Coffee Shop Owner The Buzz


As long as there are coffee drinkers, there will likely be room for more coffee shops. But there's a lot more to operating a coffee house than serving a good cup of coffee.

With java stops on many city corners, prospective entrepreneurs may be thinking it's a business with little or no opportunity to capture a portion of the marketplace. Not so.

"I think the saturation point, if there is such a thing, would be in, say, another 10 years -- maybe," says Alex Fisenko. He is an international coffee shop consultant. He is credited with introducing Americans to espresso in the 1960s.

"Then the fight will be on for the best operators able to provide the best products and the best service," he adds.

Fisenko admits that in the U.S., there may already be some saturation in the northwest. "But the rest of the country is wide open," he says.

"People have been drinking coffee since the 1600s in Europe -- no sign of a slowing trend there," says Colin Newell. He works with the Coffee Experts Group.

"I don't think that the market is saturated. Look at fast food hamburgers, on every corner of every city. 'Great coffee' is still in demand and hard to find," says Connie Alexakos. She is the director of franchising for a coffee company in Hawaii.

Fisenko says many coffee shops have opened in big cities, leaving smaller cities and towns available and generally untouched by the large franchises. And he emphasizes that independents can compete with the coffee giants.

"In Raleigh, [North Carolina], we just opened a coffee house in the same block as [a big chain] and we're beating them. And why? Because the owner-operator is doing a much better job....The advantage is being the owner-operator," says Fisenko.

While the coffee products, preparation, atmosphere and amenities are all important aspects, location is the number one key to success in the coffee shop business.

"Starbucks has enormous strength seeking locations, even if they have to buy a property, which the independent can't do, so they have to settle for the second locations," says Fisenko.

He says to compete, you have to have at least a comparable location and decor. "Location is 90 percent of business and a corner is best. If they do not see you, they're not going to come in. It's the basis of every retail business."

"Location is hugely important," agrees Sally Gosse. She used to own a coffee house. It was the second shop in a franchise she created. "I chose a community rather than a strip mall downtown. I like working with a community, giving back to a community and then I find I get their support," she says.

Some entrepreneurs have decided that adding food, Internet access, entertainment or other unique aspects to their coffee shop is important.

Fisenko doesn't agree. He says offering Internet access, for instance, is perhaps five percent of his clients' total business. "It's insignificant. Five to six years ago, Internet cafes were more popular. But now, everyone has a computer at home. To base business on the computer side of things is a great mistake," he says.

Fisenko says adding entertainment is sometimes beneficial, but should not be the main attraction.

Newell doesn't think a good coffee shop has to have extras. "Unique does not matter. Good coffee matters. Comfortable chairs matter. [It should be] dry, warm and cozy," he says.

Fisenko also cautions against the addition of food to a coffee shop. "The big mistake people make is adding food. Pastries, etc., are very compatible, but if food is introduced into a true coffee house, it will kill the coffee business. It changes the character completely."

However, adding food has worked for Gosse.

"I think you just have to be diverse. Diversity is imperative. I don't think you can make it on coffee alone....We also offer deli-style lunches and breakfast and have an in-house bakery," she says.

"You even see coffee bars popping up in clothing stores. If there is a trend, it's that people are leaning away from simply a coffee house."

Newell says you can thrive without offering food. "I have seen very successful cafes run on espresso, latte, cappuccino and coffee alone, with biscotti or chocolate thrown in for good measure," he says.

Fisenko says his experience with clients is that 80 percent of their business is espresso-based drinks, 10 percent is brewed coffee and 10 percent is pastries.

"That's the best combination -- to make the most from espresso, because brewed coffee is available at 27,000 other places around town," he says.

Alexakos recommends coffee shop entrepreneurs look at the prospective customer before making a decision as to what to serve with the beverage menu. "Are you in an area that needs lunch fare, or in a theater district where fabulous pastries are going to be needed?" she says.

She also says coffee is not necessarily the top seller for their company. "Our logo wear and bagged coffee sometimes outsell our liquid business -- depending on the location," says Alexakos.

Fisenko says there are three types of coffee houses: those in business districts, those in business districts combined with shopping, and those in college areas.

"Students care less about the coffee initially because they are not hooked on it. Initially, and that's the keyword, they use it for a study hall until they get hooked on the drinks. And then they also need the product," says Fisenko.

Another important consideration in setting up a new coffee shop is the development and appearance of the menu. Fisenko says it needs to be structured properly and make sense.

"If house coffee, the least expensive, is on the left, listed before the more expensive lattes, what do you think they're going to buy?"

As for coffee-making equipment, Fisenko says there's no difference. It's training that's needed.

"The people who sell them [machines] will tell you different and the people who sell coffee will tell you different,...but the difference in taste is not the equipment or the coffee. It's the person working the machine and whether they know how to do it properly," says Fisenko.

"You can have two people using the same coffee and equipment and make different drinks," he adds.

Opening your own coffee shop doesn't come cheap. Fisenko says you'll need anywhere from $50,000 to $200,000 or as much as $300,000 if you want to open a franchise store. "You have to invest some money if you are going to compete head-to-head, then provide faster and more friendly service," he says.

"Young people must have the financing available to open a business. Cash flow is critical," says Alexakos.

Fisenko says entrepreneurs also have to be careful not to make their coffee prices too high. "Some people kill themselves with ridiculous prices. [My rule] is to have an espresso drink like a latte cost no more than 50 cents more than a brewed coffee," he says.

Fisenko says it's essential to offer specialty coffees.

"The must-have drinks include latte, cappuccino and mocha. And the nice-to-have drinks include other espresso-based drinks, flavored lattes, flavored mochas and what I call designer drinks -- all mostly for afternoon and evening."

Gosse says it takes a certain type of person to operate a coffee house. "It needs to be someone who truly enjoys entertaining people. If they like to make people comfortable and happy and create the right atmosphere, if day in and day out they like to entertain people -- that to me is the right person," she says.

Alexakos says operating a coffee house is a very fun, social business.

"You will become friends with your customers and know about their family and friends....You must be committed. It takes great knowledge of your business and commitment, but the rewards are there," she says.

Links

National Coffee Association
The national trade association

Caffeine Archive
A site with many links to coffee houses and suppliers from around the world

Espresso Business
Alex Fisenko's site with tips and advice on setting up a coffee house or kiosk