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  • Writer's pictureJohn Tasci

Why You Should Open a Coffee Shop


Cappuccino being poured on cup by black hands

Thinking of starting your own business? Look no further than the coffee industry. Opening a coffee shop is one of the most profitable and demanded businesses worldwide. We’ll go over statistics, data, coffee economics, and much more for why you should consider opening a coffee shop. Although this article uses data from United States consumption, coffee is consumed worldwide and these statistics shouldn’t be much different from other countries. There might be other differences like cultural values and the economic strength of the country that you should consider if you’re reading this in another country. Let’s dive into why you should consider opening a coffee shop.


Market Growth of Coffee

Market growth of coffee statistic graph

Image by Statista


The coffee market has steadily increased every year in the United States and is projected to grow annually by 6.34% (CAGR 2022-2025). Coffee sales took a hit in 2020 due to the COVID-19 pandemic but quickly caught up in 2021 nearing the same revenue as 2019. The United States is the top market for coffee consumption worldwide with $85.16 billion in revenue which comes out to $254.40 generated per person. Most of the revenue generated for coffee comes from outdoors like restaurants and cafes, projected to reach 89% of spending by 2025, but only 21% of the volume consumption. The average coffee volume per person is expected to be 3.62 kg in 2022. The coffee market expects volume growth of 5.8% in 2023 and to reach a volume of 1.315 billion kg by 2025.



Demographics of U.S. Coffee Drinkers



Image by Statista


Share of coffee drinkers


  • 18-24 years old - 47%

  • 25-39 years old - 63%

  • 40-59 years old - 63%

  • 60+ years old - 68%


As age increases, more people drink coffee. Caffeine is suitable for older people and help prevents aging and prevent or delay dementia. Older people also have more time to go to their local cafes and drink coffee. People eat and drink when they’re bored and during retirement older people don’t have much to do, so they’ll prepare coffee and relax. Older people also need more energy to stay awake, caffeine provides the best solution and they become “addicted” to caffeine to stay awake.


Younger people are also starting to drink more coffee, but not plain black coffee. Young coffee drinkers are more into mixes and blends of coffee with other sweeteners so they have more flavor while drinking. It’s also more fun to drink, getting to choose your flavors and toppings, but unhealthy and more expensive.


Women drink more coffee than men. 66% of women drink coffee every day, compared to 62% of men. Only a 4% difference and both genders can be targeted as your customers.


Coffee Consumption Percentage by Race

Image by Statista


Share of coffee consumption


  • Hispanic-American - 65%

  • Caucasian-American - 64%

  • Asian-American - 64%

  • African-American - 48%


Coffee is one of the few industries that everyone loves. All races represent a high percentage share of coffee consumption. African-Americans are an outlier with 16-17%



Americans Prefer Gourmet Coffee


Americans are choosing premium beans and espresso-based beverages over traditional coffee. Gone are the days when people drink plain coffee and go on with their day. Today traditional coffee is considered “boring”. This has resulted in the consumption of coffee declining by 10%. Older people (60+) are 2x more likely to consume traditional coffee than 18-24 years olds.


Espresso-based drinks have become the new trend. Consumptions of cappuccinos, lattes, and flat whites are up a staggering 50%, due to the rise from 25-39-year-olds consumption. The best location for espresso-based drinks is in the Northeast, who are 15% more likely to order them than coffee drinkers in the Midwest. Risen from the dead, cold brew and nitro coffees rose to popularity, 1 in 5 Americans under age 40 consumes at least once a week.


How Much Money Does a Coffee Shop Make?


There is no one spot answer for this, several factors come into play in a coffee shop’s success.


Determinants


  • Location

  • Level of competition

  • Target Market

  • Menu Price

  • Startup Costs

  • Operational Costs


These are all experienced in the food industry and should be considered for coffee shops.


According to a survey conducted by Coffee Shop Startups, coffee shops vary in revenue


Coffee Shop Income Estimate


  • Small Espresso Catering: $35,500 - $55,000

  • Coffee kiosk: $75,000 - $95,000

  • Mobile Coffee Truck: $145,000 - $165,000

  • Drive-thru Coffee Stand: $155,000 - $185,000

  • Brick-and-Mortar Coffee Shop: $220,000 - $260,000

  • Full Coffee shop & bakery: $310,000 - $330,000

  • Cafe & bare: $330,000 - $360,000

  • Coffee Shop, bar and kitchen: $400,000 - $430,0000


Popular Coffee Franchises Store Income


  • Dunkin Donuts: $620,000 - $1.3 million

  • Tim Hortons: $1,054,296 - $1,242,750

  • Scooters Coffee: $90,000 - $360,000 (owner profit)


How much money do coffee shop owners make?


Coffee shop owners with small to medium-sized shops can make anywhere from $60,000 to $160,000 annually


How much do franchise owners make?


  • Dunkin Donuts: $124,000

  • Tim Hortons: $105,430

  • Scooters: $90,000 - $360,000


Franchise owners typically make more than startup coffee shop owners because of the already-established brand and investment required by owners.


What Do You Need to Start a Coffee Shop Business?


Opening a coffee shop is like opening a restaurant. You’ll incur the same expenses and it will require a lot of upfront capital.


Requirements to open Coffee Shop


  • Real estate + utilities

  • Inventory

  • Equipment

  • Tables, chairs, decorations

  • POS system + other technology

  • Marketing and promotions


Once you have these you’ll need workers. You can’t run the store all by yourself, so begin posting jobs online before opening the store! Create your own job listing on Indeed to attract potential employees. Make sure to put in all the requirements for the role and a precise job description. It’s also best to put the pay range, although this is optional, it makes it easier to hire workers because they know what salary to expect after a successful interview.


That brings up the next step, learning how to perform a successful interview.


Here are the top questions to ask an interviewee


  • Name a work accomplishment that makes you proud

  • How do you define hard work in the workplace?

  • Do you like working with a team or working alone?

  • Reveal something about yourself not on your resume

  • Do you have any questions for me?


These are 5 great questions to ask your potential employee and you’ll get to know a lot about them.


The next question follows up after conducting interviews. “How many workers do I need?” This depends on your coffee business location, traffic, and size. If you do reach a point where you have too many employees then it’s best to put them in part-time schedules.

What’s your goal with this business? Do you want to be the manager and owner? Then you can hire a few employees. Do you want to own a coffee shop where it’s automated and you don’t spend much time? Then you should plan on hiring more workers and a manager. This will cost you more but you’ll keep more money in your pocket.


How many workers do you need?


  • Small Coffe Shop: 1-4 Employees

  • Medium Coffee Shop: 2-7 Employees

  • Large Coffe Shop: 4-12 Employees


After hiring everyone, make sure you’ve become an expert in your business. You need to teach the employees how to craft your products. It’s your store, after all, you have to show them the directions on how to make the products. This will all take some time then you’re ready for the grand opening! All the hard work will pay off!



Insane Gross Profit Margins


The huge markup price of coffee price allows it to achieve high gross margins. According to coffeshophub the gross margin for coffee is a whopping 78%.


Gross Margin Formula


Gross Margin = (Revenue - Cost of Goods (COGS)) / Revenue


Example of coffee pricing to 78% gross margin


Price: $3

Ingredients and packaging $0.64

Gross margin: 78%


Restaurants' average gross profit margin ratio of 50 to 70%. Coffee shops are able to have an edge over them with low cost to make a cup of coffee. Your shop will primarily depend on the volume of sales.


Using the above example, if you sold 500 cups of coffee a day, that will result in an $1170 gross margin! That’s very good and you’ll have enough money to pay for rent, employees, utilities, and your ongoing loans for the business.


This also introduces a risk for coffee shops. Although the stores have high margins, if there aren’t many customers then your coffee shop is in trouble. Using the above example, if you only sold 50 cups of coffee a day, that will result in a $117 gross margin. That won’t even be enough to cover all your expenses! You have to research where you’re going to start your coffee shop because you will need an area with high traffic.


Use this omni calculator to estimate your gross profit margin.





How Much Money Do You Need to Start a Coffee Shop?


According to toast, the average cost to open a single coffee shop with seating is between $80,000-$300,000. If you decide to include a drive-thru, then it can range above $300,000. Drive thru's are a must when opening a coffee shop. 48% of daily coffee drinkers purchase through a drive-through. It’s crucial to drive in as many customers as possible with a low-priced product like coffee. If not, your coffee shop will go out of business.


If you have more money and want to invest in a franchise, this information will help you out. It's definitely worth investing your money in a franchise with the outstanding sales they provide. These are already established brands so they have done the heavy lifting for you and have acquired their loyal costumes. Some downfalls of opening a franchise are the costs and royalties you have to pay the company.


Popular Coffee Franchises Costs


Dunkin Donuts (Traditional Opportunities)

  • Franchise Fee: $40k-$90k

  • Continuing Franchise Fee: 2-6%

  • Store Size: 1,200 - 2,600 sq. ft.

  • Minimum Net Worth: $500k

  • Advertising Fee: 5%

  • Investment Range: $526.9k - $1.787 million

Dunkin Donuts (Non-Traditional Opportunities)

  • Continuing Franchise Fee: 5.9%

  • Store Size: From 500 sq.ft.

  • Franchise Fee: $1,000-$2,250 / year

  • Advertising Fee: 2.5%

  • Minimum Net Worth: $500k

  • Investment Range: $121.4k-$972.8k

Tim Hortons

  • Royalty: 4.5% to 6% of gross sales

  • Advertising Contributions: 4% of gross sales

  • Initial Franchise Fee: $25,000 - $50,000

  • Minimum of $500,000 Liquid Assets

  • Minimum $1,500,000 Net Worth

  • Investment Range: $94,000 - $2,162,500

Scooters

  • Royalty: 6% of gross sales

  • Marketing Contribution: 2% of gross sales

  • Initial Franchise Fee

  • Minimum of $200,000 Liquid Assets

  • Investment Range $666,500 - $1,847,500


Franchises cost a lot to start and the investment range is wide primarily depending on the location and size of the business. Investment costs aren’t paid in cash (you can if you want), but are primarily paid with loans. Everything is structured for you and you have to copy and paste their methods to have a successful business. That also comes with no flexibility as you have to abide by everything the company tells you to, so it limits your options to do what you want. After all, you’re still your own boss and you own the business collecting all the profit.



Selling Your Own Coffee Beans


More opportunities are introduced in the coffee shop business! Another way you can earn money is by selling your own coffee brand beans. Starbucks does this, Dunkin, and a lot more! You enter a new market with this strategy. One of your competitors includes at-home coffee. Some people don’t like to overpay for coffee and would rather make them at home. Why don’t you join in on the competition by selling your own coffee beans? Package the coffee beans you use to make the coffee, mark them up, and stick them on your shelves!


Packaging is essential. You have a chance to show your brand and hook. Starbucks does a great job.


Image by Amazon


Look at this beautiful packaging! I want to buy it just because of how well the packaging is! Starbucks does price this on the high end and is nearly sold out in every store. These 3 packs of 12 oz Starbucks coffee beans cost $28.47 on Amazon. According to Java Presse, the average cost for a roaster to buy a pound of coffee is $1-2 per pound. That is a 300% markup just to package the beans and sell them to consumers!


This is a very easy additional passive income source for your business. All you have to do is put the coffee beans on display and the customers will purchase them! You could create promotions online and you’ll start driving more sales. If your coffee beans turn out to be amazing, then you can sell these globally in supermarkets! This is a side business that can become scalable and create a successful business.



Offering Food Menu at Your Coffee Shop


Coffee shops are very flexible businesses. You don’t have to just offer coffee at your store. Only a very few stores do this. Most coffee shops offer food at their shop. People want to enjoy their time, so a bite of coffee provides the best solution.


What food should I offer at my coffee shop?

  • Bagels

  • Sandwiches (breakfast and lunch)

  • Salads

  • Breakfast Items

    • Pastries, Eggs, Waffles, Pancakes, fruits, etc.

  • Deserts

These are great starting menu items for your coffee shop, but they can be anything you want. Think about what you want to portray as your brand image. What’s your target audience? For example, Dunkin’s specialty is donuts and coffee! They have over 50 varieties of donuts and sell 2.9 billion donuts and munchkins globally! That’s what they’re known for.


You should aim to have specialty food on your menu. Then everything else can be add-ons. Maybe you can offer the best avocado toast and make that your specialty. You can even feature it in your menu as a bundle: avocado toast and coffee! Give them a small discount and people will be sure to fill the lines to buy them.


Offering food at your restaurant also provides more sales for delivery. Not only do you offer coffee, but you introduce food to the menu to raise the average price per order. If someone were to buy coffee alone then the delivery fees would match the price of the coffee. Only people addicted to coffee would make this purchase. So, consumers don’t get much value for their money by just offering coffee online. If they purchased food along with the coffee then it’ll make the fees less and potentially qualify for free shipping.


Everyone needs to eat food and almost everyone needs coffee. So, why not include it? You can easily beat out the competition by offering spectacular food. Starbucks and Dunkin’ offer processed and not high-quality food. Panera on the other hand offers spectacular food and its stores always thrive. Have you ever walked into an empty Panera? I haven’t! Panera offers it all from sandwiches, salads, soups, coffee, and even a coffee subscription!


A coffee subscription is very useful because since they come for their free coffee (paid with membership) they’ll feel obligated to purchase something which will boast your revenue!



The Power of Drive-Thrus at a Coffee Shop


Who knew adding a side window to a coffee shop would account for 48% of the sales? Drive-thrus are very important. Some people want quick service, take the coffee and go along with their day. Not everyone wants to sit down and enjoy their coffee. Some people want to drink it just to stay awake!


Drive thru's are a great way to bring more traffic to your store. It will enable your store to promote sales, bring more families, and increase convenience. During the pandemic, coffee shops couldn’t open their stores, so they utilized drive-thrus to keep their business going. People have adapted since then and now use drive-thrus more often. You should definitely look forward to including a drive-thru in your store. Look at that! Another source of income for your coffee shop!


Take Advantage of Delivery and Pick Up Services


A huge opportunity has evolved in the food industry. Delivery and pick-up services are essential for a coffee shop. Think of it as another source of income with only a small extra work done by your end. Technology is evolving and the main purpose of technology is to make everyone lazier. With popular delivery services like Doordash, Uber Eats, and Grubhub you’ll be able to serve another target of people!


Delivery services don’t cost extra in your part. You don’t need to hire a driver to send the order, that’s what the software is for! All they take is a commission on the sales and provide you with another source of income!


Pickup is also the same as delivery, you make the products and they come to pick them up.


Should I have an app for my coffee shop?


It will be very beneficial for your coffee shop to have your own app. You can build a loyal customer base with active users using your app for promotion and rewards. All major coffee brands have apps, which is an upside of starting a franchise. You get both an app and connected to other apps to earn more money.


It will be hard and expensive to make an app for your local coffee shop. Simple app development can cost between $40,000-$60,000. A very high price to pay for only one location. If you’re looking to scale and open several locations, then an app will be handy, but in the beginning, it’s not worth it.



Best Locations to Open a Coffee Shop


When it comes to starting your own coffee shop business, location means everything. A great location with high foot traffic will allow you to maximize your sales and be more profitable. You have to spend time planning and researching available locations to start your coffee shop business. Online research isn’t enough, you have to go to the location and check it out yourself. Some methods of in-person research include counting customers, talking to neighborhood businesses, doing market demographic research (provided in this blog), etc. The more research you do, the better the chances are for your business to succeed.


One day of research isn’t enough. What if it was a holiday and the foot traffic increased to 2,000, but on normal days it’s 100? That’s why it’s important to talk with neighboring businesses to understand when they receive the most traffic, what days they’re open, what hours they operate, how many workers they have, rent costs, etc. Over-estimating customer traffic is a big mistake and you should do your best to avoid it.


Best Locations to Open a Coffee Shop


  • Coffee shop near a library

  • Coffee shop near a post office or mail service center

  • Coffee shop near all-night laundromats

  • Coffee shop near a pet grooming business

  • Coffee shop near sandwich shops or other small eateries

  • Coffee shop near movie theaters

  • Coffee shop in a transit center


These locations are great to be complemented coffee shops. Post offices and transit centers bring high traffic to the stores. Reading a book and waiting for your laundry to be done is complemented by a nice cup of coffee. Do you get the idea? Open a coffee shop in an area of high traffic and complementary to coffee.


There are a lot of opportunities to open a coffee shop in a great location. Coffee goes along with many locations and suits as a win-win for other stores nearby because they both drive traffic to each other. With the high gross margins, you can ensure that your business will thrive.


If you’re planning on opening a franchise, then the company will most likely choose a location for you or give you location options to open. This is awesome because the company has already done the research and chosen the best locations for you, but don’t let that fool you. You should still do your own research to double-check if it’s a good area to start your business. Some downsides include having to be far away from home and if you plan on working at your own store then it could become a struggle to drive back and forth every day.


Choose what’s right for you and the money will follow.



How to Compete with Fierce Competitors


Coffee shops have a lot of come competition! You’re not only competing with coffee shops, there are restaurants that offer coffee, fast food that offer coffee, homemade coffee, premade coffee blends, coffee machines, etc. There’s a lot of competition for coffee!


Let’s take a look at the 10 largest coffee companies in the world


  • Starbucks

    • 2021 Gross annual sales: $29.061 billion

  • Panera Bread

    • Gross annual sales: $2.8 billion

  • McCafe

    • Gross annual sales: $2.42 billion

  • Lavazza

    • 2021 Gross annual sales: $2.3 billion

  • Tim Hortons

    • 2021 Gross annual sales: $2.25 billion

  • Dunkin’ Brands

    • 2021 Gross annual sales: $1.25 billion

  • Costa

    • 2021 Gross annual sales: $1.17 billion

  • Peet’s Coffee

    • Gross annual sales: $983 million

  • Dutch Bros Coffee

    • 2021 Gross annual sales: $497.9 million

  • Caribou Coffee

    • 2021 Gross annual sales: $262 million


These are all big franchises offering coffee and you will have to compete with them because they can be found all around the United States. Don’t let this scare you. In the United States alone coffee revenues hit $85.16 billion in 2022. You only need a small percentage of those sales to have a successful store.


If you want to achieve $500,000 in annual revenue. You only need to get 0.00058713% of the total coffee sales. So, there is enough pie to be shared around.


Now that you’re not worried.


How can you compete in the coffee industry?


  • Offer high-quality products - consistently

  • Offer the best service - consistently

  • Be open to customer feedback

  • Deliver high value

  • Collect data from your POS system

  • Exceed customer expectations

  • Re-evaluate your space

  • Train each employee

  • Marketing & Promotion

  • Loyalty Program


Offering high-quality products is very important, this is the main source of income after all. Your customers aren’t going to come back if they don’t like your products. This also has to be done consistently. One bad order and you can lose a customer. You should strive for perfection in your products. A bad experience could also ruin your reputation as a brand. You want your customers to be treated with the best service possible.


To better understand your customers, you should be open to customer feedback. Don’t be stubborn and think you’re providing the best service when your customers aren’t happy. Remember the customer is always right. You could do surveys and look at reviews to better understand customer feedback. Make sure to change your business accordingly so it meets your customers' needs. Then your business will be sure to thrive.


Collecting data from the POS system allows you to have your business organized. You can check what time and day of the week you’re busiest so you can schedule workers accordingly. You can also check what items sell the most at what time so you can supply the products accordingly. The worst thing that can happen is running out of the product that everyone loves to buy from your store!


Exceed customer expectations each time. Don’t offer a normal experience, offer the best experience. Treat your customers extra nice and form a connection with them. Learn their names, start a conversation, and become friends with them. They’ll come more often and enjoy their time! Fix mistakes in orders, and if the customer’s not satisfied then offer to change the order! You only lose one order and make the customer happy, it’s worth the exchange.


Set up your store to be comfortable and cozy. The last thing you want is a tight coffee shop where everything is cramped. You want to have an open space with room for seating. The current trend is that people preferred gourmet coffee. Luxurious space and furnishing will make people feel rich and make them come more often. The space will look more flourished and welcoming and the customers will expect the high-quality products which you will provide.


Employees are the back stone of the business. They deliver your products and services to the customers. It’s very important to train your employees very well. All the employees should be proficient in making the products, taking care of customers, and keeping a clean store. Respect your employees and don’t just be a normal “manager”, be a leader! Help them along the way and they will never want to leave!


How are you going to get the word out for your store? Marketing! Create a social media account. Make sure to get found on Google. Create your own website. Offer delivery services. All of these allow you to grow your audience without spending any money. You could spend a bit of money promoting your business online and running ads, but your main source of marketing is word-of-mouth marketing. You want to create coffee so good that people will talk about it and tell their friends to go. That’s the power of high-quality products, you’ll be known as the local hotspot and attract several customers.


Loyalty programs are also a great way to have customers actively purchase your products with small prizes. For example, they can purchase 6 coffees and get 1 for free! You’ll be able to offset the loss of the 1 coffee by them purchasing 6 and continue doing this offer.


These are ways to beat your competition, but what also shouldn’t you do?


  • Don’t go into a price war

  • Never talk bad about your competition

  • Never serve mediocre coffee

  • Never stop learning

  • Don’t abandon your online presence


You will be operating a successful coffee shop if you do what was mentioned before “How can you compete in the coffee industry?”



Failure Rate of Coffee Shops


A recent survey conducted in April 2019 on 232 coffee shops in the U.S. observed that 50%-74% of independent coffee shops fail in the first five years.


Success rates for starting your own business are always low. In general, 80-95% of businesses don’t stay open past 2 years. So, coffee shops do have a higher success rate than general businesses overall.


Coffee shops fail for several reasons and most of the problems are very easily solvable. You won’t have to be part of the 50-74% range if you don’t make these mistakes


Reasons why coffee shops fail


  • Lack of planning

  • Owners rushing to open shop

  • The owner has little to no knowledge of the industry


These are the 3 main reasons why coffee shops oftentimes fail. Notice how none of them had to do with money because everyone’s focused on having enough money to open a coffee shop then they expect to make money right away. Or instead, they work on having enough capital to start their coffee shop and open the store immediately to not waste any time.


This strategy is not just used for coffee shops, most business owners do this. That’s why they fail and the few that succeed from following this were just lucky.


Educating yourself is one of the best things you can do to be fully prepared before starting a coffee business. Some forms of education include workshops, coffee-related books, videos, mentors, and seminars. This is to learn about the coffee industry and learn how to create an amazing experience for your customers. Don’t limit your education to just the coffee industry. Understanding how to operate a business and how to market your business will help maintain and grow your business.


Having past experience working at a coffee shop will help you a lot. You’ll gain hands-on experience and knowledge about how the shop works and how your boss managed the store for success.


Preparation could require six months to a year of research and planning and it will help ensure to minimize your risk of failure.



Conclusion


Starting a coffee shop, like any other business is risky. But we dived in and saw the true potential of starting your own store. These were all great reasons why you should open a coffee shop. I’ve provided statistics, strategies, and opportunities introduced in the coffee industry. This shouldn’t be the end, but only the beginning of your education in the coffee industry. Hands-on experience is always important in business and you should look forward to learning. If it truly excites you, then your store will be successful, but if you’re starting a store just to make money and have no passion for it, then it won’t be successful. I hope you learned something new and maybe one day you’ll open your own coffee shop!


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