ESPRESSO! Starting and Running Your Own Specialty Coffee Business

First Chapter

ESPRESSO! Starting and Running Your Own Specialty Coffee Business

Joe Monaghan / Julie Sheldon Huffaker

0-471-12138-X

CHAPTER 1

Choosing the Right

There is a wide range of business opportunities that involve espresso. This chapter will review some of the pros and cons of each. We encourage you to select the espresso venture that best suits your personal and financial goals.

In general, espresso opportunities fall into one of three main categories The first is the business which has espresso as its main focus. The second can be described as a business to which espresso is added to complement existing services. Finally, there is the business which focuses on specialty coffee and incorporates espresso as part of its overall coffee program.

The Business with Espresso as
Its Primary Focus

This category includes espresso carts, espresso concessions or catering, espresso drive-through operations, and the more permanent espresso bars or coffee houses. In Seattle, often heralded as "Latteland," the vast majority of espresso outlets take the form of the latter.

CART/KIOSK

Simply said, an espresso cart is a box on wheels that supports espresso-brewing equipment. Typically, carts make a variety of espresso and noncoffee beverages (hot cocoa, steamed milk, Italian sodas) while offering pastries, confections, and other coffee complements.

A kiosk is a similar structure that has expanded physically in size and function. Like carts, kiosks are free-standing. They can be mobile, but generally feature solid counters—and more of them— as well as extensive overhead signage and additional cases or shelving for display. The investment for these operations is higher; they tend to be situated in high-volume areas like the centers of malls and airport terminals. For the purposes of this section, both carts and kiosks will be referred to simply as carts.

Where location is concerned, espresso carts are extremely flexible. A cart can dovetail into the tiniest niche and still be a marvelous success, opening to thrive as a business one day where there wasn’t anything the day before. Espresso carts are easy to operate and manage, and have very straightforward inventory requirements. In most cases, the owner is the operator. Financially, an espresso cart requires a minimal up-front investment: around $15,000. A cart can be a strong entree to larger opportunities, allowing the owner to build the working capital and reputation of his business until the perfect opportunity for retail or site expansion presents itself. An entrepreneur who operates a cart can take advantage of the specialty coffee trend without dramatic financial risk. And the potential for profit is considerable.

There is tremendous earning potential in expansion to multiple sites. While the single site owner/operator characteristically enjoys—and has a talent for—the face-to-face requirements of running a cart, such as customer interaction, expansion requires a fair measure of personnel and business management expertise.

Typically, single cart operators underestimate the scope of work required to grow a business. Many find themselves struggling with hats they were trying to avoid wearing in the first place. Along those same lines, the person who excels in the big business side of things isn’t usually the best person behind the bar. If you want to expand your business, make all decisions with that in mind. The same mobility that works in favor of the cart also works against it. The single biggest drawback to cart operations is that landlords have a hard time seeing them as permanent. The first espresso cart in Seattle, Monorail Espresso, now sits in its fifth or sixth location. Fortunately for the operator, his clientele keeps moving right along with it!

Other negatives include inclement weather for those carts situated outdoors, a limited ability to present products (read: no space), and the long period of time it may take to build the business to a truly profitable level. You have to sell a lot of drinks to pay the rent, and you’ll build your clientele one drink at a time.

Some cities flat out don’t allow cart businesses, in part because the reputation of other cart type operations pegs them as undependable. Even where carts are allowed, there are a number of building and health codes that can be difficult to overcome. Many of these reach beyond the business itself—such as the necessity of having a viable commissary, for example, or the guidelines about where a cart can be stored.

The final hurdle is competition. Carts are extremely vulnerable to it: they can be outnumbered by the advent of a major chain of retail stores, swamped by other carts, or booted out by the landlord who decides your business is so successful that he’ll just set up his own.

SPECIAL EVENTS/CATERING/CONCESSIONS

A special event espresso service is a mobile operation, and serves coffee at—you guessed it—special events. These may include music concerts, food fairs, basketball games, or corporate parties. An espresso concessions operation usually involves a semi-permanent cart, kiosk, van, or trailer at a special events center, such as a sporting arena or movie theater.

These designations can refer to a huge range of possible outfits, from a cart hauled from event to event to a sophisticated conglomeration of supplies and services inside a large tent. The larger operations are capable of serving upwards of 5,000—6,000 cups a day.

An espresso catering operation is also event-oriented but is usually contracted as part of an overall catering service for weddings, parties, business conventions, and the like. The espresso operator is typically hired by a food caterer to work a specific event. This means there are fewer health department regulations to meet independently, but usually not enough business to act as a sole source of income.

DRIVE-THROUGH

We live in a car-driven society, so why not? Many drive-through espresso stands were once photo developing booths or fast food joints. Others are mobile trailers plunked down in the corner of grocery store parking lots.

The operation of a drive-through is similar to that of a cart or kiosk. The product mix is pretty much the same, but a drive-through markets almost exclusively to commuters in cars. The arrangement of a drive-through, incidentally, should facilitate passing drinks into the driver’s side window. The best possible scenario is a booth offering easy auto access on both sides.)

The primary advantage to this type of operation is its overall simplicity. Good location, and customer access to it, are crucial— and hard to find. Start-up investment ranges from $15,000 to $250,000, the higher amount including funds for fixed plumbing, speaker phones, and other snazzy fixtures.

Perhaps most discouraging is a dilemma posed by the health department: should a drive-through be classified as a mobile operation, or as a permanent fixture? The latter introduces a new host of guidelines that must be followed to the letter. Make a thorough exploration of health department issues before committing to a drive-through venture.

ESPRESSO BAR/COFFEEHOUSE

In this book, we use the terms "espresso bar" and "coffeehouse" interchangeably. Please note that the coffeehouse of which we speak is one that focuses its beverage efforts on espresso.

(Coffeehouses in some parts of the country serve drip-brewed coffee as their primary beverage.) Espresso bars are different from specialty coffee stores in that espresso is their primary product. Because they have the luxury of space, espresso bars may serve a variety of food items as well, from breakfast pastries to full-service lunches, soups, or baked goods.

An espresso bar has a fixed location with a long-term lease, and thus greater potential to build a market. It is essentially a large kiosk or enclosed retail space, ranging in size from 800 to 1,500 square feet (sometimes more) and with a fair amount of seating.

An espresso bar offers greater opportunity for creative use of space and design than does a cart. Espresso bars and coffee-houses tend to be destination spots, rather than impulse or convenience stops. They draw groups of customers for social reasons, and they also attract business-type gatherings.

As you might expect, the financial commitment for starting an espresso bar is large—usually somewhere between $50,000 and $150,000—and staffing requirements are high. Hours of operation are long; most coffeehouses open their doors in early morning and stay active until late at night. This poses a problem:

how do you fill the "dead" times in between? This quandary is often tackled through the addition of an attractive food menu. Good idea, but remember: where operations are concerned, an espresso bar faces many of the same expenses as a restaurant, but ticket items are substantially lower.

Location is a large part of the overall financial commitment; any "leasehold" improvement to the property made by the lessor is owned by the landlord. Unlike an espresso cart, you can’t take this investment with you.

Espresso as an Add-On Service

This is the largest overall category of espresso business. These "add-on" ventures take many forms, which can be broken down yet further into food and nonfood ventures. The greatest potential downfall of an add-on operation is lack of attention paid to beverage quality. Do not underestimate the need for significant training of all employees who may prepare drinks for customers.

ESPRESSO ADDED TO FOOD SERVICE

Despite the rapid growth of espresso-focused operations, there are still more espresso programs found linked to larger food services than anywhere else. From the restaurant that puts espresso on its dinner menu to the small yogurt or fresh-baked cookie shop, espresso can bring significant revenue and foot traffic to an existing food service.

Restaurants often have drip coffee machines because they think they have to. In the past, coffee has been considered a loss-leader, a necessary evil of sorts. The profitability of espresso gives the restaurateur an opportunity to increase the ticket price while enhancing her establishment’s image, making a positive impression on customers at the end of the dinner. Espresso is also a good alternative to alcohol. An espresso menu provides a valuable mechanism for marketing, and allows a restaurant owner to capitalize on a growing trend.

The logistics of serving fine espresso in a restaurant bear careful consideration. In an environment where quick turnover and a large staff are the norm, the restaurant manager must decide how to ensure consistent and high-quality preparation. Routine maintenance of the espresso machine is also an issue. A pre-existing emphasis on quality food is a significant advantage. Will the entire staff be trained to use the machine, and be expected to make espresso drinks for their own individual customers? Or will the espresso machine sit in the bar area, the sole domain of the bartender—a role bartenders historically resist? You can also hire and train a special barista who makes drinks as needed. This is optimal, but not particularly practical. Finally, there’s the question of machine size. Should you buy a larger and more expensive machine, one capable of serving everyone in a party of eight at the same time? The machine that can do this is probably much more machine than your restaurant will need to meet demand throughout the rest of the day.

Nonrestaurant food services such as yogurt or cookie stores are free to concentrate on the specialty nature of espresso. They have the time and space to offer a more involved menu and one-on-one service. Many of these businesses were originally founded on specialty trends; as a result, their existing clientele is ripe for the concept, willing to spend the extra money for specialty items. Several of these trends have run their course— sales aren’t necessarily dropping off, but they are leveling—so espresso can prove to be a cost-effective business enhancement. However: these businesses, too, face training, investment, and operational issues. Is there enough space for the yogurt machine, the espresso machine, and an extra refrigerator? Can you staff enough people to make lattes during the lunch rush?

ESPRESSO ADDED TO A NONFOOD BUSINESS

Nonfood business ventures where espresso can prove successful include bookstores, clothing stores, gas stations, dry cleaners... the possibilities are endless. Because some site facilities already exist, overhead will probably be lower than the amount one incurs with a cart or kiosk. Espresso can function as a marketing draw to the primary focus through free drink offers, coupons, or simple availability and convenience. Essentially, any operation with a clientele of ready coffee drinkers and a commitment to beverage quality can make espresso a profitable addition.

But be realistic about the challenges. Nonfood operations may have more difficulty lining up the proper health permits and facilities. Or, the existing business may house delicate items around which coffee cups might be unwelcome.

Carefully evaluate the compatibility of your market: will the patrons of a pet store really go for the idea? How about the scheduled customers of an auto body shop? You may have a limited window of business.

Remember that espresso is a highly specialized, handmade drink, requiring time for interaction with the customer as well as preparation. Does your business allow for this kind of prolonged contact? Consider the skills and interests of your current staff. Even if your customers are open to the idea, there may be resistance within the business—particularly if your employees aren’t already "food people."

Espresso and the Specialty
Coffee Outlet/Cafe

The specialty coffee outlet is generally a store of 600 to 1,500 square feet which sells a variety of fresh-roasted, specialty ("gourmet") coffee beans. The business either has a roaster or has purchased roasted coffees from a separate roaster for resale. The product mix may include teas, fresh foodstuffs like locally baked pastries and breads, and other gourmet food items and accessories. Typically, coffee hardware and home-brewing devices are also for sale to encourage and educate customers about their home consumption of coffee.

Starting from scratch, the cost to establish a specialty coffee outlet is high: about $75,000 to $300,000. The degree of expertise and experience required is also very high, particularly if coffee roasting is going to be part of the operation. If you don’t already, plan to take your coffee very seriously.

Adding espresso to an existing specialty coffee operation costs even less than establishing a cart. Buy a machine and grinder— plus any additional plumbing and cabinet fittings, inventory, and design expenditures—and you’re in business. The fact that your staff is already sensitized to the educational and sales issues surrounding specialty coffee products is of great advantage.

The retailer should not forget, however, that introducing espresso is like adding an entirely new branch of operations. Personnel management, inventory control, and sales training are only part of what it takes to succeed with espresso.

The function of the espresso bar is threefold. First, it acts as a legitimate profit center; while the espresso bar in such a place may generate a comparatively small portion of the total revenue, espresso drinks do offer the highest profit center per square foot. The retail business already draws a coffee-loving customer base, and they are of course a great potential source of espresso sales.

Second, espresso provides an engaging means for educating customers. It also spurs the sale of other consumables and retail hardware. The retail store becomes a destination and, wooed by espresso beverages, new customers will soon concentrate all their coffee purchasing there.

A specialty coffee outlet is a fairly permanent proposition, offering stable facilities and a long-term lease. Conventional landlords and property managers tend to be more comfortable with this idea than with other espresso concepts.

Management and training for a larger staff can be a challenge. Inventory requirements also increase with space, as does the list of necessary product suppliers. The outlet owner is sitting on an investment of significantly higher dollar value, which can impinge on her flexibility to take advantage of future expansion prospects.

To Franchise or Not to Franchise?

A franchise is the right granted by a company to an individual or group to market and sell the company’s products in a specific locale. There are pros and cons associated with going into business as part of a franchise operation. In general, franchisers will propose the advantages of a pre-established identity, predetermined operational procedures, and large-scale marketing. Some espresso cart franchise operations provide ongoing assistance, including the security of a "sure bet" location.

What do the franchise companies want in return? Income. Ask yourself whether or not you’re willing to part with it. Many people are attracted to the espresso business because they want the independence of running their own show. They’re willing to invest time and energy in order to claim the profits. Weigh the cost against the benefit: what a franchiser is going to charge versus what he’s giving you.

The growing number of franchise opportunities in the espresso industry include cart operations, kiosks, espresso bars, and full-blown coffee bean stores. They are starting to establish useful name recognition. But while franchisers may offer a bundle of start-up and operations information, there is plenty available elsewhere—of equal or greater benefit and for a significantly lower expenditure. You’re holding a sterling example right here in your hands.

Chapter 2, which takes you through the stages of assembling a business plan, will further acquaint you with your own business vision. This provides you with a constitution of sorts against which to measure the franchising decision, and others like it.

Put careful thought into your own needs before jumping into a business proposition. Talk to people who have already undertaken what you’re in the process of considering. Beware the fast-talking salesperson who isn’t necessarily looking out for your long-term best interests.

Consider lifestyle, budget, expertise, possible location, and the physical requirements that go along with each espresso concept. Above all, go with your gut. Use the planning process we’ve outlined to evaluate your business options, and remember: proper planning is crucial to success, no matter what scope of operation you intend to launch.

The ultimate key to success in all cases is quality. Anyone can buy a machine and pull shots of brown water. Even the best coffee and the finest equipment will only get you halfway there. Pay serious attention to beverage quality so that your investment will pay for itself—and more.

— Understand the different types of espresso operations

Espresso-focused business
Cart/kiosk
Special events/catering/concessions
Drive-through
Espresso bar
Espresso added to existing business concept
Addition to food service
Addition to non-food business
Specialty coffee outlet/café
Begin defining your own vision
What is your vision for the business? For future expansion?
Is this your main source of income or a sideline?
If you are adding espresso to an existing business, how do you see the two working together?
What, if any, espresso businesses already exist in your area?
How mature is the market?
Which concepts are/will be most successful in your area?
Why?
Where will your customers come from? What will bring them to you?
Approximately how much capital will you have to invest?
Choose the concept that best fits your goals and market

(If you’re not ready to do this yet, don’t worry. The next several chapters will take you through the steps of refining your business vision, securing a sound location, and finding the financing you'll need. Understanding those steps will help you to determine which espresso concept best suits your individual situation and market.)