Questions on opening a shop

[green beans]

Hello, I am thinking of opening a local coffee shop in a suburb of Boston. Currently I am doing research in the area, looking for possible locations, and getting informed on the local zoning laws. I have a place in mind that is 1,600 sq/ft at $25 a foot. I need to be able to fit 50 seats in there for it to pass zoning laws. It is on a main street with a good amount of foot and car traffic. I sat outside the location this morning from 8:15 - 9:15am and counted approximately 144 people walking and 576 cars passing by. I have read that I should plan on having sales ten times my monthly rent in order to have a stable businesses, that is $33,333 in sales a month.

My questions are:
1. How can I estimate sales based on traffic going by? Do those sound like numbers that could reach sales of $33,333, keeping in mind I plan on offering some breakfast and sandwiches?

2. If I set the shop up wisely can I fit 55 seats with 1,600 sq/ft to work with?

3. Does the rent seem appropriate for the traffic (car and foot) I have witnessed?

4. I saw on here that a few times it was suggested to calculate .05% of drivebys as sales, is that still the number used? What percent of walkbys may buy?

thank you for any information you can lend

 

[green beans]

Also can someone tell me what the industry average ticket size is for a customer is today. I have ready everything from $2.50 to $4.50.

thanks

 

[Jackson]

You will need almost 370 customers each day 7 days a week to reach that goal. That seems a bit high to me.

 

[futurecoffeeshop]

rent as a percent of gross sales

In the theme of new shops: Does anyone break out their rent as a percentage of gross sales? I have seen 10% elesewhere, is that true with you folks?

Thanks!

 

[futurecoffeeshop]

National coffe assoc

Is it worth buying the NCA report on coffee drinking trends?

 

[cafemakers]

Re: National coffe assoc

Is it worth buying the NCA report on coffee drinking trends?

That would depend on what you plan to do with it. What do you hope this report will do for you?

 

[futurecoffeeshop]

NCA

I would hope that it would provide me statistical information that I could apply to my business model/plan. For instance what age groups drink specialty coffee and how often. I would then take that info and extrapolate from the census data for my target area to get an idea of how many people in that area might be interested in buying from me. I assume that there would be info that would help with targeting marketing as well. I definitely don't want to spend money if I don't have to though. For instance if it would mainly help with marketing I would buy it farther down the line (I'm in the planning prior to lease negotiation stage).

So far I have calculated several different ways to try to zero in on my potential gross sales:
1. sales per square foot in similar businesses/locations
2. capture rate of drive by traffic
3. capture rate of pedestrian traffic and traffic to other businesses in the shopping center I'll be in

Using these data (well, informed guesses based on these data) and various average check scenarios I've come up with similar numbers for all the methods (thats's good I guess).

Just wondering if the NCA report will shed any more light for me.

Andrew, you seem very well informed so I'd also like to ask you about my previous question of rent as a percentage of gross sales. Is there a good number to use?
Is there a percentage of sales I should allocate for marketing?

Also I've seen a lot of people asking about loans vs. self finance. It doesn't seem to me that you can avoid personal responsibility for the businesses debts (even if you incorporate since they require collateral) so given the option is self financing the way to go?

Thank you in advance!

 

[Muddycup]

can be done

if you design the cafe right you can get 50 seats in there although it will be tight. I got forty in 900 square feet. if you are going to make some food keep it simple you will not have much room for a grill and hood system.

I would not go by foot or car traffic along, I usually look at the density of the area if you have several thousand people who live within a 1/4 or 1/2 mile then you golden only you know that.

if it is truly a "good location and you were serving just basic drinks and baked goods realisticly count on $20,000 a month in gross revenue, now if you are adding breakfast and other light food items you maybe able to push that to $30,000 but that really good in this business unless you have a AAA location which would cost you more than $25 a foot

so chew on those numbers and tell me what you think.

 

[CafeBlue]

Since you are in Boston, you should talk to George Howell. You might remember his local cafe chain "Coffee Connection" which he sold to Starbuck's about 10 years ago, when they wanted to buy out their strongest Boston competitor.
His current company operates a high end roasting facility in your area: terroircoffee.com. He has a valuable point of view, and if you wish to offer exceptional coffee, you owe it to yourself to consider George as a supplier and compare his product to others in your region.

 

[cafemakers]

Re: NCA

I would hope that it would provide me statistical information that I could apply to my business model/plan. For instance what age groups drink specialty coffee and how often. I would then take that info and extrapolate from the census data for my target area to get an idea of how many people in that area might be interested in buying from me.

You should be able to do all of those things with the report.

I assume that there would be info that would help with targeting marketing as well. I definitely don't want to spend money if I don't have to though. For instance if it would mainly help with marketing I would buy it farther down the line (I'm in the planning prior to lease negotiation stage).

That might be a little bit of a stretch -- the report will definitely tell you who is buying coffee and how many, even answer some of the "where" but the "why" is left open to your own interpretation (they do say "why not.") That being said, I believe it is the best report available to help you understand the scale of the U.S. specialty coffee business and consumer buying trends and will be good to consider when you create your marketing campaign.

So far I have calculated several different ways to try to zero in on my potential gross sales:
1. sales per square foot in similar businesses/locations
2. capture rate of drive by traffic
3. capture rate of pedestrian traffic and traffic to other businesses in the shopping center I'll be in

Using these data (well, informed guesses based on these data) and various average check scenarios I've come up with similar numbers for all the methods (thats's good I guess).

Just wondering if the NCA report will shed any more light for me.

Sounds positive to me, I believe that the $350 is a pretty minor investment to understand more about the industry. (if you sign up as a SCAA provisional member and save $100 on the report)

I refer to the document most often when writing an article or preparing a presentation that needs some kind of data; though, there are always a interesting points in each new edition.

Andrew, you seem very well informed so I'd also like to ask you about my previous question of rent as a percentage of gross sales. Is there a good number to use?

I personally do not like that number to exceed 10% for a typical sit down shop, unless it has some other unique value beyond the value of its sales. Additionally, your business model will affect the net result (drive through only = less, for example, as are full restaurants due to the larger ticket size (but lower profit margin)).

Is there a percentage of sales I should allocate for marketing?

That's a tricky question - once the business is established, the amount will be minimal. Look at Starbucks, for example, how many TV commercials have you seen for their stores? (RTD products, excepted)

I suggest that you devote your marketing resources to promotions and events that help to support your brand image, but keep overall marketing and advertising minimal. For the launch, you should have a budget set aside specifically to promote the opening of the business - but that budget will vary in every situation. It would be a little premature of me to make a suggestion for you without understanding more about your situation.

Also I've seen a lot of people asking about loans vs. self finance. It doesn't seem to me that you can avoid personal responsibility for the businesses debts (even if you incorporate since they require collateral) so given the option is self financing the way to go?

Well... sometimes you can avoid the personal responsibility, but it's pretty tricky. All of the debt is usually your responsibility. So, that being said, I suggest that you pick the resources that cost you the least (in interest and penalties and the lost opportunity of investment income) but minimize your personal liability, while not jeopardizing your lifestyle.

Here too, this one of those situations that should be considered on a case-by-case basis; it's difficult to paint broad strokes when considering the wide possible ranges of personal financial conditions and available options.

I hate borrowing money, but will if I have to or it's cheaper than using my own.

Hope that helps, at least a little!

Best regards,

Andrew

 

[green beans]

Thanks for the info.

Thanks for the feedback. I have been talking to the property managers of the locations I was looking at. Still in contact but a new location in a new area has come up. A cafe that is more of a lunch cafe and has a catering business on the side may be moving to concentrate more on their growing catering business. I have been by the place many times and it is in a good corner location of a busy intersection in the center of a small square with a few other businesses around. The place holds lunch hours mostly 9-4 6 days a week. It never seems to be open when I am looking for a cup of coffee.

I spoke with them last week and they are trying to figure out how they want to go about leaving the location and on what timeline.

If they were to leave they would take the name with them so I would not be buying that but perhaps some of their assets, coffee makers, etc... They told me that they did all the buildout of the location.

Questions:
-If I were to take over their lease would I need to pay them for some of their buildout expenses? Might they expect that? It seems like it could be a better situation than buying a cafe because I would be only buying some assets and not the company name.
Is this a normal situation? Am I correct to think that I would only be paying for whatever assets and maybe some buildout expenses because they did the buildout?

-How do landlords usualy react when someone tries to leave their lease early and have someone else take over? They told me that they landlord has been very hands off, I am not sure if that is really worth anything.

-If I plan on serving some food, sandwhiches and some bakery items what is an average ticket size people have experienced?

 

[green beans]

The area is pretty densly settled. The city is one of the most densy settled in the area and there is a university nearby that is underserviced as far as a coffee shop goes. As far as distance it would be the closes to the school other than on campus establishments.

Muddycup did you get those sales figures from experience with your shops?

 

[green beans]

Another Question

Muddycup you mentioned using population in the area as a potential sales hint. Have you or anyone been able to determine what percentage of people in a general area will/may buy a coffee drink daily. What percentage of the population within a 1/4 mile or a 1/2 mile of your cafe buy from you daily?

Thanks for any insight anyone can give.

 

[ElPugDiablo]

Since you are in Boston, you should talk to George Howell. You might remember his local cafe chain "Coffee Connection" which he sold to Starbuck's about 10 years ago, when they wanted to buy out their strongest Boston competitor.
His current company operates a high end roasting facility in your area: terroircoffee.com. He has a valuable point of view, and if you wish to offer exceptional coffee, you owe it to yourself to consider George as a supplier and compare his product to others in your region.

Simon's at 1736 Massachusetts Ave Cambridge uses Terroir's Daterra, South Italian Style Espresso and Terroir's drips. It's worthwhile to visit them. Don't know if the person who put their coffee program together, Jaime, is still there though.

If they were to leave they would take the name with them so I would not be buying that but perhaps some of their assets, coffee makers, etc... They told me that they did all the buildout of the location.

Questions:
-If I were to take over their lease would I need to pay them for some of their buildout expenses? Might they expect that? It seems like it could be a better situation than buying a cafe because I would be only buying some assets and not the company name.
Is this a normal situation? Am I correct to think that I would only be paying for whatever assets and maybe some buildout expenses because they did the buildout?

-How do landlords usualy react when someone tries to leave their lease early and have someone else take over? They told me that they landlord has been very hands off, I am not sure if that is really worth anything.

How many years including option are left on the lease? And what kind of increase?

 

[green beans]

Thanks for the tip on Simons ElPugDiablo. I have been by there but never checked it out, will do.

They have till the end of 2007 on their lease with an option to renew for 5 years at that point. I am not sure what you mean by what kind of increase.