt comfortable bringing people back inside. And by the time it got to a possible option, I was already way too far gone with the market – I went overboard.

Was your boost in sales during the pandemic that enabled you to get the market going?

It definitely gave me a little extra cash flow to take a risk. Before the pandemic, I would’ve had to build out slower than I did, because unfortunately you need money to buy all the inventory. I try to pay everything as I go, especially if it’s someone local.

Relatively quickly, you became a destination for tinned seafood. Where’d your love for tinned fish come from?

I was just looking to find some cool bitters to add to the inventory and one of the wholesalers I was connected with had a really cool selection of tinned fish. I always liked tinned fish. I wasn’t as obsessed as I became during the pandemic. But I brought in a couple, and they were awesome. 

At first, the staff kept making fun of me. Every customer that came in, they’d joke, ‘Are you sure you don’t want to buy some fish?’. Some of them had never had a can of fish. But they’re starting to come around. 

I definitely think I have the personality where if I find cool things, it’s like, ‘Oh, I have to try this’. And if I want to eat it at home, I’ll spring on a case and give it a shot.

How many total products do you have stocked at any given time? 

Oh, a couple thousand. About 200 products are tinned fish.

Can you tell me a little about how you source the products? Are you buying wholesale?

Everything in the store I purchase wholesale. Most things I have to buy by the case. And I’m not trying to haggle people on prices or anything. I always want to be easy to work with on my end, I want people to want to partner with me. I sell at whatever [price] they want it to be sold at. If they don’t have a standard retail price, then I try to stay around roughly a 30% margin. I probably should bargain more than I do. But it goes back to having a coffee shop. I don’t have to be as profitable, and I’m not paying anyone to run the market. I’m still doing it all myself. If I had someone working the market full-time, I’d probably have to raise the prices. 

From lychee rose infused chocolate to Japanese Iwashi fish sauce aged in whiskey barrels, you’ve got quite the collection beyond tinned fish. What are you looking for when adding new items to your shelves?

I honestly just try to find really cool products. 

It’s a lot of scouring the Internet, or me just out trying different things. If I find a product, and they don’t sell directly, I ask them who they distribute through. I have some friends in the food industry, too, that travel a lot and have made connections for me. And as it’s grown, people send me recommendations all the time. Recently some wholesalers have started reaching out.

But at the end of the day, it’s got to be something I’d want myself. I never built this to be a volume store. I just wanted to stock a bunch of stuff that’s harder to find elsewhere. At the heart we’re still a coffee shop, and the coffee aspect gives me enough leeway to have fun with it.

So the coffee’s the steady line of revenue. But the market aspect of your cafe must’ve significantly changed your revenue stream, right?

It’s totally changed my sales. Before this, I was selling at most $4.50 lattes. Now I’m selling pieces of fish that are over $100. When someone buys that, it totally skews my sales. So my sales are way higher than I ever imagined as a coffee shop. But the profit margin on a cup of coffee is still way better than on a can of fish.

I had to shell out a lot of money to build up. I don’t even want to know how much money is sitting on the fish shelf right now. I think I would probably cry. Some of these cases of fish are a thousand dollars. 

But I think the market and the cafe help each other. The market brings in new people who would’ve never come to Herman’s for coffee. And regular customers are sometimes grabbing something new. It’s a win-win.

Did you ever imagine the market would grow as large, and as successful, as it has?

Absolutely not. The tinned fish doesn’t even fit on the shelf anymore. It just got so big because I just kept finding more, really good stuff. It just kind of happened. 

There are definitely days where I don’t sell a lot of anything. But then there’s days when [Philadelphia Inquirer food critic] Craig LaBan writes an article about fish, and we sell a ridiculous amount the next week. 

What are you using to keep track of everything and determine what’s selling and what’s not?

I use Square, so everything that comes in, I add to the inventory to keep track. I’m the only one that does everything right now – the ordering, the stocking, keeping the shelves organized. It’s such a tight space here. My stockroom and my coffee roaster are one in the same, and I put the big food cart in that section, too.

Can you share any advice for other cafe owners that are looking to expand through retail? 

I’d definitely stick to shelf-stable products, and I’d start small. Don’t invest in something where you’re going to end up with waste because then you’ll start losing money if it’s not busy enough. And then do something you’re passionate about, make sure it’s things you believe in. Everything I bring in, I really like it. I don’t have a problem encouraging people to buy it. 

And be open to change and also failing. Everything definitely didn’t work that I tried. These $130 tins of clams weren’t the best seller. No surprise there. You eventually figure out what does and doesn’t work. 

What were some of the main challenges you faced as you got started? 

There were definitely some things I was overbuying at first. I’d find a decent deal on something, so I’d buy two cases instead of one. I’ve learned to buy smarter – you have to just learn what your customers want and that takes time. You’re not going to really know until you do it. Also, people might beg you to bring something in, but it doesn’t always mean they’re going to buy it. And that’s hard because you want to make everyone happy, but sometimes you can’t. 

What are your top-sellers? 

Tinned fish has done pretty consistently well. Over the last eight months, I’ve really expanded the non-alcoholic section. I stock probably 80 different non-alcoholic wines and spirits, and that took off much more than I expected. Chocolate does pretty well, but I really push chocolate. I converted a fridge into a chocolate fridge so the thermostat is staying at 65, and where we put it, the chocolate’s right in your face. 

When you first started doing the tinned seafood, was there an education component to it for customers?

There’s definitely an education component. I see more and more regulars who eventually are like, ‘Let me see what this is all about’, and they’ll start trying them. Getting press for it really helped it start taking off. But I definitely had to educate the staff, just to teach them that fish in a can can actually be good. Some of them still won’t taste it – they actually refuse. But the ones that are open to it, I try to share with them. 

What’s been most exciting for you about growing this part of your business?

Finding new things. Food’s always been my first love, but I never wanted to be a chef because I didn’t want to get burnt out on it and not enjoy it anymore. This lets me fill that passion, without the crazy hours. I mean, I still have crazy hours. I’m here at least Monday through Friday, but I’m not up until 2 a.m. 

What are your plans for the future?

I want to open a new location. I don't plan too much in the future anymore, with things changing so quickly now. But, I mean, this has definitely changed my whole outlook at Herman’s. Before the pandemic, I did want to open another location, but the market was not a thought. Now I don't think I could ever open without a market, and that means I need a bigger space, and that changes my options of where I go. I’m tempted to move out to the suburbs.

It might be hard to replicate when I open another one because it’ll be a lot to juggle. I think about that all the time, but I think it’ll be one of those things that I just have to figure out as I go. I can try to plan as much as I want, but we’ll have to constantly adapt to get to where it works for that location. And I’m not going to be able to do it all myself. I’ll eventually let go – I say that, but letting go isn’t always the easiest thing.