How to set up a coffee shop or tea room?
This site offers unrivalled expert advice on the things that you need to consider in setting up your own coffee shop business or tea room. We reveal the essential research about the coffee shop market in the UK and ask the question about should you set up your own coffee shop and tea room?
Firstly, we do refer to coffee shops in this website but this advice equally to anybody looking to set up a tea room. Most coffee shops sell tea and visa versa even if the emphasis and marketing between a coffee shop might be slightly different to that of a tea shop.
Let’s start with the thought that the profit margins on coffee and tea are phenomenal. The raw ingredients that go into a good quality cup of coffee or tea are minimal at around 10p per cup. At the average selling cup of coffee in the UK at around £2.30 this makes the gross profit margin of around 2200%
Should I set up my own coffee shop or tea room?
Before going further you should consider the current state of the coffee shop market in the UK. We all know that there has been an explosion of coffee shops in the UK in the last 20 years. In many respects the coffee shop has replaced the pub as the place where people meet and chat, socialise and with the arrival of the millennial gig economy work. I was fortunate to be working in London’s west end in 1997 at the time the first wave of coffee shops hit the UK with long-forgotten brands like the Seattle Coffee Company (who sold out to Starbucks) and Aroma (sold to Mcdonalds). It was a time that for most people the idea that people including myself would regularly have one if not 2 coffees out every day and spend over a £5 a day on a drink that I could make at home for a few pence.
How many coffee shops in the UK?
There are now over 22,845 coffee shop outlets in the UK.
The market for coffee shops increased by 6% and turnover by 12% in 2016.
Large coffee shop chains still dominate the coffee shop market with the big 3 of Starbucks, Costa and Caffe Nero chains accounting for 53% of the outlets.
A point worth noting is that for the 7th year in a row, Costa has been voted the nation’s favourite coffee shop chain by Allegra’s independent panel of 5,000 consumers so they must be doing something right.
Should I set up a boutique coffee shop brand?
The market for coffee shops is expanding and Luke Johnson a serial artisan food entrepreneur has brought a stake in leading independent coffee shop retailer and roastery Small Batch Coffee. He is convinced that the provision of large chains has been overdone and that many of us want to buy their coffee and tea from artisan coffee independents.
The coffee shop boom
Has the coffee shop market reached saturation?
Allegra World Coffee Portal predicts that the total coffee shop outlets in the UK will exceed 32,000 by 2025.
In many ways, as I have mentioned the local coffee shop or tearoom has become the new local forming the fulcrum of local community life in the same way that the pub would be the centre of village or town life.
Some vital statistics on coffee shop and tea room outlets:
- The coffee market is worth £7bn but is predicted to reach £16.5bn by 2020
- The UK consumes 165 million cups of tea per day and 70 million cups of coffee
- Average spend in a coffee shop £4 per customer visit
- 37% of customers visit a coffee shop daily
- The Latte is the UK’s favourite coffee, which has an average price of £2.20-2.30
Where should I start if I want to set up a coffee shop?
The starting point for anybody considering setting up their own coffee shop or tea room is to get expert advice. This includes reading about the subject and using free resources such as this coffee shop setup website. If you are really serious then you probably want to consider going on a coffee shop set up course looking at even more detail with experts tutors how to make your coffee shop plan idea work and turn it into a successful coffee shop business.
Do something different in your coffee shop
With any new business including a coffee shop business you should always be looking for a point of difference. Something that makes your coffee shop stand out from the crowd. This is because the downside of a booming coffee market is that competition will be fierce.
One thing that will obviously make your coffee shop different from the others is if you start roasting your own coffee beans and make your own of artisan coffees. Customers love the theatre of coffee being roasted and bagged in front of them. It also reinforces the uniqueness of your coffee shop offering (You wouldn’t get this if you visited Costa or Starbucks!).
What about introducing different types of coffee offering like Kyoto style cold brew? Even if most of your customers stick to their medium latte it will help reinforce you as an expert coffee house and highlight your passion for coffee.
Events in your coffee shop
How about putting on events. Everybody is looking at something different from their artisan coffee house. How about poetry readings or a book club? It all makes your coffee shop stand out from the crowd and entices customers to come in and come back to your coffee shop and obviously drink more coffee as well as having a great time!
Advice on running a successful coffee shop
Here is some essential advice on what core skills you need to run a successful coffee shop or tea room.
There are many aspects to running a successful coffee shop business.
You will have to ask yourself some serious questions about running your coffee shop such as:
- Do I want to be in charge?
- Do I have all the skills to run a successful coffee shop business or can I afford to buy them in?
- Do I have a passion for food and drink?
- Do I have adequate funds available to set up but then to see the new coffee shop through to profitability?
- Do I buy an existing coffee shop business/ set up a new business or go down the franchise route?
Having decided that you sufficient drive, enthusiasm and funds to push ahead with your coffee shop dream then the next thing to work through is whether to buy an existing business, go down the franchise route or go for it and set up your own coffee shop or tea room from scratch. As always there are positives and negatives to all 3.
Some of the positives from setting up a coffee shop from scratch are:
You can put your own stamp on the design and branding of your coffee shop
It’s often cheaper to do it yourself
You can create significant value in the coffee shop business and the brand and then sell it on
Set up costs for your coffee shop are tax deductible so they can be offset against future profits and reduce your corporation tax bill
The negatives of doing it yourself are:
It can involve more work
You don’t start with any customers for your coffee shop so you need more funds to see you through to profitable trading
You are often on your own with little or no support
You are trying to create a coffee brand from scratch
You have no staff – so you will often have to recruit and train the staff for your coffee shop yourself. This is a skill itself and as most people in business realise you are only as good as the people that work in your business.
How to find a coffee shop business or premises?
There are many places you can find suitable coffee shop or tea room premises. You can always start by googling coffees shops in your locality. You will be surprised what pops up. Remember that if you are looking at setting up a coffee shop business from scratch there can be a whole range of premises that might make perfect premises once converted. I’ve seen banks, churches even, public toilets being converted to swanky coffee shops admittedly after a little bit of building work!
Useful websites to start your premises search for an existing coffee shop or tea room business:
How much should I pay for a coffee shop?
This is the $64,000 dollar question and what needs a lot of consideration.
Some of the questions that will impact on the value of the coffee shop for sale will be:
Whether the coffee shop is a freehold or leasehold. If you are buying the freehold then this means that you will buy the bricks and mortar as well as the business operating in the building. This will increase the costs but also increase the control you have over altering the building and ultimately adding value to the business and premises when it come to selling your coffee shop business.
A coffee shop business with a leasehold interest will be generally valued at much less as you will only be purchasing a right to occupy the building during the course of the lease along with the fixtures and fittings of the coffee shop and the goodwill associated with buying an existing coffee shop business.
Another factor will have a big impact is the turnover of the coffee shop business (this is the value of sales). Just something that you should be aware of is that a higher turnover doesn’t always mean more profit. We examine this in much more detail on the Coffee Shop Set Up course.