Speciality Coffee Cart / Store start up

So, you’d like to be the next Starbucks or Costa Coffee?

Let’s begin…

You can get started in this business for relatively low set up costs with a product that has a good margin. The industry itself is largely recession proof, although as a discretionary spend item and increasing market saturation, increasing care is needed with assessing local competition.

There are three relevant business ‘delivery’ models. It can be operated through a simple Kiosk (Or similar), as an add on to an established business, or situated in specific premises.

Kiosk, Cart, Van

This is the least cost method for a new start up/entrant to enter the market. The absolute least cost would be to buy off someone exiting the industry. Given that Carts/Kiosk/Vans are relocatable, purchasing pre-existing equipment is generally at replacement cost (or less) with limited additional cost to rebrand.

As an example of a new bicycle coffee cart (UK) you can see here that it can be achieved for under $20k USD / £15k GBP for a fully operationally active business (Worldwide shipping).

As another example a US based supplier

In some instances, coffee carts can be rented, hence reducing further your potential financial risk. You could test it for a period of time and assess whether it’s the right business for you and sufficiently profitable.

A Van or motorized vehicle is more costly to purchase and operate, however it has additional benefits and issues.

As an initial overview the relative differences between the distribution methods.

Kiosk Cart Van

Initial Cost Med Med Higher

Product Qty/Range Higher Lowish Higher

Storage Med Med Higher

Site acquisition Low Higher Higher

Mobility Low Med Higher

Running Costs Higher Low Higher

  • Initial Cost – A Kiosk / Cart can actually be a very low entry price depending on condition and whether you keep any previous branding that it may have. With a Kiosk you may need means of transporting to and from a particular site if it cannot be permanently situated there. A motorised vehicle (Van) will always be more expensive as in addition to have a motor it also will likely have been specifically fitted out for the purpose.

  • Product – The product range and volume that can be sold, is a function of what can be conceivably carried and displayed. With a Bike/Cart this has limitations, and also with replenishment cycles. Thus, this will need to be carefully considered to maximise profitability. (Coffee, Potato Chips? Ice Cream/Gelato? Soda Drinks?)

  • Storage – A Kiosk / Cart can have their own storage issues depending on your own living circumstances, do you have a garage? Undercover storage? In some instances, a Kiosk may be fixed to a site and therefore has its own storage like with a permanent establishment storefront. A Van definitely will need somewhere suitable to park.

  • Site – Kiosks are normally attached to specified sites and thus have greater site permanence. Carts and Vans are often purchased without a dedicated site/s. Given that access to a retail site is pivotal to the success of the business this should be identified and covered off before purchasing the equipment…. if you’re not selling, you don’t have a business.

  • Mobility – Other than the obvious, mobility allows accessing seasonal and situational events where large numbers of people congregate, it also can allow for any site fees to be for a limited period rather than a recurring overhead. Mobility is double edged though and while offers greater site choice this invariably means less security of site tenure.

  • Running costs – Motorized vehicles have additional maintenance costs beyond fuel such as repairs, commercial vehicle insurance and so forth. For a Kiosk, the pitch site rental and potentially if the site is temporary then shifting and set up costs. The Bike/Cart has the lowest running and generally pitch costs.

Other aspects to consider:

  • Weather – Both on the actual sales of coffee, the customers exposure to, and finally on the storage of the sales unit.

  • Transient – Unless you lease a site/position then you have exposure to the owner of that site simply assigning it elsewhere, or simply replacing you if it’s noted you’re doing well.

  • Licencing by your city may well differ depending on whether it’s on public or private land. Your city may not allow certain types of businesses, the mobile cart especially.

  • You may be required as part of any city licencing that you have insurances, especially public liability.

  • Handling of unpackaged items will invariably involve additional health and hygiene regulations such as adequate hand washing facilities.

  • Are there sufficient or any underserviced large special events, catering or other opportunities that you can approach to scope out where you are able to pitch your business? Does your local government have dedicated pitches available for lease?

As a conclusion, and as in with all cases in business, you should try to undertake as much low-cost preparation as possible before making the decision to invest sums of capital. Absolutely essential in this particular business, is to identify and secure a suitable pitch for your coffee sales, and to ensure the appropriate licencing and regulatory issues are surmountable before purchasing equipment.

As an add-on to an established business

There are two main types of established businesses that speciality coffee can be added onto. Food and non-food.

With respect to established food, the add on generally becomes an upsell as a higher quality item relative to other beverages.

However, it’s somewhat difficult to envisage an opportunity for an entrepreneur to successfully provide this as a service to an already established food business unless they are the owner of that business. Simply because the owner can provide that service themselves, and if they’re not, they’re likely to do so if your business proves it viable. In some instances, you can see highly recognized national coffee brands being offered in food businesses, but for a small start up you will lack customer buying influence to sway a proprietor.

There is potential to improve a business such as (say) a small pastry type store, by providing take away coffee. I know of one personally that prefers to just sell heated pastries/pies/cakes etc and cold drinks from a fridge. The business is more predicated to blue collar workers even though it’s in one of the most affluent areas that additionally has wealthy tourists.

Non-food businesses offer potential, although aspects such as following need to be considered.

  • May have greater difficulties securing appropriate health permits

  • The Non food business may not be favorable to having paper cups and liquids in the hands of customers.

  • The Non food business while offering potentially readymade customers, it needs to have enough footfall to make it a viable business proposition.

It’s for the above reasons you often see independent coffee services offered in the carparks of large trading concerns, or at indoor/open air markets. Non food outlets such as petrol stations and grocery chains tend to have established nationwide brands that provide self-service machines.

Festivals, Large events all offer potential. Begin by contacting the events organizer and follow their directions.

National Franchises

There are national franchises that will supply you with a site (In terms of my investigation in a shopping mall, not a store but a position in the general walking area of shoppers) and the branding / operational fulfilment of stock.

The downside was the initial fee of $250,000 with additional costs of any fit out (Build the concession site, which I would have envisaged at around $100,000) and all the normal running costs, franchise fees and rental of the site space).

The reservations I have with this is that you’re taking all the risks of a start up business for the cost of an established business. You can buy already established coffee stores that have a verifiable and profitable trading history for the money required for the franchise.

Obviously, you may benefit from an unknown and potentially higher level of sales in a new franchised business, but equally what if it doesn’t perform? What level of knowledge do you have to adequately assess that risk? At $350,000 for most people, it is a lifetime savings.

Could you not buy an established business and improve it? (Reduce the downside, with some potential on the upside?).

Furthermore, with the maturity of the coffee industry as a whole, there is significant information and advice for free, to successfully build your own operations. Suppliers of equipment know the industry in absolute detail, and will give useful steers on what equipment is needed and how to operate it, they’ll also suggest coffee bean wholesalers along with other disposable items they may not supply such as coffee cups. Just ask.

Specific situated stores

You can either buy an existing coffee store, set up a new store (Whether under a franchise or as your own boutique offering) or buy an existing food orientated store and enhance with a coffee add-on.

Each of the variations has its own costs, risks and benefits. Buying an existing coffee store has all the fit out and any franchise fee (where relevant) generally and already paid, as a new owner irrespective of those up front costs you will generally pay a multiple of the business earnings (Likely around 3+ times the profit, before any owners salaries and before interest costs - There are many variables to consider in a small business valuation). Refer to our business valuation article here if you have further interest. Given the historical evidence of the business cashflows and earnings, it will make raising loan finance for its purchase easier.

It should be noted that a new store fitout can be a considerable expense, depending on the size and quality. Equally, any established business needs to be assessed as to the future timeline and cost of refurbishment.

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