The Global Coffee Market
A solitary US dollar will buy one pound of unroasted coffee beans. And one pound of unroasted coffee beans will make, on average, around 48 cups of coffee. That’s a lot of coffee for a dollar.
With over 2.3 million cups of coffee being consumed globally every minute, it’s clear why starting a coffee shop is an obvious choice for the experienced entrepreneur or for those looking to start and run their own business.
According to Research and Markets, the global coffee market was valued at nearly half a billion dollars in 2020, and whilst it is now considered a myth that coffee is the second most traded commodity after oil, the profit margins are there for you to be your own boss.
Setting Up Your Coffee Shop
Let’s analyse some fundamental elements you need to consider before starting your coffee shop.
What is your niche?
It’s clear that this market is not only fuelled by caffeine, but intense competition too. That means that you need to conceptualise a niche that will differentiate yourself from large corporations and franchises.
Your niche should be informed by unique selling propositions (USP), whereby you offer consumers tailored experiences that other competitors don’t – something special. Take a look at some of the coffee shops around the world that offer their customers an experience they will never forget!
Do you need industry knowledge or training?
Industry knowledge in this market is crucial, as it will emphasize what and who you’ll be up against.
The competition facing independent retailers looking to start up a business in this sector will be tough – you’re going to be up against heavy hitters such as Starbucks (the most obvious of brands) – which has over 32,000 stores worldwide and grosses $30 billion.
The good news is, you’re just looking to build that one great shop. Of course, if you get it right it could be the start of a new chain.
Another piece of industry knowledge you should know is how much you can realistically earn as a coffee shop owner.
On average, an independently owned coffee shop will gross between £50k and £250k per year. A cursory glance at independent coffee shop revenues from around the world on BusinessesForSale.com shows that most coffee shops fall into this gross income bracket.
While it is not necessary to have qualifications to start a coffee shop, we do recommend receiving training in these skills (particularly if you plan on pursuing a solo venture):
- General business skills
- Marketing strategies
- Latte art
- Coffee production
Only 20% of businesses make it past their 5th birthday. Do your research. Engage with business owners who know what it means to succeed. And don’t just do it once. Do it as many times as you can and even when you’ve started your business, don’t stop asking or learning.
Understanding the costs
A good coffee shop, in the right location, doesn’t need to be a brand name to succeed. Far from it. But you will need a careful and thorough understanding of the costs.
Whilst the margins on the coffee cup itself can be high, understanding the operating costs of running your coffee shop (rent and rates, energy costs, labour) is crucial.
A restaurant meal may cost a customer between $10 and $20, but a cup of coffee will retail, on average, between $2 and $4. So, to make a living running a coffee shop you will have to sell many more cups of coffee than you would running a restaurant that sells meals.
And that will go back to location and a good footfall – the amount of people physically and randomly passing by your coffee shop every day – as well as the loyal base of returning customers.
So, let’s do some math and use the United Kingdom as an example.
The average amount a customer spends at a coffee shop in the UK is £5.40.
To generate approximately £200k per year (which would personally net you over £50k per year), you would need to generate around £17k per month in sales. And that £17k per month would be 3,200 customer purchases a month. Daily, that would be 106 customer visits.
To secure your success, you will need to be able to retail baked goods, sandwiches and pastries that can be sold as an addition to the coffee – to maximise your profit margins.
Getting funding
While high profit margins are an advantage of starting a coffee shop, you may face financial challenges in the initial start-up phase.
You can consider small business loans or grants, which will inject necessary cashflow into your business if you need it. Just remember that a solid business plan is crucial when applying for funding!
Find out more: Need funding? Check out our guide on small business grants.
The Nuances of Starting Your Coffee Shop
Location
Regardless of where you plan to open your coffee shop, your location will be fundamental to your success. There is a reason why we find so many coffee shops on high streets and near railways, metros, or subway stations. There’s a reason why coffee shops on corners often work well.
Suppliers and quality control
Luckily, coffee beans are not difficult to source. With over 11 million bags of coffee being exported in June 2022 alone, you will certainly find a supplier. You can consider large coffee trading giants, or you can conduct research on independent coffee traders in your country.
However, as a serious entrepreneur, you should ensure that you serve your customers quality coffee beans that are ethically and sustainably sourced.
Marketing Your Coffee Shop
The fundamentals
While traditional footfall is integral for the success of your coffee shop, digital traffic is just as important. Almost every business – not matter its size – has a marketing strategy in place.
While you may only have the resources to run a few social media channels, you need to ensure that your branding is consistent throughout, and that you regularly post rich content comprised of strong photographs, video content and infographics.
If you have enough resources to create a website and run it optimally, it is crucial that you take search engine optimization (SEO) seriously. SEO is not something you can learn in a day. It will take time to understand and execute correctly. Essentially, SEO will support digital traffic to your website by showing a user the most relevant search results when they type “the best coffee shop in Tokyo”, for example.
Rewards and specials
Customers love discounts and free products, especially when it comes to food and drinks. There is a plethora of ways you can offer your customers discounts, specials, and loyalty schemes:
- Offer discounts or a special on International Coffee Day, which is the 1st of October
- Offer loyal customers a free coffee on their birthday
- Adopt a traditional point system, where a customer can get something free after purchasing a certain amount of coffees
- Incentives for online reviews
Trade shows
Entrepreneurs often forget the importance of attending and exhibiting at trade shows. It is a crucial form of traditional marketing that offer the opportunity to advertise your brand to potential customers, and to connect with industry professionals from around the world.
You can browse different coffee trade shows across the world here.
Find out more: Want more advice on selling, buying, or starting a business? Explore our business guides for valuable insights and tips.
Starting a Coffee Shop Is Not Your Only Option
We strongly encourage you to pursue business ownership in a manner that suits your goals and financial situation. While starting a business is a fulfilling venture, there is also a ‘halfway’ option between managing a branded coffee shop and starting and running your own business – and that’s buying a coffee franchise.
There are pros and cons to buying a coffee franchise. The obvious pros are that you will be buying into a proven business model. If the franchise is a recognisable brand, then you will be able to leverage existing customer loyalty and existing marketing and training programs.
Since franchise networks will already have existing relationships with suppliers, you could benefit from lower equipment costs. In short, there is a lot less risk with an established coffee franchise.
You can also consider buying a coffee shop. There are thousands of coffee shops for sale on our site, so feel free to take your time exploring them.
Whichever route you decide to take, your passion and commitment will be the qualities that make the business a success. There will be setbacks and unforeseen problems, but there will also be huge opportunities.
We wish you the best of luck on this exciting venture. If you’d like any support or you’d like to speak to a member of the team, don’t hesitate to contact us.
