With the UK coffee shop market continuing to be strong, now could be a great time to consider opening your own coffee shop. Here’s our guide to how to plan, open and start a café business.
Despite our reputation as prolific tea drinkers, the UK is fast becoming a nation of coffee connoisseurs.
The past two decades have seen us switch our affections to the bean with coffee consumption steadily narrowing the gap with the traditional cuppa.
According to a recent report by the Allegra Group, we Brits now drink around 98 million cups of coffee per day.
So it’s no surprise that the café culture is flourishing in the UK, with 80% of people who visit coffee shops doing so at least once a week – and a sizable 16% visit on a daily basis.
Yet despite the dominance of big brands opens in new window, the market shows no sign of stagnating.
Allegra predicts the total UK coffee shop market will reach a £15 billion turnover by 2025 with more than 30,000 outlets.
Luckily, coffee shops thrive on high volume business – as while margins are high, unit pricing is low so lots of customers are needed to make a coffee shop a success.
By buying in bulk, a kilo of beans can cost you as little as £10-18, providing 120-140 servings per bag.
To make one cup of coffee it costs only 16p (10p for the coffee plus 6p for milk). With an average price of £2.45 a cup, you stand to make a substantial 93.5% gross profit.
All of which can make opening a coffee shop an attractive business proposition – with room for well-run small, independent coffee shops.
Get the staff opens in new window, location opens in new window, concept and business plan opens in new window right, and a coffee shop can be the ideal business for hard-working, motivated people looking to be their own boss.
Starting a business doesn’t come with a set of instructions.
We know that understanding the many different types of financial product in the marketplace can be difficult.
Our Making business finance work for you guide is designed to help you make an informed choice about accessing the right type of finance for you and your business.
Is opening a coffee shop right for you?
Opening a coffee shop isn’t for everyone – and if you’re picturing a kind of slack-paced Central Perk café found in an episode of Friends, then the reality of running a coffee shop may come as a shock.
Like any form of catering business, make a coffee shop successful takes skills, stamina and hard work.
Watch this: Ever wondered what it’s like running a coffee shop? Fine Dining TV created an in-depth video revealing the secrets of running of coffee shop – from sourcing beans to making an espresso:
Many people open a coffee shop without really knowing what’s involved or having the experience needed to get off to a good start.
If you’ve never worked in catering or the food services industry, it’s a good idea to get some experience working in someone else’s coffee shop first.
This will help you understand the scale of the work involved, as well as learn the ropes in terms of suppliers opens in new window, marketing opens in new window and how to serve customers opens in new window.
The good news is you don’t need any specific qualifications to run a coffee shop, although courses on general business skills such as bookkeeping opens in new window and marketing along with key topics such as catering and food hygiene are a good idea.
Barista training is important, even if you plan to hire someone else to make coffee, and having a good knowledge of coffees, brewing, beans and the entire coffee making process is useful.
If setting up your own independent coffee shop sounds daunting, consider a franchise instead opens in new window.
Many big brand coffee chains including Costa and Starbucks operate as franchises.
For a franchise fee and ongoing royalties, you can buy the rights to use the established business’s name opens in new window, trademarks opens in new window, business model and products – in this case coffee.
With the support of a known brand and training on how to set up your coffee shop, deal with suppliers opens in new window, hire and manage staff opens in new window, a franchise offers a less risky entry into the coffee shop business.
Learn more about the costs involved in buying a franchise.
Coffee shop ideas – create the right proposition
Unlike restaurants, coffee shops rely on passing trade, often catering for office workers during the week or busy shoppers at the weekends.
This means there’s less need to come up with a truly unique concept, although it’s worth deciding on a proposition opens in new window that helps your coffee shop stand out from the crowd.
Coffee shop concepts tend to fall into two camps – those offering quick and convenient service for customers on the go, or places to hang out in for an hour or two.
The quality of your coffee can also be a differentiator, with artisanal coffee a big trend for independent coffee shops.
The better tasting your coffee, the more return customers you’ll get opens in new window.
Using high-quality beans and speciality brews can give your coffee shop a distinct advantage.
Decide on the type of coffee shop you want to open
Are you looking for a cosy den with squashy sofas or a high-tech, stylish urban feel?
Your target customers opens in new window, location and nearby competition will influence this and it will also impact location, floor plan, interior design and marketing.
Don’t fix on the concept however, before working out costs and profit margins opens in new window, and you may need to adapt your plans to suit available premises.
Watch this: Need some inspiration and straight-talking advice on opening an independent coffee shop?
CafeLondon spent several months talking to coffee shop start ups to get the low down on the highs and lows of running an independent coffee shop:
Size and layout matter. A coffee shop with lots of tables and comfy sofas as well as extras such as free wi-fi and newspapers may end up filled with customers nursing one cup of coffee for hours – which won’t help you meet your operational costs opens in new window.
Successful coffee shops often concentrate on serving takeaway customers, and have only a small number of not-too comfortable tables and bar stools.
You can serve far more takeaway customers who pay the same as sit-in customers, just with lower overheads opens in new window.
How to choose the perfect coffee shop location
Location is fundamental to the success of your coffee shop, and works in tandem with your business concept.
Most people pick a coffee shop for its convenience while they’re out-and-about, which mean premises near offices, shopping areas and train stations provide the levels of footfall you need for a good profit.
But securing suitable premises in a desirable location without astronomical rents is tough.
As a good rule of thumb, if the rent and rates opens in new window are more than 15% of your projected sales, it will be tricky to make a profit.
If you can’t negotiate the rent downwards, walk away and look for less-expensive premises nearby.
Be prepared to think small if it gets you a good location: a small kiosk in a train station concourse has the potential to be far more profitable than a large shop in a suburban shopping parade.
Property sites such as Rightmove have commercial property sections allowing you to view potential sites that could be suitable for a coffee shop.
How to find and hire coffee shop staff
Hiring and managing staff opens in new window is one of the biggest challenges in running a coffee shop.
You’ll need reliable, hard-working and friendly staff to give a warm welcome to customers.
Start recruiting early opens in new window on before you open for business, and use social media and local press to advertise for staff.
Focus on a candidate’s interpersonal skills as much as their food or coffee preparation knowledge and experience – as good customer service is vital to ensure return customers.
Provide barista training if needed and other forms of training opens in new window.
A buddy system where new staff shadow an experienced employee for a week or two when they start is a good idea.
Consider hiring extra staff to cover busy, peak periods such as lunchtimes.
As an employer, you’ll need to pay employer’s tax and National Insurance contributions, and holiday pay whose aount will depend on hours and your terms of employment.
Contact HM Revenue and Customs opens in new window for more information.
Read our first time employers guide to hiring staff opens in new window for more advice.
How much does starting a café business cost?
Setting up a coffee shop isn’t cheap.
Start-up costs typically run from between £20,000 to £100,000 depending on the size, style and location of your coffee shop.
Money will need to be spent on rent, rates, refit, furniture and fixtures opens in new window, equipment, staff, food and drinks.
It’s easy to overspend opens in new window on fitting out your coffee shop.
Focus on return on investment, spending only on the things you absolutely need.
Buy second-hand furniture and equipment or lease them to keep costs down.
Commercial espresso coffee machines can cost anywhere from £1,500 to £10,000, whereas you can often lease them for as little as £5 per day.
You’ll need a coffee grinder, barista kit, knock-out drawer and possible a water softener too depending on your location.
A commercial grade dishwasher is essential.
After rent, food and drinks, staff will be your biggest cost opens in new window.
Aim to keep staff costs to less than 35 percent of turnover, and in any case staff costs should not exceed 50% of your total overheads.
Allow for expenses including business and contents insurance opens in new window, supplies, licenses and permits, utilities such as electricity and gas, marketing, repairs and maintenance.
Don’t ignore the administrative side of your business.
Make sure you understand your responsibilities for paying income tax opens in new window, VAT opens in new window, national insurance along with your rent and business rates.
Read our guide to business tax opens in new window for more information.
Many people invest their own savings in their new coffee shop venture but there are alternative sources of funding available opens in new window.
You can borrow up to £25,000 as an unsecured loan via Start Up Loans opens in new window.
Find out the difference between a secured vs unsecured business loan opens in new window.
Create a coffee shop business plan
A business plan is essential and will help you secure funding for your restaurant.
It should forecast how you’ll grow your business over a three-year period and include the following:
- Coffee shop concept – summary explaining what your coffee shop offers and why it is different compared to nearby competitors.
- Target customers – a snapshot of your customers and what they are looking for, such as kids activity packs for weekend family shoppers.
- Coffee menu – details of the coffee you’ll be offering, including types such as Americano and the beans you’ll use
- Start-up funding – how much funding your coffee shop needs, including interest repayments.
- Competitor analysis – details of local competitors, including number of customers they serve at different times of day.
- Marketing plan – a marketing strategy showing how you’ll advertise your restaurant and the expected ROI for your marketing spend. Consider loyalty cards opens in new window that give a free coffee after buying a certain number, or offer buy one get one free discounts to new customers.
- Overheads – details of all costs including staff, premises, utilities and both fixed and variable costs
- Financial forecasts – Forecast revenue projections opens in new window, costs and the assumptions you’ve made.
Create the perfect business plan with our free guide and template. opens in new window
Food safety regulations when opening a coffee shop
Running a coffee shop requires a thorough understanding of the food safety regulations.
You must register with the environmental health service at your local authority at least at least 28 days before you start trading at your coffee shop – even if you are taking over an existing business.
Registration is free and can be done online at Gov.uk. opens in new window.
Environmental health officers make regular inspections of coffee shops and have the power to fine or close down your business if you fail to adhere to food safety laws.
The Food Standards Agency (FSA). opens in new window, the government body that regulates food safety in the UK, offers lots of guidance for those starting a food business.
Safer Food, Better Business leaflets opens in new window details the key requirements for serving and preparing food and drink.
Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or its subsidiaries or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.
