Location, Location, Location
- Aug 24, 2016
- Posted In: Coffee Marketing
Location, Location, Location; it’s the most important decision a new Café owner will make. It is always an exciting time when you are starting a new business. However, don’t let the euphoria associated with starting a new venture cloud your judgement with regards to the sales potential of a particular location. There are a number of factors to consider when evaluating a location. In some cases, they are obvious just by observing what Starbucks does and copying it.
Size matters, we see it all the time where people commit to large spaces for their coffee shop and then find that despite healthy sales they struggle because their rent factor is still too high. In general your monthly rent should not exceed 10% of gross sales and ideally that ratio will be closer to 7 or 8% of gross sales. So for example, on $650,000 a year in sales, you should not commit to a lease that requires you to pay more than 65,000 annually in rent and CAM charges (“CAM” Charges are the extra charge landlords hit you with to cover taxes and common needs like snow and trash removal, and landscaping). In general you want to target locations between 800 and 1500 sqft.
A drive thru is a huge asset for any coffee shop. In some cases the drive thru can generate upwards of 50% of the café’s overall revenue. As much as we like to believe people will go out of their way because “we’ve got the best coffee” or “we’ve got the friendliest baristas” the fact is most people pick their coffee shop based on convenience. Anytime you have the ability to get into a free standing building with a drive thru or an end cap with a drive thru, you are increasing your likelihood for success greatly.
Count the cars. Don’t take a realtors or landlords word for it. They’ll all tell you that there is a “ton” of traffic in front of their space. That may be true, but what is more important is if the space is on the morning side of the road and is traffic heavy between the hours of 6 am and 10 am. That is the window in which 60% of American’s drink their coffee. If the space is dead until late morning or only busy in the evenings it’s probably not going to work for a coffee shop. If you count the cars, assume you will be able to attract 5% of them to stop in your shop. As an Example: 10,000 cars per day x 5% =500 customers x $4.50 (Average Ticket spend) = $15,750 a week potential x 52 weeks = $819,000 in top line revenue potential.
Lastly, check out the competition. Don’t shy away just because there is competition in the area. There is a reason you often see a McDonalds, Burger King and Wendys in close proximity to each other. While we all like the idea of being the only game in time, having a little friendly competition can be a good thing and the option for choices actually attracts more people to your shop’s area. Good luck and happy hunting.