I received an email today asking if it is a good time to start a coffee shop in Phoenix. What do you think?
Austin It’s always a good time to start a good coffee shop. As long as they have a good plan for survival. Did they say where they would like to put it? 0 Reply September 15, 2008
Chris Tingom Austin, they didn’t specify a location. However, I tend to think it is always a bad idea to open a coffee shop in a bad location. Trouble is, good locations are more expensive. 0 Reply September 15, 2008
Brian If they can’t afford a good location and don’t understand how to drive word-of-mouth marketing, right now would be a terrible time to try to start a coffee shop. If they get a good location and market themselves, they would probably do rather well. 0 Reply September 15, 2008
Jeff Moriarty I don’t know about the timing, but as long as they follow the great advice in this video they shouldn’t have any problem: http://blip.tv/file/1210534 0 Reply September 15, 2008
Austin That video isn’t that good. The guy probably doesn’t even drink coffee. On a side note if they want a consultant send them my way. 0 Reply September 15, 2008
Ron Cortez Hello guys and thank you for this question. There is always a good time to open a coffee shop but in Arizona, after the summer is a great time. This state shines when the temperature is not over 100 and makes us proud of staying here. I will like to ask anybody who is thinking about opening a coffee house on there passion for coffee, experience, willingness to learn and a great business plan that is geared to thriving not only to surviving. It makes me sad to see good people jump on this industry without thinking on these elements. This a growing market with lots of opportunity and lots of available coffee houses that ran out of steam (also lots of used equipment on craigslist). 0 Reply September 15, 2008
Mark Wow, I was stunned to see the overwhelming optimism surrounding this question until I realized who was answering: people who make money off of new coffee shops. Now is absolutely not the time to open a coffee shop. In general, never is a good time to open one. If you need any proof, cycle through the archives and see how many have closed in the last year. I am general counsel for a retail center landlord who has 30 properties in six states. We currently have no remaining mom-and-pop coffee shops in our centers. My advice: DON’T DO IT! Especially in this economy. All types of mom-and-pops are suffering. Nail salons, massage places, coffee shops, and other types of business that cater to the disposable income crowd are closing at a fast rate. 0 Reply September 15, 2008
Austin Mark, I think you are wrong. Starbucks closed 600 stores and 1 in AZ. That was in Eloy. Yes a ton of shops have closed but there were reasons behind all of those. The fact is that for every one good shop that is open there are 10 or more that are terrible. Being a small business owner is hard, but the economy is not hitting coffee as hard as people would like to think. It is there, but only marginally. The problem is that major metropolitan areas have a hard time with the mom and pop mentality. If you are going to do it you do it right. There isn’t a lot of room for error anymore. People know what good coffee can taste like and if that changes they will leave. Watch the video. It is 5 minutes and it does go through the quick and easy of how a shop and succeed and how it can fail. Also I don’t make money on shops getting started. I don’t actually consult. I helped start a shop in Globe, and it is doing well right now. 0 Reply September 15, 2008
Austin As a side note, I would like to add that i don’t think the shops that closed happened because they were terrible. Many of them were good, but there are ways that a person can create a shop that will do well. 0 Reply September 15, 2008
Ron Cortez Hello Mark. Yes, some of us do make money supporting new coffee shops but we also make money with existing ones that are not closing. I always wanted the opinion of the landlord on this subject although I know that commercial property managers will prefer to lease to a brand name concept than a start up. The thing is that the good old USA is based on the ideal of sacrifice, hard work and innovation that moves the mom and pop’s shop. However (this is based on my experience), we have been a mom and pop coffee roaster for more than 11 years and we did not started with much money. I still see Arizona as a great opportunity that cannot be awarded only to nationwide retail stores. If you do things the right way you will succeed is the general idea of the participants on this blog. Perhaps you can see how some of us may think that your comment is very pessimistic. To sell coffee is not easy but to prove with real product that you have better coffee than the chain store or the supermarket is easy, one of the things we need to do is learn how the “successful” stores do it. Maybe by educating costumers on how fresh coffee is a daily consumable product not a luxury. The same can be said about water and you see al the water and ice stores. 0 Reply September 15, 2008
Phil Radzinski I would like to thank everyone for the quick response to my question. Like a job interview, I feel that we have one chance to make a good impression in opening a new coffee shop. With 2 years of planning and over a decade of advertising/marketing experience we strongly believe in our product and innovative coffee shop concept. However, the unemployment rate is creeping up, the economy hasn’t been this unstable in 50 years and I feel a little uneasy with the timing. I could use some more advice from coffee house owners, especially with the challenges of dealing with interior designers and contractors. Please advise. Phil 0 Reply September 15, 2008
Victor Generally speaking, I believe Mark is right on with his statements. Opening a coffee house in AZ (especially the hot areas) is extremely risky and one should not do it without carefully examining the statistics. Great coffee, great service? Who cares when it’s 100 degrees out at 8:00 in the morning. I think the only way to make it work is with a great location and to be able to diversify without losing sight of the primary product – specialty coffee. The other huge factor not only for cafes, but any retail business, is the rip-off rental rates charged by the monopoly that owns almost all of the commerial retail buildings _________( fill in the blank). Cafes that do not diversify have very low ticket numbers……..I would venture to say maybe $5.00-$6.00 on average, on a good day. Do the math and figure how many sales per day it would take to make $3-4,000/month rent. Then factor in other costs. Then determine how much profit one wants to make a month to live on. Man, that’s a lot of lattes, cappus, and ‘spros. 0 Reply September 15, 2008
Austin Victor. You are right. Coffee has great margins but it takes a lot of lattes in order to start making a profit. I would guess that your average price is pretty high also. Probably $3-4 average. Most people won’t tip or get anything to eat. Figure 100 drinks a day minimum to hit a break even point without any employees. That takes time and you have to convert a lot of people from their usual place. That means you have to make better drinks. In the video one of the points is to supply your customers with what THEY want not just what you want to sell them. That means iced and blended drinks. One a site like this it is blasphemous, but people make such a big fuss that it is almost impossible to survive a summer in AZ. If you make a good blended drink then you can thrive in the summer. It is not really a hot drink state except for a month or two maybe. We worked hard to make sure that our blended drinks tasted great and as a result we had to buy a second bigger ice machine to handle the extra sales. I do think that a shop could start and do well in a time like this. Look at cartel. They started at the beginning of the year and have been growing strong since. Note to phil: Put your effort into your product, buy used, don’t spend a ton of money on interior design. Try to do as much work as you can by yourself. You will save money, you may not have the best looking shop in the valley, but if you notice, those shops aren’t staying open. Visit as many places as you can and see which ones are busy. The ones that do the best are bizarrely decorated, have a limited menu, and serve amazing drinks. Save yourself a couple hundred grand and start slow. 0 Reply September 15, 2008
Tara Phil, We have been in business a little over a year and are happy to talk to you about the pros and cons from our point of view. Have been happy with the designer and contractor for our site and are willing to refer them. Call anytime: 623-935-2604 ask for Sean or Tara 0 Reply September 15, 2008
Phil Radzinski Great information from everyone! Austin, thanks for the specifics…very usefull. I get so wrapped up with design details that I tend to loose perspective on the drinks themselves. Tara & Sean, I will definately be giving you a call within the week. I appreciate everyone’s help. Phil 0 Reply September 16, 2008
Steve This is a great blog especially for me on the eve of signing my lease. Its quite scary but it gives me great confidence in what you all have said. I’m diversified in product, coffee, blended drinks, food, and the new item that I believe will be another revenue stream is beer and wine. I’ve got the location, the location that should be bearing a *bks however I was lucky enough to get in there. Rest assured my rent is definitely high, higher then most would ever dare to take on, however location is everything and regardless of what one person said, customer service is of utmost importance! Great blog and I look forward to meeting all the owners here in Arizona. I wish you all the best! 0 Reply September 16, 2008
Todd As a coffee drinker and not in the business at all I think the key to opening a coffee shop is to have your plan in place and really know what you are getting in to. Have a GREAT location. Simply having a ‘good’ one will not work. Have something that makes you different from all of the other shops that encourages people to visit. Have top notch equipment and trained baristas to run the equipment. Even in a ‘down’ economy like this people will still drink coffee. Why – it is one of the cheapest ‘luxuries’ available in life. There is simply nothing better than spending less than $5 to have a relaxing, artisan crafted espresso based drink. 0 Reply September 16, 2008
Ron Cortez I have some experiences and advise to share with both of you opening coffee houses. When you are hiring a contractor use one that have restaurant experience and is knowledgeable in city and health dept. requirements (perhaps one that will get paid only when the job is done and in a timely manner) If you buy used coffee machines, buy from somebody that will give you a warranty or at least give the chance to test the equipment before you open. For espresso machines do not pay more than $900 for a used one, because you will need to clean and replace some parts (even if the seller says that the machine was not used for long) for about $600. There are several brand new machines that you can buy for about $2500 so, for $1000 you can get piece of mind. The brewing equipment is usually a bit less expensive to rebuild but still demand a warranty. Use a very good water system with R/O and re-mineralization cartridges for espresso and rate the system by the taste of the water. If you can get a softener for the iced tea it will make most teas taste fantastic. Have a very good training manual for your employees, especially if you are not going to be there at all times, One mistake is to let our people without directions and in customer service you cannot afford any employee not to show your customer how much you care about his or her business. Give a chance to a local roaster and local suppliers that can give you some tools to compete with commercial brands (private label, training, sales support etc.) and the most important is to promote yourself always. Make every day be grand opening day! Congratulations on your new business. 0 Reply September 16, 2008
Tara Steve, Where is your shop going to be?We do wine and beer as well and if you are paying for a location, the diversification is a must. Happy to help you get in contact with reps, etc. We are always willing to talk shop. We have been very blessed with others in the industry lending us a hand. 0 Reply September 16, 2008
Steve Ron….always good to hear your perspective, I would have to say your a great ambassador for this town and for our industry. Tara….is this Tara from GC??? If so, I’ll be in touch soon, my wife and I have talked with Sean and spent time in your shop….feel free to get in touch with me steve@presscfw.com either way I need to talk with Sean… 0 Reply September 16, 2008
Jason Hello to all! As a new owner, one of the most important aspects to great coffee is having great equipment…that is, equipment that has a great resale price as well. Look around at the top shops in the US and abroad and you will never see a $2500 esoresso machine. Do you know why? Because they are inconsistent, frustrating, and do not have a very long life span. If the difference in price between $2,500 and $ 10,000 scares you, then you are in the wrong industry my friend, because we are talking about the primary source of income for that $4,000 a month space. On a 5 year lease, that totals $240,000, in comparison to the extra $7,500 spent on the machine, its actually laughable. Please be careful where you put your money and remember that training is of utmost importance beyond the quality of your beans and equipment. If you need help, call me 480-225-3899, but not till wednesday since I am in Colombia till then! Mucho gusto! 0 Reply September 20, 2008
Goro If you figure out a way to target/convert the middle-school and high school demographic, i think you’ll make a mint. I’m around lots of 12-20yo girls and almost all of them drink “Starbucks” like I used to drink Jolts and Cokes. They have no qualms about getting 2-3 of them a day and have no real concerns about the economy, either! 0 Reply September 21, 2008
Brandon Landlords are hurting all across the valley right now. If you are considering signing a lease right now, make sure you have negotiated a great price! In this market, you are in the drivers seat… As a rule of thumb, you need to do about 10 times your rent a month in sales. If that is not achievable with your rent or location, I would consider another location or smaller suite. 0 Reply September 22, 2008
Ron Cortez Thanks Brandon and Goro. I believe that both are great ideas. Also 20% of sales per month should be the maximum employee expense allowance. If you are using more than that, please take a close look at your people schedule. Make sure that your salary is part of that number. Also, to have an owner around is good for increasing the moral of the team. 0 Reply September 22, 2008
Carol Survival of any mom and pop shop is based not only on the goods and services it sells/promotes, but the locals who need to support these mom and pop shops. Where are all the locals who cry they are tired of the franchises, who yearn for something alternative and different? The shops are everywhere, it’s the people who are not supporting and it’s sad. 0 Reply October 1, 2008
