What Type of Shop Should I Open?
Sit down, drive-thru, mix, kiosk, or cart?
Here are some points to consider for each: Sit down (and mix) – most advantageous if you are planning on having entertainment and events. This would be considered more often than not the full service coffee shop. Outside of the purist coffee house that serves nothing but coffee in only a few forms, most sit downs serve light foods to full menus, also called cafes. The mix is pretty much adding a drive thru window if space allows. A drive thru window can add as much as 20% more revenue to your sales because of its convenience.
Drive thru (stand-alone) – usually a lesser start up cost. You can have your drive thru constructed off-site by a company specializing in such for about $20,000 or less. A lot of times you can get a ground lease from the owner of a parking lot that does not need all that parking space. Be sure to consult with the city planning department to be sure you can do this. It will most likely require a certain square footage of lot space for employee parking and customer vehicle ‘stacking’. This is a fancy way to say how many cars can be in line at your drive through window on your property and still allow easy flow in and out and to still have enough space for the other tenants in the plaza. Note that if your city and/or health department does not allow portable water and sewage onsite, you will be required to install plumbing and sewer. This can get costly but if the location is prime, it will outweigh your upfront costs.
You can also find a stand-alone building that can be converted to a drive thru. Gas stations and some former fast food places (without an inside dining area) are good for this. On the gas station, be sure to visit your city planning and zoning department to be sure you can convert it into a coffee drive through. You may have an issue with the car stacking again. You may also have an issue with the gas tanks. It can be costly to remove the tanks and then get a clean environmental report completed from a reputable company. However, if you happen upon a former gas station property you may just luck out and discover the tanks have already been removed and a clean environmental has been established by the (former) owner.
Kiosk – these are great for malls, hospitals, car dealerships, or anywhere that you do not have or need a storefront. It’s a step above the cart (below) because the kiosk is pretty much a
coffee shop that can be taken down and moved fairly easy. They are basically a prefabricated, fancy group of counters all connected together. It gives the feel of a stand-alone coffee shop out in the open. A lot of jewelry places in malls have these types of setups.
Cart – That pretty much says it all. A cart will cost you from $8000-12,000 or so to have built. They are also usually found in malls, car dealerships, hospitals, etc. They have considerably less room than a kiosk but are a great option if you want to be in a mall or the like. You would normally be limited to serving food and bakery that is pre-packaged or made off-site.
Espresso Bar – Added to existing restaurant or other business. CAUTION! This is not an ideal idea and here is the reason: Any espresso bar needs to have its own identity to flourish as a business. Having said that, it’s not a bad idea if you are wanting to add revenue to an existing business. This is fact because in most cases, the existing business or restaurant will overpower the espresso bar and its offerings. I had a client add an espresso bar to his Italian restaurant and he wanted it to function on its own. He hired a manager for it, established separate hours, with a full espresso bar menu, had outside signage installed, implemented an in-store roaster and decorated it to the nines. The one element he left out was the fact that it was not allowed to grow as an independent entity. In plain terms, he unknowingly set it up to fail because when the restaurant was closed (up until 11am daily and 4pm on weekends), there was virtually no business at the espresso bar. About 90% of the sales were in-house from the restaurant. So, if you should choose to do this, keep the businesses separate in some way and allow them to have individual identities.
To Franchise or Not
Franchises may give you an edge because they have some name recognition (in most cases). More often than not they are not favorable options. Of course, make your own decision but as a franchisee, you are pretty much land-locked into the franchisor’s way of doing things.
Name recognition, branding etc. Though in the coffee industry, franchising is still in its infancy. I say this because on a separate piece of paper, list all the fast food franchises you know of. I’ll wait……ok, now list all of the coffee shop franchises you know of…..I’ll wait again……Ummmm….still stuck? Get my point? There aren’t many. Here are a few: Dutch Brothers, Bigby’s, It’s A Grind, Arabica, Cuppy’s, Caribou, Scooter’s to name a few. This is also a con, see below! Better pricing on products because of volume. Better pricing on equipment because of volume (in most cases).
Support in planning stages like site selection, lease negotiation, and build out but most help is marginal by some franchisers because they are not all 100% committed to you after you write them a big check for your entrance fee. But then you have my assistance, so what do you need
a franchise for? Ongoing support in marketing and operations is sometimes offered through franchise operations.
Cons Name recognition, branding, etc. Most coffee shop franchises are regional. How can name recognition help a franchisee succeed with such limited notability? Mandated proprietary ingredients, coffee, equipment, etc. You have less leeway for freedom to use products that you want to use. If your franchisor uses bad coffee (I know of one in Oregon that is AWFUL!), you are not going to do well in the long run.
The upfront franchise fee, sometimes as high as $100,000 before you open your store. Ongoing royalties paid monthly, usually 3-7% of your GROSS sales. Suppose you do $30,000 per month; that is $900-2100 per month just to use someone else’s name!
The franchise agreement is usually a set period of time from 5-10 years. When it is over, it is usually renewable. However, some agreements allow you to use the name but be independent, to an extent by using your own suppliers. Ongoing marketing fees of 3-7% of your monthly GROSS! Though this is comforting to know someone has your back for marketing, marketing is not this expensive for a specialty coffee retailer. You can usually get POS materials from any supplier to put on your counter and posters to hang in your windows. You can conservatively earmark 2-3% monthly for your own marketing and have the power to choose whatever form you please.
A fairly high personal net worth is usually needed of all owners. Again, this is something that is not a bad thing and can actually benefit the business but just because you have a lot of money or high net worth does not mean you know how to run a business. They usually look for a personal net worth in the neighborhood of $100,000 – $500,000, with anywhere between $50,000 – $300,000 of that liquid assets depending on the franchisor. Those are high numbers to achieve for the average new entrepreneur. However, I’ll state it again: just because you have money or high ‘paper’ net worth does not mean you know how to or have what it takes to run a business. Take the time to learn how to run a business.
Start-Up Costs and Pro Forma Financials
To be profitable you need to have at least 60% of your revenue be espresso based drinks. Your average drink price has to be about $3.00 to $3.50. About 50% of those people will buy something else like a muffin or scone and you have above your average ticket easily.
BE CONSERVATIVE in your model for start up sales and revenue growth. Have extra cash on hand! ALWAYS go for the BEST location NOT the lowest rent. I would pay more rent because in all likelihood I will get higher revenue due to higher traffic. Don’t cut costs to make money; raise your revenues and customer satisfaction through effective marketing, exceptional service, and unique product offerings.
Very good information. Hopefully “The Email” from the forum will review your post above to help guide in their evaluation. Lots to consider, besides is there enough traffic in the area to support the business. And with inflation and everything else hitting right now, it is all the more important to do a thorough and honest evaluation to see if the concept will sink or swim.
Thank you for sharing…
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