7 Things to consider before opening a cafe

Jono_P
August 03, '21

Tired of the rat-race? The uninspiring drudgery of the office? The overbearing boss whose stifling sense self-importance grates on your nerves day after day? Maybe it’s time to cut the cord on the 9 – 5 and plunge headfirst into café ownership! You’ve always wanted your own business and you are quite particular about your coffee (you also know how to make a mean avo smash!) Great! But first here’s a few things you need to consider before jumping behind the counter and pumping out those lattes:

  1. So you’ve decided to open a café…why?

Most people who decide that they want to open a café (or any hospitality business for that matter) have a rose-tinted view of the industry; even those who have worked extensively in hospitality and see café ownership as the next logical step, can have their perception skewed by a myriad of factors. Cafes by their very nature are examples of theatre. They are purpose-designed entities with the sole purpose of distracting customers from the pressures of their day-to-day lives. Cafes function as what psychologists refer to as the ‘third-space’; that is, a space for people to occupy which is neither home (first-space) or work (second-space). This third-space is a place where people can relax, be sociable (or be left alone) and feel safe; an essential part of everyday human necessity. The most successful cafes achieve this so well that it projects a sense of calm and order, even when behind the scenes it is far from it. The point is: it is not an easy ride. Take the time to really consider why you want to open a café. Do you want to provide a safe and friendly environment for your community? Great! This is the true purpose of cafes and the key to a successful business. If you just want to pump out coffee and rake in the dollars, you’re in the wrong industry. Try a Maccas franchise.

2. It is HARD work!

If you have in your head a picture of sitting in your cafe sipping lattes with friends, listening to your perfectly curated playlist while your full-time manager runs the show, think again. Hospitality is no cakewalk. Expect to work 60-hour weeks on your feet, at least for the first year or so. You will have staff call in sick at short notice, equipment breakdowns, late deliveries, unhappy customers and more. As the owner you will have a lot to deal with. And the hardest part? You need to do it all with a smile on your face! If you haven’t already, consider working a few shifts on the floor in a busy café before you take the leap into café ownership. To be successful in this business you have to love what you do because…

3. The pay isn’t great.

But the margins on coffee a huge right? I can buy a kilo of coffee from the supermarket for $20 so charging $4 for a cup should net me huge profits, right? Wrong! Even if you were only paying $20 for a kilo of coffee (usually low quality and potentially un-ethically traded) there are so many other factors to consider that affect price. Milk is a huge percentage of the cost of an average coffee (even more so with expensive milk alternatives such as almond milk), much greater than the cost of the espresso itself. Not to mention the cost of other things such as: labour, equipment costs and maintenance, utilities, takeaway cups and lids, wastage, rent etc. All of this adds up to razor thin margins on the coffee itself. This means you will either need to sell large amounts of coffee to make your business viable, or you can diversify. Diversification is extremely important when you first set out on your journey. Look at your margins, look at what sells, what doesn’t and adapt. Incentivise the products that make the most margin and upsell them. Just having good food and coffee isn’t enough if you aren’t making your margins. Don’t be afraid to increase your prices if you need to; for the most part, people are happy to pay for quality, and if they’re not, they’re probably not worth having as customers anyway. Having said that…

4. Customers are worth your time.

It’s no secret that customer service is the key to success in the hospitality industry, but which customers should you prioritise? The short answer is “all of them”. Every customer who walks through your door has the potential to become a regular. Therefore every $10 coffee and cake special has the potential to become $2600 of annual revenue if you can get that person to come back every day for a year. Furthermore, every happy customer has the potential to come back another time with friends. You can have a dazzling Instagram profile and thousands of followers which will get people in the door, but the reality is that word-of-mouth is what keeps them coming. Consider looking at each customer as either ‘transactional’, ‘relationship’ or ‘advocate’. Transactional customers are just there for their caffeine hit and will probably go elsewhere if there’s a cheaper option. Relationship customers come for the chats with staff and have a sense of loyalty to your café, even if you put prices up they’ll keep coming in. Advocates are the best of all, they do the selling for you. Advocates are so loyal that they feel invested in your café. They will tell all their friends about you, plug you on social media and write positive reviews online; you want all of your customers to be advocates. But please, don’t ignore your transactional customers! You and your staff should be constantly thinking of ways to convert transactional customers into relationships customers, and by the same token, relationship customers to advocates. This brings us to the next point…

5. Know your demographic.

While you will always have a diverse selection of customers walk through your door, there will undoubtedly be more of certain demographics than others. If you decide to open a takeaway coffee kiosk in the CBD for instance, you can expect to see more young professionals than retirees. These professionals are likely to be more price-sensitive (given the likelihood of competition in the area). They are also likely to have less time to wait for their order if they only have a half-hour lunch break or fifteen-minute coffee break. In this scenario, speed is a big factor. Consider offering quick takeaway toasties, grab-an-go muffins and plan your coffee station’s workflow to resemble a production line. Conversely, if you’re operating in a suburban area with lots of yoga mums, don’t skimp on the alternative milks and gluten free options! Finally, think hard about which customers are going to be in regularly. If you’re situated in a shopping centre you might get people coming once a week when they pick up their groceries, but consider the staff who work in the supermarket, they are there every day – and they need coffee too…

6. Pick your location wisely.

Like it or not, your café’s physical location is going to determine a lot of what it will become. When searching for a location make sure you have a good idea about what type of business you want to operate. Want to offer the full a la carte menu experience? Don’t pick a location with no parking and no public transport links. Want to do a fast and simple coffee window with limited food options? Maybe suburbia isn’t the best fit for that model. Think about what you want to offer and then search for a location to suit your vision, not the other way around. Does your business model lend itself to foot traffic or are you a destination? Do your research and spend some time watching the flow of people in the area. Is there a lot of foot traffic? What competition is there? Is there parking? Is it free? These are just some of the questions you should ask yourself. And of course, you should always…

7. Ask the experts.

One of the first things you need to accept is that you don’t know everything. There are so many hidden costs and unforeseen events that will hinder your efforts to open your dream café. Luckily there are several industries dedicated to servicing the hospitality sector, all of which have a vested interest in you succeeding. Coffee roasters (such as Dimattina) for instance can assist you with selecting the right equipment for your needs, training your staff and offering inside advice on current trends in the market. You should consider your suppliers as part of your team; your success is their success. Needless to say, choosing your suppliers is extremely important, but bear in mind that the cheapest (or the one that gives you the most free stuff!) isn’t always the best. Make sure you consider what the after-sales service will be like. Are you locked into a contract? If so, what incentive is there for a supplier to look after you once you’ve handed over your money? If your equipment breaks down will they be able to fix it? Do you get along with the rep? Will they answer the phone when you need them? Remember, the customer categories above? Think about the type of interactions you want with a supplier, transactional, relationship or advocate. Hint: a good supplier will always want to be your advocate.

Sound like a lot of work?

Well…it is. But don’t let the above points put you off. Owning your own part of the community can be one of the most rewarding things you ever do. If nothing else, make sure you consider the reasons behind your decision to start a café. Always remember, this isn’t a job or money-making side-project; it is a lifestyle. If you’re not getting into it because you love the way of life hospitality offers, then you’re doing it for the wrong reasons.