It is a little known fact that Australia has one of the highest percentage of cafes per head of population than any other country on the planet.
Why? Clearly we like good coffee (and tea) but the real reason is we really love the cafe experience. Especially if you can sit outdoors and enjoy the Australian sun or sit indoors in the warmth and watch the cold weather outside.
With so many cafes, competition is tough but for those who are successful the rewards are high. Consider that industry analysts conservatively predict that revenue in an average coffee shop will increase each year by 3.2% over the next ten years compared to expected national GDP growth of just 2.5%. So the money is there for good operators.
Having written business plans for some of the best coffee shop owners in the country, The Roxburgh Group would like to share its five tips for success with Australia’s future coffee barons and baronesses looking to enter the market.
1. MENU QUALITY NOT QUANTITY
Some of the most profitable coffee businesses in Australia have less than five items on their menu. But each item is unbelievably good. The coffee is best-in-class, the pastries or cakes are fresh daily and the meal options are unique and delicious. Remember it’s your business so you don’t need to pander to the entire population’s tastes. If the coffee and food are good, they will come to you in droves.
2. CUSTOMER SERVICE
Before you keep reading, go and check out the review sites Beanhunter or Zomato and type in your favourite coffee shop. We guarantee you that almost every review will mention the customer service – good, bad or ugly. So if you want to be the best, you need the best team. That means the best barista, chef and counter staff. Support them with flexible work hours because a good customer experience brings in the good reviews and is often the difference between a rating of 5 (average) and 9 (must try).
3. LOCATION LOCATION LOCATION
Aside from staff costs, rent will be the largest outgoing on the expense line. We’re not going to be obvious and say avoid the high rent locations because it’s all about foot traffic. If the number of people flowing past the cafe is high enough, a high rent isn’t a problem. But don’t take the landlord’s word as gospel, do your own research, and remember there are always seasonal peaks (even if it’s just weekday to weekend). Calculate whether the rent is worthwhile based on the quietest period. And check with the local council to see if there are any major construction projects planned that might impact the flow of people.
A good coffee shop works on a cost of goods (COGS) ratio of .25 or lower (that’s 25 cents in the dollar). Any greater than .33 and the shop will find it hard to break even – or the required traffic flow for profitability will be unsustainable. So find fewer, better suppliers and sign agreements that are win-win for you both. Remember that reliable deliveries of quality ingredients is the lifeblood of your cafe.
5. HAVE A PLAN
There is a lot of truth in the statement “failing to plan is planning to fail”. Knowing exactly how many units you need to sell a day to remain profitable is the hallmark of an excellent cafe operator. You can only work this out after you’ve gone through a complete business planning process – looking at all the elements of the business (products, pricing, staffing, training, location, fit-out, risks, insurance, service policies, unique selling points, marketing, legals, suppliers, equipment, competitors etc.) You’ll also work out whether the cafe is a 2, 5 or 10 year operation because having a viable exit plan is where the good operators make their real money.
This Industry Snapshot was prepared by The Roxburgh Group. June 2015.