Why Do So Many Independent Coffee Shops Fail?

Are you thinking about opening your own business?

At first glance, speciality coffee shops are attractive propositions. It's easy to imagine creating a stylish and welcoming space offering delicious drinks and pastries. One that is filled with happy customers chatting, working and people watching.

After all, coffee drinking in the UK has clearly grown significantly in popularity - almost 50% over the last 20 years. Demand for quality coffee is growing, particuarly amongst young people.

But research suggests that 64% of speciality coffee shops fail within the first five years of trading.

Why do shops run into trouble and is it possible to avoid the buzz of your coffee equipment grinding to a halt?

Business skills trump everything

Back in the Jurassic era when I took up my first senior role in business, my managing director treated me to several pearls of his considerable wisdom. One of these was to be mindful of the 5 Ps - Perfect Preparation Prevents Piss Poor Performance. In other words, think before your leap. He was referencing sales appointments but his advice holds true for all aspects of business.

In addition, my chairman, who was the consumate businessman, taught me the importance of keeping a firm grip on one's finances. His mantra was, "cash is king" and he wasn't wrong.

It simply isn't enough to be passionate about what you do, to create the ideal setting or to offer the finest products. Business sense is more important than than the perfect mocha or an enticing cake served with panache. It just is.

There can be no substitue for financial literacy, understanding your market and a liberal dose of pragmatism.

Handling financial pressures

We live in challenging economic times and the costs assocaited with employing staff have rocketed. The National Living Wage has risen as has employers' National Insurance. It is estimated that the increase to National Insurance alone is costing an independent coffee shop up to £8,000 per year. Staff costs are typically swallowing up 30% to 40% of revenue.

While the Employment Allowance reduces the National Insurance burden for small businesses and has risen to £10,500, it doesn't fully offset the recent increases in overheads for most businesses.

Rising rents and coffee prices are not helping.

Costs can quickly outrun sales growth.

Almost two thirds of UK hospitality businesses are now planning to cut staff.

As margins are so tight, it is vital that business owners don't find themselves surprised by additional costs associated with their new operation such as waste disposal and accountancy fees.

Budgeting, cash flow analysis and efficient stock management are all absolutely essential as is realistic pricing.

Know your market

Now more than ever, it is vital that coffee shop owners meet consumer expectations. The market is a dynamic one and consumer demands continue to change. Those opening a business may have their own ideas about what their offering should be but the route to success lies in gaining an understanding of what potential clients are actually looking for:

• Demand for high-quality coffee is growing
• People are increasingly valuing the social as aspect of coffee shops due to remote working causing digital fatigue.
• Convenience increasingly drives sales with many consumers valuing mobile and touchscreen ordering. Point of sale systems should ideally be able to handle QR ordering, contactless payment and bespoke coffee pricing.
• Cold coffee and matcha are now outselling hot coffees.
• Younger consumers favour indpendent shops and like trying new and original drinks. Older customers prefer traditional drinks. Coffee shop owners need to know who they will be serving.
• Return custom is heavily dependent on the quality of the hospitality offered. Providing the best service may require an investment in staff training and that must be budgeted for.
• Consumers are seeking value for money and so owners may need to get creative. Rising costs preclude simply lowering prices to attract business.

Tackling the competition

Intense competion in the space places additional stress on new businesses who will be competing for both customers and staff. There are now more than 13,000 outlets in the UK, making it difficult to gain traction. The right approach to marketing could be a make or break issue.  

It's important to set a coffee business apart from local competition while also meeting established expectations. It's good to be different, but not too different!

Remote working is driving a desire for person to person contact in social spaces and so fostering community spirit could prove to be the key to guaranteeing that clients return.

Conclusions

Good coffee and sylish spaces alone are no longer sufficient to attract customers and to keep them coming back. Independent coffee shops must wrestle with contradictory demands such as the need to offer both quality and value. They must serve the products that consumers are already seeking out but also offer something new.  Service levels need to be higher than ever and spaces should facilitate both remote working and social interaction.

More than anything, it is imperative that business owners understand their finances, control their costs and market their offerings aggressively. 

A coffee shop is no longer a hobby business that can be opened on a wing and a prayer. It is a company operating in a dynamic market. Fierce competion and narrow margins mean that attention to detail can make all the difference. As can staying ahead of the game by reasearching new trends. Creating a trend would be even better!