Did you know coffee is the second-most consumed beverage in the world after water? So, if you’re planning to start a coffee shop business in 2023, you are tapping into a huge and growing market. According to a report, the global coffee market clocked a revenue of $494 billion in 2023, almost double from $225 billion in 2015. Plus, the specialty coffee market is expected to grow with a CAGR of over 13% in the 2020–2025 period.
The increasing popularity of specialty coffee mostly fuels this demand, the rise of coffee culture, and the health benefits associated with moderate consumption. However, opening a coffee shop business is more challenging than it sounds.
1. How To Start A Coffee Shop Business
You will need to do a lot of research, planning, and preparation before you can serve your first cup of joe. You will also need to consider aspects such as location, target market, menu, equipment, staff, suppliers, competitors, regulations, and finances. In this section, we will discuss each of these aspects in detail and help you create a successful coffee shop business plan.
What do you want your coffee shop to be in the future? Jot down your goals and aspirations — what are you hoping to achieve from this venture? It will then help you understand the purpose and meaning of your cafe.
A vision statement also allows you to review and change it according to the industry trend. Plus, it will help you make a business plan, measure your progress, and adapt accordingly.
For example, a sample vision statement could be: “To create a warm, welcoming, and aesthetically pleasing place where people can work, run a one-person startup, or relax with friends while enjoying a freshly brewed cup of coffee.”
1.2. Business Plan
Before you start working on other aspects of your coffee shop business, we suggest you make a business plan. Try to sketch the whole picture of the company, including its structure, clients, location, costs, products, personnel, and finances.
Developing a business plan enables you to align your investments with your objectives, create a business model, and demonstrate your target market, sales strategy, and overall growth potential. It also helps you find weak spots and focus on things that might go wrong
1.3. Business Structure
There are three options you can choose from when starting a coffee shop business:
- Purchasing a franchise: This is one of the most common strategies that people opt for. Buying a franchise of an existing brand would give you a brand name and your customers familiarity.
- Buying a coffee shop business: You can also acquire an already existing establishment and make amends according to your desires and wants.
- Starting from scratch: This option requires the most effort and might seem daunting but has the most pliancy and the best potential to maximize profits.
Depending on the option you choose, the next step will involve figuring out whether you want to be a sole proprietor, open a partnership firm, or a limited liability company (LLC).
Consider the following:
- Sole Proprietorship: Do you want full control over your business? That could mean bearing the debt obligations alone, too.
- Partnership: You could share the company, profits, and losses with a partner or two.
- LLC: Do you want to be a business entity with limited liability protection and flexible management?
1.4. Finding A Good Location
Coffee shops are a place where people like to unwind and have a good time over a cup of coffee. Therefore, you need to ensure that you find an apt location which is easily accessible by your customers.
Before you freeze a location make sure to do some research on that place and its demographics. Also, see whether that place has enough footfall to sustain your coffee shop business.
Factors to consider while deciding the location of your coffee shop:
- Visibility– Setting up your coffee shop in a visible location is very vital, to ensure high footfall. Ensure that the location is on the main street and can be spotted easily.
- Accessibility– It makes a huge difference if your coffee shop is situated in an accessible area. If people can reach your coffee shop easily, they are more likely to visit. Choose an area that has ample parking space available.
- Customer base– It is essential to identify your target audience and then you can go about deciding the location apt for the desired customer base.
- Affordability– If the rent is high, you might find it difficult to make profits. Do your research see if there are chances of the lease skyrocketing based on the previous pattern.
📚 Suggested Read: 11 Things to Consider While Deciding Your Restaurant’s Location
Your business plan would have given you a fair idea of the amount of investment you’d need to get started. You would have considered the costs such as construction or renovation, build outs, machines, coffee grinders, water systems, tables, and staff, among others.
The question is, are you self-funding, reaching out to a financial institution, or crowdfunding? There are various methods to raise funds for your coffee shop, depending on your budget and finances.
1.6. Identify Startup Cost
No matter what, there will be costs associated with opening a coffee business. However, these costs may depend on various factors; for example, opening a brand-new location will be more expensive than renting a space.
The basic start-up costs of a coffee shop will include:
- Utility Bills
- Licenses and permits
- Marketing expenses
- Staff salaries
- Interiors and furnishing
- Technology investments
Creating a detailed budget will help you secure funding and avoid unexpected financial hurdles.
1.7. Permits And Licenses
Obtaining the necessary licenses and permits is one of the most challenging aspects of operating a coffee business, requiring a great deal of paperwork and patience.
To help you out, here are some licenses and permits you’ll most likely need to start a coffee shop:
- Business license
- “Doing Business As” (DBA) license
- Coffee shop insurance
- Resale license for sales tax
- Retail food service license
- Sign permit
- Live entertainment license
- Building health permit
- Food handler’s permit
However, the requirements for these permits and licenses differ depending on your location. So be sure to check with your area of operation to ensure you fully comply with state laws and regulations.
1.8. Coffee Pricing
When finding a price that works for you, there are a few important things to think about, such as quality, customer prices, and profit.
Here are some pointers to get you started:
- Check to see if your supplier can provide high-quality beans at a reasonable price.
- Determine whether the price is reasonable for your clients and what your profit margin will be.
- Consider whether this price will allow you to make a profit. Great coffee is not cheap, but it shouldn’t break the bank either.
Remember that it may take some time to develop the correct menu pricing strategy for your coffee shop that increases the profit and popularity of your menu items. However, the simplest approach to understanding the price standards in your area is to look at the competition.
1.9. Curating The Menu
Before you open your coffee shop’s door, you need to create the menu and decide what all items it would feature. A coffee shop menu should feature various kinds of coffee from Cappuccinos to Mocha. Do not leave any tables unturned, after all, being a coffee shop you are expected to offer every kind of coffee.
Simply serving beverages may not yield a lot of profit. Thus, it is essential that you also offer food items. You can serve ready-made food such as sandwiches or bakery items or fast food such as burgers that are semi-processed and only require final stage cooking.
Also, experiment with your menu. Introduce innovative items like Chai Latte. Doing this will give you an upper hand over your competition, enticing the customers to choose you over others. Initially, you can have a limited menu and gradually keep updating the menu as you gain information about which food items sell well and which do not.
1.10. Design Layout And Workflow
Along with atmosphere and environment, customer flow, food flow, and coffee flow are all important considerations in a coffee shop. Your shop’s layout and process will play a crucial role in attracting consumers to your café.
A well-thought-out layout ensures that every square foot of your coffee shop contributes to the overall customer experience. The goal is to create a space where your baristas can work smoothly and efficiently, even during busy periods.
Here are a few things to consider when designing your coffee shop’s layout:
- Entry and seating area: A cozy seating area near the entrance with warm lighting and a display of fresh pastries can entice customers to linger.
- Coffee preparation area: Place all the coffee equipment in close proximity, so the barista can seamlessly transition from grinding to brewing and frothing.
- Service counter: It should have a clear view of the entrance, allowing baristas to greet customers promptly.
1.11. Choosing The Right Equipment
A thorough coffee shop equipment list might help you get off to a good start when opening your own coffee business.
The equipment that you plan to purchase depends on the type of food that you are serving. The coffee shop or cafe/ bistro format typically does not require a lot of cooking at the outlet. Since your primary offering is typically coffee, tea, or similar hot or cold beverages, you should invest in fine-quality equipment for the same.
Aside from basic equipment like a stove and oven, a refrigerator, cutting counters, and knives, you’ll need additional supplies such as:
- Automatic drip coffee makers
- An industrial coffee grinder
- A high-quality espresso machine
- Industrial blenders
- Ovens and toasters
- Coffee bar accessories
1.12. Investing In The Right Technology
In today’s tech-savvy world you cannot overlook the importance of technology. When starting a coffee shop, it is vital to invest in an efficient coffee shop POS system that will help ease the work for you in the long run.
Look for a POS with the following features:
- Quick billing: A good coffee shop POS system can perform billing operations smoothly. Since the coffee shop format is similar to the QSR and casual dine restaurant, you need to accept and process orders quickly.
- Stock & inventory management: The POS system should let you easily manage your inventory levels. If you are limiting the cooking to a minimum at the outlet, you’d need to manage the stock circulation from the Base Kitchen and Vendors properly. A smart inventory management system would allow you to view the daily stock consumption and manage the supply of stock efficiently.
- Real-time reporting: A POS system should give you real-time reports which you can analyze on the go. It should have a feature of mobile reporting which would allow you to read the daily progress reports on your mobile device.
- Offer integration: Offering Meal Combos and Offers work very well to attract customers. The POS should let you create customized offers efficiently and quickly.
All these features will help you manage the day-to-day activities at your coffee shop seamlessly.
📚 Suggested Read: How to Choose the Right Restaurant POS System
1.13. Managing the Inventory
Monitoring your food, beverage, and materials costs is one of the most essential aspects of operating a successful cafe. Do yourself a favor and start thinking about inventory management right away. Even better, invest in POS software that includes inventory management software.
Here is a list of a few specific supplies that you’ll need to run a coffee shop:
- Coffee filter paper
- Ceramic crockery
- Coffee beans, creamers and sweeteners
- Napkins, straws, and stirrers
- Espresso machines
- Coffee grinder
1.14. Selecting the Right Suppliers
A successful coffee shop is one that consistently serves high-quality coffee. A delicious cup of coffee will keep your customers returning for more, making the investment worthwhile. When sourcing coffee, you’ll want a product you can be proud of, and to do so, you must work with the correct supplier.
Here are some essential factors to consider when selecting a coffee supplier:
- Quality: Learn about the coffee’s origin, how it is roasted, and where the beans are sourced. Visit the supplier, sample the coffee in person, or ask them to mail it.
- Customer Service: A reputable provider will provide excellent customer service and guide you through each stage, from roasting to packaging, creating blends, and placing small to large orders.
- Find a supplier with low minimums, high volume capacity, and a quick and dependable turnaround time. Your business will have fluctuating requirements, so you must ensure the supplier is reliable and can maintain a steady supply.
- Price: Great coffee is not cheap, but it shouldn’t dent your wallet either. So, start by assessing whether the supplier provides quality beans for their quoting price. Then, decide whether the price is reasonable for your customers and what your profit margin will be. Last, determine if the pricing will allow you to make a profit.
1.15. Hiring The Right People
Having good employees is a clear indication of an excellent coffee shop and the best service; therefore it is essential to hire the best staff.
Having the right people in the right place will enhance your customer service which fosters loyal customers.
You will need to fill out the following vacancies before you open the doors of your coffee shop
- Chef (if you wish to serve freshly prepared food)
- Cleaning staff
These are some of the basic staff requirements for all the coffee shops that you would have to fill out. You can start with the minimum number of employees and gradually hire more as and when the need arises.
1.16. Training Your Staff
Even if you hire the best staff for your coffee shop it is essential to train them. This will ensure great customer service and will make your staff familiar with your goals and objectives.
Educate the staff about the menu, ideal guests, etc. You can provide the staff with a training handbook; this would be highly resourceful for the employees and something they can go back to for reference when required.
You can also give basic knowledge about various departments to your staff. This will make them more efficient and flexible enough to fill in a person’s position if he/she is unavailable.
Training them once is not enough; the training should never stop. Hold refresher meetings regularly and help the employees recall the training they were given. Continuously supervise the staff and ensure that they are practicing what has been taught to them.
1.17. Marketing Your Coffee Shop
If you only start marketing after you open, you’ve already fallen behind. You need to market your restaurant and let people know about your presence even before you plan to inaugurate.
You can initially start by putting up posters in the nearby location. This is a great technique for attracting the local crowd.
To attract the mass audience you can seek the help of online marketing. Online marketing strategies are based on the different goals and the audience you wish to target hence, it is more effective in reaching out to the desired customer base.
Build a good social media account and advertise your grand opening or exciting offers first few people can avail. Advertising through social media would help you reach your customers in real time also, it is much easier to add or edit an event on social media unlike offline marketing like newspaper advertisements etc.
Another effective way of using social media is by seeking help from food bloggers and by asking them to talk about your coffee shop and how excited they are to be there for the opening.
2. How Much Money Do You Need To Start A Coffee Shop?
There’s more to starting a profitable company than merely having a concept in mind: there’s planning, development, and strategy involved, which converts to start-up costs coming at you from all sides.
So, how much does it cost to operate a coffee shop?
- The average cost of opening a single coffee shop with seating is between $80,000 and $300,000.
- The cost of operating a coffee food truck or kiosk is on the lower end, somewhere near $60,000
- Coffee shops that include both seats and drive-thru coffee are more expensive and can reach more than $300,000.
- A sit-down franchise coffee shop can cost up to $650,000.
- A licensed brand-name coffee shop may cost $315,000 to open.
Moreover, here is a breakdown of the start-costs of a coffee business:
- Utilities: Restaurant utilities such as electricity, gas, water, and internet access can range from $1,000 to $1,200 per month for areas under 4,000 square feet. These fees can reach $1,200 per month for bigger cafes.
- Equipment: The cost of kitchen equipment and restaurant furniture can range from $20,000 to $400,000. Espresso machines, for example, can cost up to $23,000 each, whereas industrial coffee roasters can cost around $15,000.
- Pre-Opening: This might range from $20,000–120,000. You will also require up to $50,000 in professional service costs from interior designers, lawyers, accountants, and marketing organizations.
- Marketing: Restaurant marketing costs are estimated to be between 3–6% of total revenue.
- Interiors: Budget approximately $1,000–40,000 for designing your outdoor café area, which includes signage, design, lighting, planting, and seating.
- Food: Budget $5,000–25,000 a month for food and order as much as possible ahead of time.
- Labor: Restaurant labor expenditures account for around 30% of overall income.
- POS System: Modern POS software can cost between $50 and $200 per month, with the related hardware bundle often costing between $1,200 and $4,000.
The cost, however, varies substantially based on size, services, equipment, and the location of your business.
3. Bonus Tips To Make Your Coffee Shop A Success
While there is no secret recipe to guarantee the success of your coffee shop, here are some tips that can help you:
- Invest in a good POS System: A high-quality point-of-sale (POS) system will optimize almost every aspect of your business. It will allow consumers to use several payment methods, enhance accuracy with a touchscreen, and help you keep track of sales, revenues, and expenses. Additionally, look for software that can integrate with other software such as a kitchen display system (KDS).
- Have a USP: In a competitive market of coffee shops, your café must have a unique selling point (USP). Find ways to take your coffee business to a whole new level, giving your consumers a reason to choose you above your competition. Create a pleasant and inviting environment, for example, by playing peaceful music, providing comfy lounge areas, and offering free Wi-Fi.
- Leverage online ordering: Create a reliable online ordering system that integrates seamlessly with your website and social media. These platforms should prominently feature your menu, pricing, and ordering options. Furthermore, ensure that the website is mobile-responsive, as a significant portion of your customer base will access it from their smartphones. You can also announce new menu items or limited-time offers on your social media.
Lately, the coffee shop culture has witnessed a boom and it certainly is not stopping here. In the last few years, we have seen independent coffee shops and international players like Starbucks embed their roots and doing well in this sector. Homegrown chains like Sardarji-Baksh, Chaayos, and Chai Point etc, have also become extremely popular among the masses.
We hope this article helps you open a coffee shop business of your own!