Starting my own shop-need your expert knowledge

[apriliagrl]

If someone knows of “realistic” market research that I can come by to answer the following in total that would be spectacular, if not- your individual real-life input is appreciated!!


1. Operating capital - employee and owner's salaries first __ months and cash reserves for the __ months of operation?
2. What is a realistic starting order/cost for food items for the first month?
3. How many months approximately will I need in remodeling time between signing my lease and opening my store?
4. Espresso machine – do I rent or buy outright?
5. What is the average growth in sales for the 1st three years (on avg of course) assuming relative success?
6. Where are the biggest liabilities/risks and how should I cover them?
7. Which marketing efforts are most effective for this industry; ad coupons, social networking, bulk mailings etc.?
8. Open till __ during the week (8/9/10 pm?) and weekends (10/11)?
9. Target gross margin?
10. Average # of sales a day and average retail sale?
11. Busiest times of the year?
12. Busiest hours of the week?
13. My initial breakeven calculation is $420 w/fixed costs, myself & 2 baristas, am I close to market average?
14. What are the biggest annoyances and drawbacks to the industry?

Thank in advance for taking the time to share your knowledge!!

Jen

 

[CCafe]

14. What are the biggest annoyances and drawbacks to the industry?
Jen

Starbucks didn't blow up over night, nor did Caribou Coffee or any other coffee shop for that matter.

Most of the questions your asking can only be assumed if we know the type of traffic, foot traffic, where your from etc.... Again it's just assumed. We can't really answer these questions for you.

The thing to tell you is I've seen people open a coffee house on as little as $40,000. The first year was hard. By the time they hit the 2nd they were just starting to break even. I've seen a coffee shop start will well over $300,000. They closed the first time within 2 months. They reopened with new management and went almost another 9 months before folding.

Simply put the questions your asking are not relevant for all shops. So here goes my best interpretation.

1: Its hard for me to tell you as most people I've spoken to when first starting this type of business didn't jump in and hire employees right away. They ran it for the first year or so until they knew that it was going to be a successful business. As for their salary I do know most shot high and ended up paying themselves enough to survive on without bankrupting the business. I can't answer how much you need to keep in reserve. Personally I kept 3 months for my old computer repair business. I figured if I had to dip in to that for that long of a period it was time to move on.

2: Depends on what your going to serve and how busy you think your going to be?

3: I've seen people do it as short as 2 months but they had money to blow. Most seem to get it done in under 6. There are a lot of hoops your going to have to jump through for your building and health inspectors.

4: 1st you need to find someone who's even willing to lease you one. Some roasters are more then happy to give you a machine but you'll be locked into them for all of you coffee needs. Also coffee prices will be a lot higher. If you can afford to buy a machine outright then that would be your best bet. Before buying one do your homework. Make sure you have someone who can service your equipment that is local. Nothing is worse then having to wait a day or more while you wait on the service repairman.

5: Can't tell you. Its kinda like comparing apples to oranges.

6: You may find the best location out there that will suit all of your needs. But if you have a shady landlord they can really stick it to you in the fine print. I've seen leases that just about cleared the landlord of any fault just short of an act of God. They ended up sticking the tenant with everything from replacing the roof to tearing out and paying for new water and sewage lines. If you don't know how to read a lease with all that lawyer speak I would highly suggest you get a lawyer to help catch any and all of the loopholes.

7: Just about everything you listed. Be careful with coupons. A lot of people feel that if your willing to issue a dollar off then your really saying your drink is worth a dollar less. You might however issue a free drink for a limited time coupon in the paper to help get people in the door.

8: That again is based off of where you live. No reason to be open past 8 if your only going to see 3 to 4 people every hour. Then again if the crowd picks up at 9 for a night scene you may be able to capitalize on it.

9: Skipping

10: Depends on your crowd and how much you need to take in. Around here if your not seeing 200+ your going to have issues. I knew a guy who owned a Deli in Boston who screamed bloody murder if he didn't see 500 a day.

11 & 12: Depends on your location.

13: How did you come up with $420?

The thing is a lot of people come on here asking why when they have 200K in traffic driving by their shop they only have a fraction stop by? The thing is you just need to be able to find a way to tap that potential and to help funnel a small percentage into your store on a daily basis.

 

[ElPugDiablo]

Most of the questions your asking can only be assumed if we know the type of traffic, foot traffic, where your from etc.... Again it's just assumed. We can't really answer these questions for you.

What ccafe said above. Having said that, I will give you my personal experience.


1. Operating capital - employee and owner's salaries first 12 months and cash reserves for the 12 months of operation?

2. What is a realistic starting order/cost for food items for the first month? It depends on the frequency of delivery by your vendors. If it is weekly, then don't order too much.

3. How many months approximately will I need in remodeling time between signing my lease and opening my store? I planned for 3 months, end up about 4 to 5 months. Building department was pain in the butt.

4. Espresso machine – do I rent or buy outright? Buy the best grinder you can afford, then buy the espresso machine. Unless you have a super duper location and plan to do over 30 espresso drinks an hour I'd buy a 2 group machine.

5. What is the average growth in sales for the 1st three years (on avg of course) assuming relative success? 70%, 50%, 30% (approximately)

6. Where are the biggest liabilities/risks and how should I cover them? The biggest risk is poor planning at the beginning. Such as over estimate your business potential, under estimate your cash need, over estimate your ability.

7. Which marketing efforts are most effective for this industry; ad coupons, social networking, bulk mailings etc.? Location, location, location. Word of mouth based on quality of products, efficient and friendly services, attractive atmosphere and cleanliness. bulk mailing, ad and coupons are waste of time and money.

8. Open till __ during the week (8/9/10 pm?) and weekends (10/11)? Open as late as you can handle it physically and business condition allowed. For example if your break even point is $60 an hour, if you can't make that after 9pm then that is how late you open till. Of course if you need sleep, then close earlier than that.

9. Target gross margin?
10. Average # of sales a day and average retail sale? It depends on your product mix and your strategy. High margin and low volume will work as well as low margin high volume.

11. Busiest times of the year? I have two shops one is busiest during Summer and slowest during winter, the other (near Yale) is busiest around final and graduation and deadly quiet during Summer.

12. Busiest hours of the week? 8am - 10am then 1pm - 4pm.

13. My initial breakeven calculation is $420 w/fixed costs, myself & 2 baristas, am I close to market average? How many hours and how much you are paying your baristi? I am higher at $550.

14. What are the biggest annoyances and drawbacks to the industry? Employees.

 

[apriliagrl]

CCafe/ElPugdiablo - you didn't leave a name - so I'll use your handles


Thank you so much for your candor and some #s to work with.

I'm just at a loss for coming up with real numbers to show the bank and not sure I can get funded if I just pull them from thin air, especially since I won't know my location (traffic/demographics) until I've got the funding to go find a location to begin with.

I live in Seattle, so we're big big on our coffee of course.

Let me answer your question about the breakeven:
I estimated via some research the following expenses: Lease, Utilities, Insurance, Depreciation, Accounting/CPA, Advertising, Internet/Phone, Payroll. It's around $420 assuming those #s are close to reality. That's just for me + one Barista at $8/hr. I would ideally like to have at least 2 baristas- on the just in case theory (sick,flaky,issues etc.) If I average 2.60 over COGS I need roughly 176 sales per day to breakeven.

Employees: I may open in a neighborhood where I'm known for the other business I work in, so I *might* have a semi-strong customer following when I open. I don't want to be short-handed scrambling to serve & fail my customer base with long lines/poor service. I'd rather have the expense & win their repeat business b/c we deliver with ease, quality and speed than skimp and look like I'm overwhelmed. Even if I don't get as much traffic, I'm doing this solo (no partner). I still need to have at least one barista if I come down with the flu or break my legs. The doors must come open every morning.

Training question: Though I've been working in a super high, multi-tasking, brain-frying customer service business for 6 years, running the shop at times by myself, I've never once operated an Espresso machine. Ideally I'd like to find a shop that needs someone short-term part-time for the next 6 months to get me the equipment/enviro experience, but failing that... Are there good barista training programs out there that you would recommend?

I know your next (obvious) question-- If you've never done coffee, why? I want to own this type of business because I want to be in the business of supplying a product/service that people truly enjoy and are looking forward to. They actually seek it out to spend $ on. The business I'm in now, shipping, is fraught with sour customers 60% of whom complain on a daily basis about the expense of the service I provide, complaining complaining complaining. That is a lot of negative energy to absorb all day for the brain-cell-killing speed, friendliness and efficiency with which we deliver the service. I want my customer to know what to expect and to be satisfied once that expectation is met or exceeded. I don't need to get rich, I just want the exchange to be fruitful both ways- happy/happy.

LOCATION LOCATION: ??? If you were opening another shop and could open in a neighborhood where you are known but the location had only semi-good foot traffic, or a neighborhood where you don't know a single potential customer but it has high foot traffic, which would you choose?


jen (in Seattle)

 

[apriliagrl]

CCafe,

I should have been more clear on my breakeven, that is a DAILY breakeven for EVERYTHING fixed-- Rent, Utilities, Ins, Depreciation, Payroll, etc.. etc.. You get the idea. So that I could figure approx how many sales I need per day x avg profit over COGS. Which at $420 is about 161 sales a day if I'm only making 2.60 in profit off each coffee & assuming I sold coffee & nothing else.

I'm actually trying to overestimate expenses and under estimate sales so that I don't get upside down- or at least hopefully avoid that.

I am happy to see the employee $320 #, I was wondering if my payroll expense estimates were close!!
Thanks for all the good info!!!

 

[ElPugDiablo]

Chances are you are not going to learn as much you need in six month and most likely no one will hire you for a six month stay. I'd suggest at least a year. If you don't have any food or bar counter experience, I would suggest two full time years just so you know what you are getting into. There are barista school but be prepare to dish out over a thousand for a week. If you are planning a serious snobby coffee place I'd look into Victrola Coffee Roaster or Espresso Vivace or similar places. If you are planning a place that is driven by atmosphere and service then apply to any shop that is most like what you want to have.

You are not going to get many barista to stay at $8/hr unless they can make unbelievable tips. You are not going to get happy customers unless you have happy helps and they are not going to be happy at $8 an hour. Is your $420 per day break even point assuming you are at the shop 100% of the time? By the way, did you figure your per barista expense at $8 an hour? Or did you add FICA, workmen's comp which bring you to about $9 an hour.

Unless you are going to be a destination which is pretty darn hard to do when every corner is a coffee shop take the best location you can find and afford.

 

[CCafe]

CCafe,

I should have been more clear on my breakeven, that is a DAILY breakeven for EVERYTHING fixed-- Rent, Utilities, Ins, Depreciation, Payroll, etc.. etc.. You get the idea. So that I could figure approx how many sales I need per day x avg profit over COGS. Which at $420 is about 161 sales a day if I'm only making 2.60 in profit off each coffee & assuming I sold coffee & nothing else.

I'm actually trying to overestimate expenses and under estimate sales so that I don't get upside down- or at least hopefully avoid that.

I am happy to see the employee $320 #, I was wondering if my payroll expense estimates were close!!
Thanks for all the good info!!!

LOL had to delete my comment. I'm starting to see why my wife says that sleeping an hour or two at night is just not enough!

As for what Pug said I have to agree with him. I would suggest before you jump into this without any experience you first might look at the market and see if anyone has left out an area that you could expand upon. Dropping a coffee shop in the land of coffee shops is already going to be difficult.

 

[ronknighton01]

I just opened a shop about 18 months ago with a guy that had a small coffee shop franchise and used to be upper level management for Starbucks. He had the equipment and I put in $10k. We did the build-out in 8 days and were open on the 9th.
I also know a guy that has a successful roasting facility (500,000lbs/yr+) and opened a huge retail shop with huge overhead.
Two different scenarios, both are struggling.
The economy is terrible. I would say that no matter how well you plan, it's a gamble. Historical data is useless in this economy. People's spending trends are completely different.
I can cover every aspect of owning a coffee shop if you like.
The bottom line is that if this store will be your only source of income, be careful.
If you have a deep-pockets investor, and about 2 years to dedicate, you might have a chance.
Starbucks just closed 600 stores! What does that tell you.
If you still want to do this thing, I can give you some detailed numbers to put into your business plan.
I will say this. Do everything under a corporate entity and do not sign personally for anything! Have a good exit strategy!

 

[shadow745]

What does Charbux closing 600 stores tell ME? One, they have way too many stores to begin with and Two, people are finally realizing how crappy and expensive their product really is and simply aren't patronizing them as much. Later!

 

[CCafe]

It tells me they started paying attention. Like most companies that are blowing up they over expanded in the market. They evaluated what they had, where they had placed stores and made a move that almost every company with more then a few thousand employees will make at some point. They decided the best way to protect their investment was to close down stores that were either under preforming or were simply redundant. The funny thing is for a company closing down a store they offered all of their employees position within the company at other stores. Which says a lot about them.

I don't normally side with Starbucks but I'm not going to hammer on them either. Just because they closed 600 stores doesn't mean people were changing where they drank their morning latte. It simple means Starbucks decided it was the best thing to do to protect the bottom line. I bet you didn't even notice a simple little bank who shut down a few stores back in July. Wells Fargo closed down 638 stores nation wide. They were deemed redundant since they bought Wachovia. Doesn't mean they lost a single customer either. Its a simple fact of life that companies from time to time need to restructure to keep the doors open or die off and fade away like so many of the past.

 

[coffeeloverlisa]

I am in the online coffee biz and certainly no retail success like Starbucks but here is my two beans.

If you are the only shop in an small area with good coffee, you build a neighborhood following and destination, and perhaps offer a unique treat or two, perhaps have a nice sitting area with some music and a patio? That should give you a start to a nice coffee shop. Have evenings with coffee that show you are NOT Starbucks but fresh coffee and offer a discount to folks who bring in their own cups.

Use Fettucini pasta cut in half, not stir sticks as they do are 100% green and are cheaper.

Do not offer coupons, offer a refill instead, always opting for additional product, which is cheaper, than cash out of your pocket.

Make sure your staff keeps their hands out of your till and out of your product as that was my brother in law's biggest problem at his gelato shop.

If I think of anything else, I will post it.

Cheers!

Lisa

 

[Tophie2]

Have lots of money. And I mean alot.