Starting a coffee shop is an exciting endeavour, with new reports suggesting the number of coffee shops in the UK are increasing by approximately 50% within the next 5 years within the UK, it is not an opportunity to be missed for passionate hospitality lovers. Here we will cover a step-by-step guide to help you become a coffee shop entrepreneur starting with:
Understand the market; is it for you?
Before undertaking any business venture, it is important to make sure that you are both well-educated on the market and prepared for the possible positive and negative implications of starting your own coffee shop. With the coffee industry showing no signs of slowing down, it is important to take in to consideration the level of commitment that is required to run a business of this nature. Like any business it is time consuming to plan and execute plans effectively, however it can reap rewards both for the business and entrepreneur if done successfully.
It is important of the individual considering a business endeavour such as this, they must be prepared to take a more hands-on approach, as typically start-up coffee shops take approximately 6-months to begin to generate profit, so if you’re looking to make some quick money, this is not the opportunity for you. Understanding the difference between profit and revenue is vital for those who have little to no experience of operating their own business as their can be a misconception of the similarities between these terms. When it comes to revenue, this will be generated from the day you begin trading and simply means number of sales, whereas profit is they money remaining after all costs are deducted. When looking to make profit within this industry, overpricing is not the key to greater profits. Due to the strong levels of competition within this industry, customers ultimately have greater purchase power due to the low-risk nature of the purchase and the ability to switch to substitutes with ease. In order to prevent this a fair but profitable pricing strategy is needed alongside a comprehensive marketing strategy, which will be covered in greater detail later.
Although an obvious aim of starting a business is to generate a good revenue and subsequent profit, in order to succeed when starting a coffee shop, relationships must be built in order to ensure positive reviews both online and through word-of-mouth, which will help when looking to build a loyal customer base. However, this still leaves you with the question, is this the venture for someone like me? To help with this we have compiled a set of personal attributes we believe to be necessary of anyone looking to start a coffee shop.
Patience is a key attribute of any business owner, but particularly within this industry due to the length of time it takes to make a profit on your initial investment.
You will need to be flexible, particularly with the number of work hours your new business requires. In order for your business to succeed you will need to work more hours than a typical 9-5 occupation in the early months of trading.
This is the hospitality industry so being friendly and approachable is a must have quality, not only for the benefit of your customers but for your staff as well. Happy staff = Happy customers!
Quite simply, you have to love everything coffee, without passion, optimism and a lot of hard work the business will not succeed. With approximately 96% of startups failing within the first 5 years, it is important to remain within the 4% that succeed.
A high level of commitment is needed in order to ensure business success.
A successful business owner should be able to have strong leadership abilities and possess the capabilities to delegate and prioritise. This will be needed when opening a coffee shop, as within the first 6 months of training and setup prior to opening requiring both of these skills. They should offer guidance to employees and be able to solve any workplace problems with ease.
Vision of the company
In order to proceed to the next step, your vision must be identified. You must ask yourself, ‘where do I see this venture going in the next 5 years?’. Here is your opportunity to demonstrate your ambition, but you must remember that in order to achieve your vision it must be realistic but most of all achievable. The vision of the company directly influences other aspects of the company such as the mission statement, goals and USP. The mission statement should outline the companies values and goals which aim to help fulfil the business’s vision, whereas the USP will embody these values whilst incorporating the vision when creating a product/service.
Conduct market research
Market research is an essential component of starting any business, but with strong levels of competition being prevalent within this industry it is important to gain an insight into how your coffee shop will be received and will help identify your target audience(s). There are many ways in which you can gain information regarding your target audience with some examples being focus groups, questionnaires, coffee tasting sessions and secondary data sources (e.g. internet.) All information gathered by sources such as these will need to be incorporated into your business plan and all marketing activities to ensure you are tailoring material to the appropriate audience.
Translate this into a business plan
Creating a strong business plan is imperative as it provides the company with a sense of direction as well as allowing you to see the viability of your new venture. There are various other benefits of constructing a business plan, for example; allowing a greater understanding of your market, ultimately allowing you to tailor your decision making process to suit the markets needs. It also helps maintain a strong focus on the set objectives, whilst ensuring clarity throughout the process of starting a business. Below is a list of 10 things every business plan should include:
You should have a good knowledge of your competitors to gain a market insight and what can be done to improve the current offerings within your local area. It can help with pricing strategy and promotional material to know what the current gaps in the market are and target these accordingly. It will also give you an insight into the prices that people are willing to pay.
• Product/Service description
• What makes it unique?
• Who are your competitors?
What are your managers’ skills/expertise?
It is important to understand the skills your other managers can have, in order to delegate the workload. Look particularly at areas such as finance and marketing as these are two of the most important aspects of your business. If neither yourself or any other managers are experienced in these areas it would be wise to hire somebody to focus on this.
How do you plan to market your product/service?
This is where you will develop your marketing strategy and subsequent channel selections. Will you use a digital media, traditional media or a combination of both?
This will help you identify the Strengths and Weaknesses of your coffee shop whilst allowing you to identify the external Opportunities and Threats. This is a very useful tool when looking to understand your market.
Develop a cash flow statement
Understanding your outgoings and ingoings is an important component within the business plan, and help identify the viability of your endeavour. It must include three components; cash flow resulting from operating activities (electricity, rent, wages etc), cash flow resulting from investing activities (purchasing of new machines and equipment) and cash flow resulting from financing activities (loan interests and dividends etc.). If you take this alongside any other costs away from your total revenue, you will get your profit margin.
Brand Identity/Tone of Voice
For those who aren’t aware, brand identity is the way in which a company is recognised by consumers. There are various components of brand identity, with physical attributes such as logos, slogans and names which directly affect customer recognition. As an organisation in a saturated industry, you need to make sure that you capture people’s attention with an easily recognisable name and logo. It would be wise to draft numerous ideas and dependent on budget, conduct market research to gain consumer insight to help inform your decisions.
Establish your USP
Ensuring your coffee shop can compete within this saturated industry requires a unique selling point (USP) to differentiate you from your competitors. Your need to ask yourself the following questions to help establish a USP:
• What are the gaps in the market?
• What services are currently provided?
• How can I improve the services provided?
• What are consumers looking for?
Select a venue and location
With small coffee shops being a hotspot for social activity amongst local communities, understanding and tailoring the products you offer, the service you provide and the physical execution of your coffee shop are important factors that you need to get right in order to ensure success.
You have to ensure that you select a property that is in a suitable geographical location for the type of coffee you wish to sell (e.g. high end/low end), and one that will provide enough space to fit the necessary equipment and allow you to be creative with the decor.
However, it’s not enough to decorate the inside with little to no thought regarding the exterior. The exterior decor will be the first point at which the customer forms a perception of your business and can either encourage them to visit or keep walking, so it need to be; eye-catching, unique and intriguing.
Developing a strong marketing strategy should be a priority when opening a small coffee shop as it will be your main communication channel with consumers. There should be a strong focus on reaching, engaging and converting consumers.
Popular forms of marketing used by startup coffee shops remain simple cost effective channels including; social media, flyering, loyalty cards, competitions and adverts in local newspapers, however, it is important to choose the channels that are suitable for you and your budget.
In terms of social media, the use of Facebook boosts are a great way to build consumer awareness, allowing you to tailor your material to individuals based on location and age. This can be used to communicate directly with your target audience and increase awareness of promotional offers, events or new menu items.
Hiring an accountant
Hiring someone with the experience of dealing with startup businesses finance will be necessary if you or any business partners are inexperienced in this field. Having organized financial data will be crucial when monitoring ingoings, outgoings and calculating profits and losses. An accountant will be a useful source of advice and guidance for those first-time business starters, who may be at higher financial risk.
Building supplier relationships
When it comes to suppliers they should be considered and treated as part of the team just like any other member of staff. Although they are being paid to supply your business, they are helping you to provide quality products. Maintaining these relationships is of great interest to any business, as poor relationships result in supply issues resulting in customer dissatisfaction, a damaged reputation and a loss of revenue. Common causes of poor supplier relationships consist of late payments, poor communication and late deliveries.
Select your coffee and understand it
If you’re looking to start a coffee shop, selecting your coffee will no doubt be an exciting part of the process. When picking which coffee to choose, taste is the only concern right? Wrong! Although this is of great significance it is also important to understand where it came from and the processes embedded throughout the supply chain.
With sustainability being a concept everyone should consider adhering to, ensuring you source your coffee from an ethical company is not only important to the environment but has become increasingly popular to customers in recent years.
Recruiting the right people to work in your coffee shop is a big decision to make as the type of individuals working for you can have a large impact on the way your business operationalises. So what sort of people should you look to hire and why? Hire ‘high quality staff’. Remember you only get one chance at a first impression, with the baristas you hire being the face of the company it is important to get it correct, so don’t rush the recruitment process.
It has become more important in recent years for baristas to have a strong understanding of the sourcing and manufacturing process of their coffee beans, due to the increase in popularity of artisan coffee. With increased levels of eco-consciousness amongst the general public, with approximately 72% of individuals claiming they would be more likely to buy/use a product/service if it was sustainable, adopting sustainable business practices would be a wise investment.
However, it is enough to simply be knowledgeable but should also possess a series of personal attributes, which can be see below:
Strong attention to detail
Within the role as a barista it is important to have a keen eye for detail, making sure every drink is made with the same passion and love that every customer deserves. Quality should never be compromised.
Ability to multitask
Multitasking is a key skill that all baristas must master, whether it be a combination of making beverages, serving customers and maintaining a clean working environment whilst delivering great customer service regardless of the circumstance.
Possess strong customer service skills
Having strong customer service skills is a useful attribute particularly within this industry, as there is a strong focus on building relationships and ensuring customer retention. It is also important for staff to be able to deal with challenging situations such as customer complaints.
When working in a small business where repeat customers are of great importance to the business, hiring a staff member that can create a relaxing experience for all is a must-have skill.
Ability to work under pressure
From the other side of the counter, being a barista may not be regarded as a highly stressful occupation, however, this can be argued differently by baristas when orders span the length of the desk, with a line of people waiting to be served. It is important for baristas to be able to deal with this pressure whilst remaining positive and optimistic that they can complete the job at hand.
It is important to hire someone that can be available when needed, particularly within the first few months of opening to meet the needs of the business. These needs can be regarding meeting the demand if there is a high frequency of customers or to help with the generation of new ideas to help make the business more competitive.
One thing to bear in mind when opening a coffee shop is the importance of motivation. Poor motivation will be noticed by both staff and customers and will affect the quality of your operations. Don’t be disheartened by poor profits within the first 6 months of trading, its normal. Profits will follow greater brand awareness, remember you are new to the trade. Stay positive, stay committed and stay passionate.
Below are some success measurements you can use for both marketing, finance and general measurements:
Social Media: Look at reviews, like, comments, shares and engagement of consumers
Website: If you decide to set up a website the use of tools such as Google Analytics can provide an insight into bounce rates and session time. This information will help you to optimise your website for your target audiences.
Breakeven: Towards the beginning of trade it will be unlikely that you will be breaking even, however, if you are consistently struggling to break even 6 months on it might be time to re-think your marketing strategy.
Profit: An obvious one yes, but important nonetheless. Significant profits are achievable due to the high margins available on these products, but high margins will not be sufficient and must be accompanied by a high frequency of sales. Profits should be enjoyed by also re-invested to continually improve your business and services provided.
Reviews: Reviews should always be viewed to gain an idea of how your products and service are being received, poor reviews can be extremely damaging to a business so these issues should not be ignored and should be addressed immediately.
We hope this step-by-step guide has given you an insight into the action required to ensure you become a successful coffee shop entrepreneur.