Starting a coffee shop requires a passion for great coffee – this trickles down to all aspects of the business and helps create a rich and exciting atmosphere for customers to enjoy. While there is plenty of competition from larger brands, and from other independent shops, the market is large and there is space, specifically for specialist or niche suppliers. Differentiating yourself is important, as is establishing a strong brand – loyalty is strong in this market, and tapping into this loyalty can help fuel success.
What does the market look like?
Several high-profile companies dominate the high-street market – these firms also tend to have branches at locations with the highest throughput e.g. airports and train stations. They tend to be innovative and profitable, with a large customer base.
However, while they dominate the high-street, they don’t dominate the entire market. These shops are synonymous with ‘big business’ in many peoples’ eyes and their presence in smaller locations is not always tolerated. This is great for local coffee businesses, who find it much easier to ingratiate themselves into close-knit communities.
There are a huge number of independent coffee shops around; some rely on the taste of their coffee, while others promote their ethical sourcing policy to gain customers. Having a USP is a good idea – it helps the business stand out in a crowded marketplace.
Coffee attracts fantastic brand loyalty - this is good for the big names, but also good for local shops striving to produce a good service. Capture customers’ minds, with flavour and brand, and you’re likely to maintain a lasting relationship.
What challenges will I face?
Competition is a big challenge – because coffee is such a popular commodity, there’s a big market, and therefore many different players in a relatively limited area. The start-up costs are also relatively low, making coffee shops a suitable first-time business. Finally, there are a no regulations around the number of competitors in a given area, unlike other types of business (pharmacies predominantly).
Competition from supermarket and corner shop diversification also eats away the potential market; these places are increasingly adding self-service coffee machines, making it easy for customers to pick up a drink when they visit. Petrol stations are also doing the same. This is why having your coffee shop in a popular location, such as on a street used for commuting, can help business.
Austerity can also be a challenge for coffee shops, as consumers are encouraged to ditch the little costs that add up. Turning this issue on its head, and offering customers a great deal when money is tight, is a way for coffee shops to stave off the effects of poor economic conditions.
What type of person runs a successful coffee shop?
Coffee shop owners are as individual as the shops themselves, but qualities like passion, warmth and friendliness certainly help to build a sustainable, well-liked brand and encourage custom. Coffee is a lovable drink – for many people it’s a culture, not just a beverage. Enthusing your business with this passion, and being as passionate about good-quality coffee as you are about making a profit, can really help your shop stand out.
Once you start to hire staff, people skills are very important – you need to hire people that share your passion and drive, and can act on represent your shop when you aren’t there. Keeping your employees happy and motivated is important; if boredom/frustration sets in, it will reflect poorly on your shop and coffee.
Having a head for figures is also important; coffee is a very fun business but it must be profitable for you to continue trading. Regularly analysing your profit margins, and making sure that your marketing is reflective of current trends (and also cost-effective), is essential. You'll also need to be able to create a suitable business plan and then follow, revise, and reflect on it as your business develops.
The green revolution is taking hold and many industries are slowly transitioning in a number of ways, such as making sure their supply policies are ethical and taking steps to be carbon neutral. The coffee industry is ahead of the game; consumers tend to demand the coffee they drink has been sourced ethically, and that a fair deal goes to the pickers and producers. This is evidence in the sourcing policies, and promotional materials, of the larger coffee chains (such as using only Fairtrade
coffee), who are always keen to stress their ethical principles.
This makes it important for all newcomers to the market to make the same choices – it’s a long-term insurance policy for future business, and of course it’s the right thing to do. Starting up with these credentials in mind is far easier than transitioning an established business so make sure you build these principles into your business plan and stick to them from day one.
Your ethical policy should permeate your entire business, including:
- The way you dispose of waste
- Corporate social responsibility
- Sourcing policies
- Electricity usage
Rent and retrofitting are the biggest costs of starting up a coffee shop – this is the case for the majority of retail businesses. Retrofitting can be expensive because you’ll need a wide range of equipment, including chiller cabinets, tables and chairs, signage and of course coffee machines. Commercial coffee machines are not cheap, with most costing at least £1,000 and many over £3,000.
Money will also have to be set aside for marketing and promotion. All costs considered, a budget of £10,000 will allow you to start up a bare-bones coffee shop. Upwards of £20,000 is more realistic.
What else should I sell?
Coffee is a popular product, but it makes sense to diversify your products so you can increase your potential market and revenue. Many coffee shops offer food, whether pre-packaged or freshly made – toasties and paninis are popular, as are pastries and muffins. Bear in mind that if you prepare or handle food you’ll need to comply with relevant food safety legislation.
Coffee alternatives are also a good choice, including tea, hot chocolate, exotic variants such as chai tea, and also cold drinks including a standard collection – coke, orange juice, bottled water – as well as blended ice drinks which have become more popular in recent years.
Insurance and compliance
Public liability insurance will protect you if your negligence causes third-party injury or damage to property. It’s important because liability could arise, for example, from you forgetting to put a ‘floor wet’ sign up after the floors have been cleaned. Professional indemnity insurance is also important – it protects you against third-party allegations of wrongdoing over the service you have provided.
When you decide to take on employees, you’ll also need employer’s liability insurance, which protects you against allegations of wrongdoing made my employees and ex-employees.
Compliance is important anywhere that food and drink is prepared – there are rules related to the safe temperature of hot water, about what utensils are stored where when preparing certain foods, and how long food can be safely stored for. It’s definitely worth talking to the Health and Safety Executive
(HSE) before you start your business; they will be able to advise you further.