To do well in the coffee shop business or any other, you need to truly understand the customer, the traffic and the legal environment in which it operates. The fact that independent coffee shops seldom succeed doesn't mean that you should stay away from this niche. It only means that it isn't meant for those who aren't completely serious about immersing themselves in it and understanding it.
The coffee business isn't a particularly profitable one, to begin with
Coffee shop owners often get into the business because they look at the great profit margins on offer - greater than 60% on most beverages. Unfortunately, percentages aren't very useful - not when the average coffee shop customer spends less than USD 8 on a cup of coffee and a croissant. A full house all day may bring in no more than USD 100 an hour.
After a few days in business, poor levels of income tend to alarm owners and push them to lower prices. When dozens of ill-prepared coffee shop owners lower prices in a city, it compromises the sustainability of the business as a whole. It is nearly impossible for even the best-prepared coffee shop startups to succeed in an environment of depressed prices.
Owners don't appreciate how complex the choice of location is
Picking out a location isn't simply about going with an area with great traffic. It's important to do your homework and know exactly why a location is likely to get customers. It isn't enough to simply look at how much traffic a place gets.
They don't understand what exactly the coffee business is about
People tend to gravitate to coffee shops for stress relief and other such intangible benefits on offer. Customers tend to come back not for commoditized food products but for how they are made to feel in the process of buying them. Employing low-paid staff to process orders is unlikely to make customers feel good enough to return. Coffee shop workers need to be champion customer service personnel who are paid accordingly, then. Not understanding this basic truth puts many coffee shop owners out of business.
They focus on wastage and profit like in other businesses
As the owner of any profitable coffee shop knows, it is important to accept a great deal of waste. Snacks on display often don't fully sell and need to be thrown away, for instance. Inexperienced coffee shop owners, though, may try to apply overly simplified logic to the problem - if there is unsold food at the end of the day, they figure, they simply need to stock less. They don't realize that this puts them on a slippery slope to smaller and smaller sales volumes. When there isn't a generous amount of food on display, people simply feel less inclined to order. Even a hint of staleness or pennypinching cuts to portion sizes can put people off, too. In the coffee business, it's far more important to make a customer than to make a sale.
Fear of compliance
Food business owners need to be in compliance with dozens of laws - it's a very tightly regulated business. Startup owners who go in unprepared often try to get compliance-related advice and help from costly consultants. They never recover from the fees they pay.
The food preparation area isn't designed to quickly process hundreds of orders
It can take hundreds of customers each day to make a reasonable amount of money out of a coffee shop. Unfortunately, nothing at the average startup coffee shop is designed for efficiency - the order-taking area and the coffee-preparation area are often poorly designed. Workers are forced to move about a lot in ways that has them getting in one another's way, for instance. Customers soon get fed up with delays and go elsewhere.
© Zawya BusinessPulse 2014
The coffee business isn't a particularly profitable one, to begin with
Coffee shop owners often get into the business because they look at the great profit margins on offer - greater than 60% on most beverages. Unfortunately, percentages aren't very useful - not when the average coffee shop customer spends less than USD 8 on a cup of coffee and a croissant. A full house all day may bring in no more than USD 100 an hour.
After a few days in business, poor levels of income tend to alarm owners and push them to lower prices. When dozens of ill-prepared coffee shop owners lower prices in a city, it compromises the sustainability of the business as a whole. It is nearly impossible for even the best-prepared coffee shop startups to succeed in an environment of depressed prices.
Owners don't appreciate how complex the choice of location is
Picking out a location isn't simply about going with an area with great traffic. It's important to do your homework and know exactly why a location is likely to get customers. It isn't enough to simply look at how much traffic a place gets.
They don't understand what exactly the coffee business is about
People tend to gravitate to coffee shops for stress relief and other such intangible benefits on offer. Customers tend to come back not for commoditized food products but for how they are made to feel in the process of buying them. Employing low-paid staff to process orders is unlikely to make customers feel good enough to return. Coffee shop workers need to be champion customer service personnel who are paid accordingly, then. Not understanding this basic truth puts many coffee shop owners out of business.
They focus on wastage and profit like in other businesses
As the owner of any profitable coffee shop knows, it is important to accept a great deal of waste. Snacks on display often don't fully sell and need to be thrown away, for instance. Inexperienced coffee shop owners, though, may try to apply overly simplified logic to the problem - if there is unsold food at the end of the day, they figure, they simply need to stock less. They don't realize that this puts them on a slippery slope to smaller and smaller sales volumes. When there isn't a generous amount of food on display, people simply feel less inclined to order. Even a hint of staleness or pennypinching cuts to portion sizes can put people off, too. In the coffee business, it's far more important to make a customer than to make a sale.
Fear of compliance
Food business owners need to be in compliance with dozens of laws - it's a very tightly regulated business. Startup owners who go in unprepared often try to get compliance-related advice and help from costly consultants. They never recover from the fees they pay.
The food preparation area isn't designed to quickly process hundreds of orders
It can take hundreds of customers each day to make a reasonable amount of money out of a coffee shop. Unfortunately, nothing at the average startup coffee shop is designed for efficiency - the order-taking area and the coffee-preparation area are often poorly designed. Workers are forced to move about a lot in ways that has them getting in one another's way, for instance. Customers soon get fed up with delays and go elsewhere.
© Zawya BusinessPulse 2014
