We were both in London at the Business Design Centre recently, speaking at The Caffè Culture Show to hundreds of budding coffee shop and cafe owners. Claire was on stage on Wednesday and took the audience through “The 13 Reasons Coffee Shops Fail”
This topic is one of our most popular so here is the video, with the transcript below.
Now, have you ever wondered why a seemingly thriving business suddenly closes down overnight for no apparent reason?
A few nods?
Well, our industry is littered with failure and we talk to hundreds of business owners every year, some of which we cannot save. Over the next 30 minutes, I will share with you our unique insight into what fails behind the scenes.
My name is Claire, Claire Bowen. I’m one half of the Coffeepreneurs, a coffee shop specialist and author of the best selling book, The Daily Grind, How To Open & Run A Coffee Shop That Makes Money. I’m also co-founder of Cafe Success with my husband and business partner, Andrew. And we have the largest free resource for independent coffee shops that you can look at lots of resources online.
We work with independent coffee shops to start up successfully, to make more profit, and expand and eventually to sell. I run the coffee shop boot camp, which is a two day intensive course for new and existing coffee shops to learn more about the business aspect of running a coffee shop. To give them a head start before they open. I’m delighted to say that we are launching the coffee shop boot camp online very, very soon. So watch this phase and I’ll tell you a little more about it at the end.
My sole aim is to stop independents failing. So, I’d like to share with you the 13 reasons I believe coffee shops fail.
Now a few blank faces there. You’re obviously not as old as me and you don’t recognise the top 20 music. But bear with me.
Now building a good relationship with your suppliers is fundamental to your success. Your suppliers include the bank, your milkman, your baker, your maintenance crew. They are all your suppliers. Build a relationship with them, pay them on time and talk to them if there’s a problem. You’ll be amazed at how much they’ll want you to succeed.
If you don’t pay your suppliers, you’ll have nothing to sell.
Invest in your equipment, the right equipment, in the right place is essential. Everything must be operationally efficient to work well in your coffee shop. Now just imagine your barista with his foot stuck in concrete. Can he do everything that he needs to do without moving that foot? Is his coffee machine, his milk fridge, his grinders, his syrups, his sink, his till, and of course, his customer. They all must be an easy reach.
Now, you pay for every step that your team take throughout the day. We had a client once who had his milk fridge ten steps away. That was ten steps that his barista had to take to get milk out of the fridge and come back to his machine countless times a day. That cost him many in wages, poor service to his customers and slow service, never mind the wear and tear of the floor.
Now, layout is really, really important. When you’re planning your coffee shop, you have to think of the layout and think of it not just from your staff’s point of view but from your customer’s point of view. You must have enough room for your staff to work. Remember you will have at least two people on a shift, at least, at any one time.
So they must be able to work efficiently. But your customers need to walk in and know from the layout of your coffee shop what to do. Is it counter service? Is it table service? Where do I stand? Where do I cue? Where do I pay? All this could put an awful lot of customers off. Now I have a saying, don’t make a dick out of your customer. You want to guide your guests through the experience of coming into your coffee shop. And not make them feel silly.
So now, equipment, you must have a good coffee machine and grinders that are fit for purpose. If it’s too small, service will be very slow. And if it’s too big and bristling with the latest technology, there’s more to go wrong and it’ll waste your money. So take really good advice on the equipment that you fit out your coffee shop.
BACK UP PLAN.
Now, this is a really common mistake that new coffee shop owners make. They have no contingency fund. Something will happen outside your control and you have to budget for it. We had a client once that had a great business, but roadworks appeared outside his door for six months and it was really upsetting to see his business fold because he didn’t have enough cash to ride the storm for six months.
Now, we always say keep 25 per cent of your budget back for the inevitable. Most people, a lot of people spend every penny they have on the fit out and then open the doors and they forget about the things that might go wrong. And also, don’t forget the refit costs. You will have to keep a pot of money back for a refit every three years. And don’t think you can get away with it because if you don’t refit your sales will slide.
Now, follow the cash. You must follow that pound coin from your customer’s hand into your till, into your bank account, and then onto your suppliers and your wages. You must have robust checking of cash and stock and delivery, deliveries. Otherwise many will slip through your hands. It may sound a bit boring, but it’s essential to have an efficient business. Now, if you think about it, many loss, many unstock losses are worth 40 times the value of that one pound to recoup in sales. So don’t think of it as a pound, think of it as 40 pounds and you’ll value it a lot more.
Take stock every week. Work out your profit every week. Know the cost of everything you sell, the margin and the recipe. You need to know your weekly, your daily, and your hourly break even figures. And it’s not that difficult to do, but you must know them. Remember to budget your staff, schedule your staff properly. Because the work will expand to fill the time available. So you may have three people on looking very, very busy, when you could actually function with two people because they pretend they’re busy, and the work it stands to fill the time available. Good systems, routines and processes ensure that your business runs smoothly without you.
Now can you read this slide as easily as the one before? I can’t. Now if you can’t read it, neither can your customers, or your potential customers. It’s really important not to be too clever with your signage and your name. Your name should say exactly what you do. And your USP and your branded, people must know exactly what you do from looking at your signage. Now, McDonald’s are the expert of this. You can see their giant M miles around.
Now I don’t expect to see your sign from outer space, but I do expect to be able to see it and read it and know instantly what you do from across the road. Now, Nike, we all know the Nike swish. It took 29 years before they could take their name off their logo and be recognised.
So remember that. Your branding, your name is so, so important. You’ve got to tell your story throughout. Tell your story. You’re in a unique position. You’ve all got a fantastic story. Something that the big chains can only dream of, but you’ve got tell your story. Tell your story on your social media, in your shops, to your customers. But make sure all your teams stick to your script, because it has to be authentic.
If it’s not authentic, there’s no point in having it. An example of a strange name, we had a cafe open close to us called, Eat Dirt. Now it was an organic cafe that closed within a year, because people did not get the sign. They were trying to say, it’s organic food grown in dirt. People didn’t get it and within a year it was closed down. So don’t be too clever and don’t be too clever with your lettering, because the number of signs I see that’s got tiny wood fret with italics on a wood background and you have to really concentrate on what it actually says and mind what it means. So watch that common mistake.
Now, good service and good cakes is no longer good enough. You’ve gotta be wow. You’ve gotta be awesome. You’ve gotta be Instagramable. You have got to be famous for something, okay? You have got to have something that people know that you’re famous for. Think Patty and Bun and you think burgers. What are you famous for? Now fantastic service comes from recruiting the right people. Recruit for attitude and not skill.
Now you can train somebody to make a fabulous cup of coffee, but you cannot teach the hospitality gene. They’ve either got it or they haven’t. So when you’re recruiting, recruit very carefully. They always say, recruit slowly and hire fast, but look for the hospitality gene. Look if your potential recruits is smiling, is eager to learn and not standing there with their arms folded looking bored. The hospitality gene is vital.
Then, when you’ve got the best team, you want to be the magnet for the best team in town. So that when people come in, they see your team as happy and they all want to join you. So it’s an ongoing, you will get more and more people wanting to join you. When you’ve got that team, don’t forget to train them, train them and train them. The day you think you know it all, is the day to retire. So you’ve got to keep, keep training.
Now if you pay minimum wage, you’ll get a big turnover of staff. So don’t pay minimum wage. Pay as much as you can afford and more. And reward your staff, reward your team. It doesn’t have to be with money, it could be with other things. But make them want to come and work for you and make them become more of an extended family and enjoy coming to work.
Now, consistency is critical. There’s not many industries that I can think of, that you will have daily guests. People coming to you every single day. So you have got to be consistent. Think of it as a marriage. Your customers will allow you to make three mistakes.
The first one, they’ll forgive you. The second one they’ll think you’re daft. But the third one, they will leave you and tell everyone how awful you were. Now back in the day that used to be ten people, but now with social media, that’s more like thousands of people.
So consistency is key. You’ve gotta open up on time, every single day. Everything you make must be consistent. The coffee made by your head barista must be equally as good as your new barista. So everything must be follow a recipe and be consistent.
Now statistically if you’ve got a daily customer, and 95 percent of your drinks are good, that daily customer will average get two bad drinks a month. So you want to be 100 percent perfect every single time. At number five, budgets. This is a common mistake.
NO BUDGET AND NO PLANS
Now you have got to know your numbers. You have gotta be on top of your bank account. Now, if you think about it in your coffee shop, most things you sell will be VATable. So, 20 percent of your take ins, will go straight to the VAT man. Now, when you first open up your bank account will look very flattering. You’ll have lots of cash coming in. But you’ve got to budget and have a cash flow forecaster, because you’ve gotta remember that you’ve gotta pay your rent, the VAT man, the P32s, your wages and your rent, to name but five.
So, budget your money. If you don’t pay your suppliers, you’ll have nothing to sell. So budget that money going out of your bank account.
Whatever anyone tells you, size matters. Well, it does in the coffee shop industry anyway. If you open a unit of less than 40 covers, you’ll get yourself a job rather than a business. It’s really hard to make enough money as of a unit that is only 40 or less covers, because you will never make enough money to be able to employ a manager and move on to your second coffee shop. And remember that an upstairs is not very attractive. People hate going upstairs or downstairs.
So choose a location that is on the level and it’ll be much more successful. So, going onto number three. Location, location, location. Now, your location is the number one reason people come back to you. Convenient location is, since Allegra has been doing their statistics, you’ve got to choose a coffee shop, because of it’s convenient location. Now, when you first start up your coffee shop business, you’re thinking, all the good sites are gone, there’s none left, all the big boys have got the good sites.
But you have to think outside the box. You’ve got a sliding scale of locations, you’ve got your location here, which is on the high street, it’s a superb location, but very high rent. And to the bottom, a poorer location, with a lower rent. Now, on that side in scale, in the middle is what we call the clever location. And you’ve gotta choose the clever location for you. You don’t have to have the expensive one on the high street.
You can choose the very clever location. And we can help you with that. We’ve got 73 point chapters on our website that you can score different sites to know which one is best for you.
Now competition is not always a bad thing. If you open on a site that has no competition at all, you can guarantee somebody will open up next to you, or a couple of doors away and take 50 per cent of your take ins. So what originally looked like a factory business, is now 50 per cent drop in takings. And also, if people are already there, if coffee shops are already there, if you can see a gap in that market, if you don’t copy everything that they do, but you make a complimentary offer to those coffee shops, it can sometimes be better, because the people that you want to come in are walking past your door. So don’t dismiss a location because there’s a lot of coffee shops around. Think outside the box. But your customers must be outside your door. You would never open a vegan restaurant in the middle of a meat market. So choose your avatars very carefully, and make sure your customers are there to come in.
Number two, I have put the arrogant owner. Now it may sound a little bit harsh, but the arrogant owner who thinks they know it all. Who thinks they can fill their shop through putting a few tweets out, or word of mouth advertising. And they confuse their customers by having really, really complicated menus. And confuse them about what they need to do when they’re in their shop. They don’t listen to their team, their customers and their suppliers. They know it all. When you open a coffee shop you need to be enthusiastic. You need to have that desire, but when that desire turns to arrogance, you’re on the slippery slope to closing down. Here is the countdown to number one.
NOT A LIFESTYLE BUSINESS
So straight in at number one is lifestyle business. This is not a lifestyle business. It is not a get rich quick business. It’s a real business with real customers and real overheads, and a lot of potential to go wrong. Now, if you don’t get everything right. If you don’t open with the right rent and rates, if you don’t open in a clever location, if you don’t have the right team, if you don’t schedule them in the right places, if you don’t have the right equipment, if you don’t sell the right products with the right margins, you will never ever make any money. It’s really hard work with a lot of potential to go wrong.
However, if you get everything right, owning a coffee shop can be the most wonderful, fulfilling and profitable business that you could ever own and run. Thank you.