Profits?

[winderbean]

Hello all....

We are in the process of deciding if we should open a coffee house in our local town and we are struggling with profit potential (after reading posts on this forum). Our area is very underserved (nothing for about 6 miles) and folks all say they only go to Starbucks cause nothing closer. We are in fairly affluent area and houses are popping up all over. We have over 6,000 in 3 mile radius and over 40K in 5 mile radius. Traffic count per day is 26K..morning and night are the busiest.

The problem: I do pretty well as an IT consultant but would love to scale back and eventually make the coffee world my FT gig (not a counter guy but as a owner that strives for consitent, quality beverages). I understand that the first 2 years may be hard (already experienced that when I went on my own in IT), but has anyone ever had 100K+ profit from their shop/house? Is that a pipe-dream or can it be done. I have talked to the managers at Starbucks in the area and each pull in 1-3Million/year (not sure of the operatting costs).

We intend to be anti-starbucks...more like muddy cup, with entertainment on weekends, maybe wine after 6PM and specialty deserts/baked good. Not sandwiches/lunches..been there.

What is realistic and why would you want to do it if you can only expect 30-40K a year from store. I love coffee but we need to eat : )

I know multiple stores can help but we are not sure about that path yet.

Thanks in advance.

-b

 

[NW JAVA]

Don't quit your day job, hire a competent manager, get a good roaster who will train, and pay for the new buis, with your IT paycheck.

 

[Comfy Place]

My opinions, for what they are worth...

You don't want to be a counter guy? Well, at first, I would recommend that you do the counter guy scene. You'll get invaluable hands-on experience, and be able to make better decisions down the road. Could you do the business without it? Probably, but you might have a longer profitability curve because you are relying on others for information that you would be getting if you were a drink jockey for a while.

Every independant should be the anti-Starbucks; there are enough around already that we don't need any imitators. Why would you want to do it? The same reason you went on your own in the first place in IT - to make all of the decisions rather than having someone dictate them to you. Sacrifice is the name of the game for almost any start-up for the first few years, IT perhaps being an exception in a few cases. There are many ways to make more money in just one shop instead of having multiple shops - what about selling your roasted beans on your website as well?

Ultimately, if you've run the numbers and your not satisfied with them, you probably shouldn't do it, no matter what opportunity it is. You have to be comfortable with all aspects of a business, or else you won't be happy and you will choose to end the business rather than push through the difficult times. I don't think its a good comparison to look at Starbucks and think that is the norm either. They've built up name recognition over the past 20+ years, so when they open a store, people flock to it because they know what is it and what they have; i.e., its easier for them to have a profitable store right away.

Good luck to you, no matter what you decide. Just be 100%+ committed to your chosen path, and you'll end up on top. Cheers!

 

[winderbean]

Thanks so much for your replies. I am willing (and eager) to work the counter so-to-speak, just don't want to buy another job. A business should be able to run with or without you (eventually), otherwise every biz would close once the owner died. Can you take 2 weeks off and still be OK? That's a critical question. I really want to open the shop, but it seems everything I read is negative (with regards to cash flow)....no one seems to be making more than 40K a year. It is scary.

-Bob

 

[ElPugDiablo]

Thanks so much for your replies. I am willing (and eager) to work the counter so-to-speak, just don't want to buy another job. A business should be able to run with or without you (eventually), otherwise every biz would close once the owner died. Can you take 2 weeks off and still be OK? That's a critical question. I really want to open the shop, but it seems everything I read is negative (with regards to cash flow)....no one seems to be making more than 40K a year. It is scary.

-Bob

That is not true. As a very general guideline your break even point is about $600 to $700 a day, assuming 30% COGS, 10% or less for rent and a tight labor cost. If you do $1,000 a day, you are in the 40K ball park. If you do 1,300 a day, you are in the 70K area. If you do $2,000 a day you are looking at 200K before Uncle Sam gets his share. If you can do $3,000 a day or 1 million a year, I'd like to be your business partner :grin: .

By the way using a 0.5% hit rate, 26K cars traffic will give you 130 transactions a day. At $3 per transaction, you are looking at $390 a day. So your task is to figure out ways to get your hit rate to 2%.

So why is it so negative? Because a study from the Ohio State University has found the restaurant industry failure rate between 1996 and 1999 to be between 57-61 percent over three years. It is that hard. If you still want to do it, you should listen to NW JAVA: Don't quit your day job, hire a competent manager, get a good roaster who will train, and pay for the new biz with your IT paycheck.

 

[winderbean]

ElPugDiablo....

.05% is all I can count on? Not 1-1.5%? Wow!

There is an elementary schooll opening up about 700ft from my proposed shop and you pretty much need to drive past me to get to it....any ideas on school mom/dad numbers. I think it will have a 500 student capacity.

 

[winderbean]

Also....my store will be next to a hair/nail salon and a quiznos, dentist, vet, pool supply, pizza place

 

[ElPugDiablo]

I think 0.5% is a good starting point for car traffic, for foot traffic it is higher, but I am not 100% sure. Maybe Andrew (cafemakers) can share his thought on it? Since there are a few food places, you can count their foot traffic and see how many cars pull into their spots. It is not exactly the same, but at least you can get some idea. You should probably check traffic count where Starbucks is at, and see their hit rate. Since Starbucks is a known quantity and you are not, to be safe, I would divide their hit rate by 2 or 3, and use that as your first year hit rate.

By the way, IMO, being an anti-Starbucks shop won't work because it means very little to the average consumer. If being anti-Starbucks works, then Starbucks would not be growing and Starbucks would be losing customers, but we know that is not the case. I think most consumers are not anti-Starbucks, and they actually have a very favorable impression of them. By running an anti-Starbucks shop you risk alienating those consumers. Let's say 30% of consumers are anti-starbucks; that is your target market, but not the other 70% that Starbucks is getting. Why would you want to give up on the bulk of the market and fight for the leftover with other anti-Starbucks shops? You will need to come up with something more than that in order to survive, and hopefully prosper.

 

[Comfy Place]

ElPugDiablo,

Regarding the anti-Starbucks theme that I started, I think that you misunderstood my meaning. I am not saying that a shop should be against/hateful towards/evil/etc. Starbucks; rather, I was trying to illustrate that a coffee shop should not try to emulate Starbucks, in my opinion.

Starbucks is successful, no question about that. And many people find that Starbucks fills their coffee desires, no question on that either. What we aim for, and what I think a lot of other independant coffee shops aim for, is to be different from Starbucks in a significant way. Our shop, for instance, while not close to a Starbucks, still is very different in our layout and furniture choices than Starbucks and other chain coffee stores. We also strive to offer high quality coffee drinks, hopefully that are better than the chains and any other local independant competition; on this front, I believe that we are succeeding.

So, no, I don't think that a place should be "anti-Starbucks" in the sense that they dislike/hate/etc. them. But, I believe that they should be different from them and other chains in order to make an impact. In this way, they are being anti-Starbucks, which is what I meant all along. My apologies to everyone, as it was not obvious what I truely meant with my first post. Cheers!

 

[ElPugDiablo]

Hi Comfy Place, I agree with you about the need to differentiate your shop from Starbucks. I was actually cautioning winderbean on the "We intend to be anti-starbucks" statement. I just don't think "Friends Don't Let Friends Drink Starbucks" type of theme will work. Maybe I misunderstood that remark.

 

[dant]

The website bizstats.com has some interesting (though slightly dated) financial data for the restaurant industry in general and Starbucks in particular.

According to this website Starbucks does an average sales of $521/square foot or 782,000/store. This seems consistent with what I've heard talking with managers of Starbucks stores. 1-3 million/store sounds way out of line to me. As far as independent shops I suspect most are really, really happy to reach 800-1,000 per day (less than half of Starbucks).

Based on my experience in the industry I would say it would be completely unrealistic for you to hope to earn 100.000+/year, especially if you don't want to do much with food.

I love owning/operating coffee shops and I think it makes a great lifestyle. But you gotta be realistic about what is involved--a lot of work, lots of patience, and limited income, especially in the first few years.

 

[John P]

There is always the risk of being a 'small town' shop. It still is a numbers game. As much as I advocate the 'quit what you are doing and FOCUS on the business', I think NW Java is right.

IMHO the reason most restaurants/coffee shops fail is these 3 reasons.
1) Lack of information/Planning
2) Undercapitalization
3) poor location

For many, the idea of owning is so appealing they neglect to do the real work that needs to be done BEFORE they consider starting a business, not to mention actually starting it. Be thankful of your great IT job, use your time and resources to REALLY know what it would take, and if the information points positive, then make it happen.

Good planning, and good luck!