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What Are Things I Need To Consider When Buying A Coffee House?

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Comments & Replies: 2     Views: 1183     Posted By: Joe Ranieri  



Topics: Buying A Business     Tags: buying a business



Call it what you will, cup of joe, java, or morning brew, one thing is for certain, Americans like their coffee. According to the Specialty Coffee Association of America, "the retail value of the U.S. coffee market is estimated at 30-32 billion dollars a year." A survey conducted by Zagat found that 43% of coffee drinkers make theirs at home, while 26% buy it at a large national chain, 22% from a small/independent, and 9% from other. The same survey found that coffee drinkers consume about 2.1 cups a day.

One of the first things you need to consider is location. Large national chains can afford high rent/high profile locations, but there are there are many consumers who enjoy small local coffeehouses and will seek them out. Large national chains can be found on practically every street corner, making it a convenience for everyday consumers, but they also have their drawbacks. Try not to compete with the high rent/high profile model, and figure out a way to attract those who are drawn to a more intimate/less corporate environment. When operating a small independent store, one must ask themselves, "what can I do so customers go the extra mile and come to my store?" Ideally, you want to look for something near universities, hospitals, apartment complexes, or anywhere near heavy traffic flow. If you find a place with a captive audience, for instance a location in the lobby of a high-rise building, ask the property manager what is the occupancy level? Your rent should not exceed 10-15%.

When buying a coffee house, you need to decide whether you are going to go for a true independent or franchise store. I recently sold a coffee house where the buyer could get out of the franchise agreement and save the 6% royalty fee, allowing them to redirect that money back into the business.

It's important to remember that running a coffee house includes early mornings, while mid-day going to the restaurant supply store and stocking up on inventory, and then later going back to the store. Itís a business that needs to be owner occupied, because if itís absentee, one runs the risk of the staff giving free coffee to their friends, and eating into profit margins. One of the most important aspects of running an independent coffee house is customer service. Yes, you could walk into any chain store from Orange County, California to New York, New York and order a Venti Mocha whatever, and the experience will almost certainly be identical, but for a lot of people who frequent the same place every day itís important to build a relationship with the proprietor. By being around the store you get to learn your customersí names, drink preferences, and things they enjoy.

When investigating the business, find out how much business they do in straight drinks vs. pastries, etc. Selling just drinks, you will have a much lower food cost, but pastries and other treats will run up your food costs, because they can spoil and end up getting thrown out. Itís important to invest in Point of Sale system, so you can track to the bean of what sells and what doesnít. I have seen people who sell just drinks have a food cost of 15-20%, while those who sell (and throw out) a lot of pastries have food cost be around 30-35% When you buy the business make sure you get proper training, about to two weeks, so you can learn to make the drinks, and also communicate to the staff that you plan on keeping all of them on.

Itís important when running a coffee house to ask yourself, ďwhat am I really selling to the consumer?Ē Obviously, you are selling coffee and pastries, but you are also, in many instances selling to your customer ďa home away from homeĒ. Try to safeguard yourself, just in case a large national chain builds a drive-thru coffee house around the corner, because your customers not only come to you for the coffee, but also for the experience that corporate stores canít provide.

If youíre going to have an independent store, then you might as well create an environment thatís warm and personable. A great way to make people feel welcome in addition to have tables and chairs, is also have a couple of couches where people can sit back and relax, and of course a free wi-fi signal is a must! Another idea to build a relationship with your customers is to put up a corkboard where people can post for sale items, room for rent, etc. Also, once a week, maybe have music night where local musicians can play their guitar and sing or have a poetry night.

In addition to coffee, many business owners have increased sales by offering items like boba drinks and other tea based drinks commonly not found at large national chain stores. By creating an environment thatís a second home to the customers, it encourages them to frequent it multiple times a day, once in morning on their way to work, and later at night so they can relax and catch up with friends.


When considering a coffee house, I think its important to evaluate the key employees. I previously owned a coffee house and losing one early morning employee, that had a regular clientele of repeat customers who came to see her and enjoyed her "barrista" methods. Her replacement was new to the industry and couldn't carry on a conversation while making technical drink combinations and a lot of the customer base left for Starbucks or a similar competitor because the small independent coffee house lost its appeal, when there was no personal interaction during the sale. Make sure the employees are well trained, and try to gauge their likelihood of staying on board after the purchase is complete.

Also commit to acquiring a high level of training on the product itself. It may look simple but there are many things that go into making a good shot of espresso, including making changes for humidity and so forth. Competing with the large chains means you will need to have an excellent product and that comes with training on the product. Find out what type of training the suppliers offer to their customers, many suppliers have specialized training facilities to keep your skills at a high level, which in turn means more sales for you and them as well.


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