A coffee shop, coffee café, or coffee bar, is a small, informal restaurant where coffee and light refreshments such as light snacks, sandwiches, muffins, fruit, or pastries are served to customers. It is also a place where coffee lovers meet to network and socialize.
Please note that coffee shops are part of the specialty eatery industry, which also includes outlets specializing in products such as bagels, donuts, frozen yogurt, and ice cream. The most recent report released by IBISWorld shows that the market size of the Coffee & Snack Shops industry in the US has grown 2.8 percent per year on average between 2017 and 2022.
The Coffee Shops market in the U.S. is estimated at US$35 Billion in the year 2020. China, the world’s second-largest economy, is forecast to reach a projected market size of US$12 Billion by the year 2027 trailing a CAGR of 6.3 percent over the analysis period 2020 to 2027.
Steps on How to Start a Coffee Shop Business
Table of Content
Conduct Market Research
Conducting market research before starting any business is key to the success of the business hence you must not open a coffee shop without conducting market research. This is so because market research provides critical information about your market and your business landscape.
It can tell you how your business is perceived by the customers and clients you want to reach. It can help you determine who and where your customers are, and which customers are most likely to do business with you. In essence, thorough market research will give you the ability to understand how your target customers think.
a. Who is the Target Market for Coffee Shop Business?
If you are thinking of opening a coffee shop then you should make target demographics all-encompassing. It should include corporate executives, socialites, students, entrepreneurs, celebrities, sportsmen and women, tourists, and every adult in the neighborhood where your coffee shop will be located.
b. Is Coffee Shop a Profitable Business?
Yes, the coffee shop business is very profitable because approximately 50 percent of the US population over the age of 18 drink different types of coffee daily. Plus, the annual sales of coffee shops equal $12 billion. Besides, the number of coffee shops in the US is expected to increase to 50,000+ in the future.
c. Are There Existing Niches in the Industry?
Yes, there are existing niches when it comes to coffee shops, and here are some of them;
- Brick and mortar coffee shop or coffee café or coffee bar (sit-down coffee shop)
- Drive-through coffee shop
- Kiosk coffee shop
- The Grab-and-Go café
- Upscale coffee shop
- Mobile coffee shops (coffee carts or coffee trucks)
d. Who are the Major Competitors?
- Starbucks™ Coffee!
- Costa Coffee™
- Bewley’s (The oldest coffee house in the world)
- Everyman Espresso, New York
- Go Get Em Tiger, Los Angeles
- Saint Frank’s, San Francisco
- Ultimo Coffee, Philadelphia
- Peregrine Espresso, Washington, D.C.
- Joule Coffee, Raleigh, N.C.
- Milstead & Co., Seattle
- Panther Coffee, Miami
- PT’s at College Hill, Topeka, Kansas.
- Condesa Coffee, Atlanta
- Artifact Coffee, Baltimore
- Anodyne Coffee Roasters, Milwaukee
- Little Collins, New York
- Heart, Portland, Oregon.
- Café Grumpy, New York
- Ritual Coffee Roasters, San Francisco
- Colectivo Coffee, Milwaukee
- Spyhouse Coffee, Minneapolis.
e. Are There County or State Regulations or Zoning Laws for Coffee Shop Business?
Yes, there are county and state regulations and zoning laws for coffee shops in the United States. Please note that the Food and Drug Administration (FDA) sets the federal Food Code. However, the FDA doesn’t oversee individual coffee shops. Instead, the various states use the Food Code as the basis for their food codes. They may adopt its rules, interpret them differently or set their own rules.
Please note that in the United States, you are required to follow your own state’s food service code. Visit the FDA website for a list of food service codes by state. Use this to find the state authority handling restaurants and bars and view the laws that apply in your state.
f. Is There a Franchise for Coffee Shop Business?
Yes, there are franchise opportunities for coffee shops, and here are some of them;
- Aroma Joe’s Coffee – (Total initial investment: $256,500 to $702,000)
- Maui Wowi Hawaiian Coffees and Smoothies – (Total initial investment: $63,900 to $554,000.)
- Dunkin’ (Previously Dunkin’ Donuts) – (Total initial investment: $395,500 to $1,597,200.)
- The Coffee Bean and Tea Leaf – (Total initial investment: $183,250 to $615,500.)
- Scooter’s Coffee – (Total initial investment: $331,000 to $638,000.)
- Cafe2U – (Total initial investment: $109,146 to $154,621.)
- Biggby Coffee – (Total initial investment: $186,850 to $369,100.)
- Dunn Brothers Coffee – (Total initial investment: $385,200 to $609,600.)
- Coffee Beanery – (Total initial investment: $185,000 to $472,500.)
- Cafe Barbera – (Total initial investment: $187,000 to $305,000.)
g. What Do You Need to Start a Coffee Shop Business?
- A Feasibility Report
- Business and Marketing Plans
- Business Licenses and Permits
- A Good Shop facility
- EIN (Employer Identification Number)/Federal Tax ID Number.
- A Corporate Bank Account
- Equipment (coffee machines, coffee cups, and spoons et al)
- Startup Capital
Memorable Coffee Shop Business Names
- The Queens© Coffee Shop, Inc.
- Philadelphian Connect® Coffee Café, LLC
- Moris Jackson© Coffee Bar, Inc.
- Coffee Solutions® Coffee Café, Inc.
- Mason Gray™ Coffee Shop, Inc.
- Like Minds™ Coffee Café, LLC.
- Brown Sugar© Coffee Shop, LLC
- Jonny Moore® Coffee Café, Inc.
- Coffee Mamia© Coffee Shop, Inc.
- Anthonio© Coffee Café, Inc.
- Jeff Levi and Sons® Coffee Bar, LLC
- Cally Benton® Coffee Bar, LLC
- Emily Elton™ Coffee Café, LLC
- Tyler Benston© Coffee Shop, Inc.
- The Place® Coffee Café, Inc.
- Santos Marcos™ Coffee Café, Inc.
- Golden Cups™ Coffee Bar, Inc.
- Mexican Zone© Coffee Café, Inc.
- One Stop® Coffee Bar, LLC
- Fritz Greene™ Coffee Shop, Inc.
Register Your Business
a. What Type of Business Structure is Best for Coffee Shop?
The truth is that you have several options when it comes to the business structure of a coffee shop, but the one that most players in this line of business consider is an LLC. It is common to consider an LLC because providers want to protect themselves from lawsuits. Please note that an LLC will need an EIN if it has employees or if it will be required to file any of the excise tax forms listed below.
b. Steps to Form an LLC
- Choose a Name for Your LLC.
- File Articles of Organization.
- Choose a registered agent.
- Decide on member vs. manager management.
- Create an LLC operating agreement.
- Comply with other tax and regulatory requirements.
- File annual reports.
c. What Type of License is Needed to Open a Coffee Shop Business?
- General Business License
- Health and Safety Permit
- Food and Drinks Handlers’ License
- Zonal Permits
- Signage Permit
- Operational State Facility Inspections
- A music license if you want to play live, recorded, or streaming music in your bar or restaurant
- A dumpster placement permit that specifies where you can put your trash dumpster outside your bar or restaurant
- A valet parking permit if you plan to offer valet parking for customers
- Sidewalk permits if you plan to offer outside seating
d. What Type of Certification is Needed to Open a Coffee Shop Business?
You don’t need any certifications to open a coffee shop business.
e. What Documents are Needed to Open a Coffee Shop Business?
- Business and liability insurance
- Federal Tax Payer’s ID
- State Permit and Building Approval
- Certificate of Incorporation
- Business License
- Business Plan
- Employment Agreement (offer letters)
- Operating Agreement for LLCs
- Insurance Policy
- Contract Document
- Company Bylaws
- Memorandum of Understanding (MoU)
f. Do You Need a Trademark, Copyright, or Patent?
If you are considering opening a coffee shop business, usually you may not have any need to file for intellectual property protection or trademark. This is because the nature of the business makes it possible for you to successfully run it without having any cause to challenge anybody in court for illegally making use of your company’s intellectual properties.
Cost Analysis and Budgeting
a. How Much Does It Cost to Start a Coffee Shop Business?
To be truthful, the cost required to open a coffee shop business may vary significantly. A sit-down coffee shop costs between $200,000 and $375,000 to set up. A large drive-through shop can cost between $80,000 and $200,000. A small kiosk coffee shop may cost between $25,000 and $75,000. A franchised sit-down coffee shop can cost up to $673,700.
b. What are the Costs Involved in Starting a Coffee Shop
- The total fee for registering the business in the United States of America – is $750.
- Legal expenses for obtaining licenses and permits as well as the accounting services totaling – $1,200.
- Marketing expenses (2,000 flyers at $0.04 per copy) for the total amount of $80.
- The cost for hiring a business consultant (writing of business plans inclusive) – $2,500.
- Insurance coverage at a total premium of – $2,400.
- The cost of accounting software, CRM software, and payroll software – $1,500
- The cost for payment of rent for 12 months at $1.76 per square foot in the total amount of – $35,600.
- The cost for shop/facility remodeling – $25,000.
- Other start-up expenses including stationery – $500
- Phone and utility deposits will cost – ($2,500)
- Operational cost for the first 3 months (salaries of employees, payments of bills et al) – $30,000
- The cost for start-up inventory – $16,027
- Storage hardware (bins, utensil rack, shelves, glasses case) – $3,720
- The cost for counter area equipment (countertop, sink, ice machine, etc.) – $6,000
- The cost for serving area equipment (glasses, flatware) – $3,000
- The cost for store equipment (cash register, security, ventilation, signage) – $3,150
- The cost for the purchase of office furniture and gadgets (Computers, Printers, Telephone, TVs, Sound System, tables and chairs et al) – $8,000.
- The cost of launching an official website – $600
- The cost for our opening party – $3,000
- Miscellaneous – $2,500
c. What Factors Determine the Cost of Opening a Coffee Shop Business?
- The size of the coffee shop
- The choice of location
- The required licenses and permits
- The type of facility
- The type of coffee and related products retailed in the shop
- The cost for branding, promotion, and marketing
- The cost for furnishing and equipping the coffee shop
- The cost of insurance policy covers
- The cost for registering the business
- Source of your supplies and ongoing expenses
- Cost of recruiting and training your staff
- The cost for the purchase and customizing of uniforms
- The cost for the grand opening of the coffee shop business
d. Do You Need to Build a Facility? If YES, How Much Will It Cost?
It is not compulsory to build a new facility for your coffee shop business, but if you have the required finance, it will pay you to build your facility. The truth is that building or reconstructing a facility help you come up with a facility that will fit into your overall business goals and vision.
e. What are the Ongoing Expenses of a Coffee Shop Business?
- Supplies (inventory expenses)
- Utility bills (internet subscriptions, phone bills, signage and software renewal fees et al)
- Salaries of employees
f. What is the Average Salary of your Staff?
- Shop Manager (Owner) – $45,000 Per Year
- Accountant – $30,630,000 Per Year
- Bartender (Baristas) – $27,100 Per Year
- Cleaners – $25,000 Per Year
- Security Guard -$24,000 Per Year
g. How Do You Get Funding to Start a Coffee Shop Business
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Sell shares to interested investors
- Applying for a loan from your bank/banks
- Source for soft loans from your family members and friends.
Write a Business Plan
a. Executive Summary
Our coffee shop business is a neighborhood coffee shop business that will be located in a fast-growing community in New York City, New York. We have been able to secure a one-year lease of a vacant shop within the city’s largest shopping mall. We are fortunate to secure a facility with an option of renewal for 5 years at a rate that is favorable to us.
Our coffee shop business is designed to meet both the health and safety standards as recommended by the local authority. Our customers are going to be treated with good music at all times.
b. Products and Service
- Coffee beverages served in different forms (cappuccino, espresso, iced coffee, decaffeinated coffee, alcoholic coffee (Irish Coffee and Brandy Coffee et al), filtered coffee, cold brew coffee, Turkish coffee, coffee with milk, coffee or espresso with whipped cream, and flavored coffee et al.
- Drinks and water.
c. Mission Statement
Our mission is to establish a coffee shop that will make available different types of coffee in the United States to our highly esteemed customers, and a place where people can freely network and socialize.
Our vision is to establish a standard coffee shop business in New York City that will be the melting pot of all lovers of coffee in the city.
d. Goals and Objectives
The goals and objectives of a coffee shop business are to provide a retail outlet where patrons can go to buy and drink coffee.
e. Organizational Structure
- Shop Manager (Owner)
- Bartender (Baristas)
- Security Guard
a. SWOT Analysis
- Ideal location for a coffee shop business
- Highly experienced and qualified employees and management
- Access to finance from business partners
- Availability of different types of coffee.
- A reliable and efficient method of preparing coffee.
- Financial constraints may restrict the publicity and branding of the business
- A new business that will be competing with well-established coffee shops and coffee franchises in the city.
- Inability to retain our highly experienced and qualified employees longer than we want during the teething stage of the business.
- A rise in the number of coffee lovers within our market space
- Online market, new services, new technology, and of course the opening of new markets.
- The arrival of a new coffee shop within our market space
- Steady wage expenses and increasing prices of gas amid the low demand during the pandemic will reduce industry profitability.
- Economic uncertainty
- Liability problems
- The U.S. Food and Drug Administration (FDA) could change its regulatory status and decide to enforce strict regulations that can strangulate new businesses like ours.
b. How Do Coffee Shops Make Money?
Coffee shops make money by selling the following products;
- Coffee beverages like (cappuccino, espresso, iced coffee, decaffeinated coffee, alcoholic coffee (Irish Coffee and Brandy Coffee et al), filtered coffee, cold brew coffee, Turkish coffee, coffee with milk, coffee or espresso with whipped cream, and flavored coffee et al.
- Drinks and water.
c. Payment Options
- Payment via bank transfer
- Payment with cash
- Payment via credit cards/Point of Sale Machines (POS Machines)
- Payment via online bank transfer
- Payment via check
- Payment via mobile money transfer
d. Sales & Advertising Strategies
- Introduce your coffee shop business by sending introductory letters alongside your brochure to corporate organizations, households, sports organizations, gyms, schools, socialites, celebrities, and other key stakeholders throughout the city where your coffee shop business is located.
- Advertise on the internet on blogs and forums, and also on social media like Twitter, Facebook, LinkedIn to get your message across
- Create a basic website for your business to give your business an online presence
- Directly market your products.
- Join local coffee shop associations for industry trends and tips
- Provide discount days for your customers
- Advertise your business in community-based newspapers, local TV and radio stations
- List your business on yellow pages ads (local directories)
- Encourage the use of word-of-mouth marketing (referrals)
a. How Much Should You Charge for your Product/Service?
An average cup of coffee costs $2.70. The average price of a Starbucks drink in the U.S. is $2.75, but New York City is the most expensive location coming in at $3.25 for a tall cappuccino. And if you go for a decadent seasonal beverage with all the bells and whistles, it can run you over $5.
b. How Much Profit Do Coffee Shop Owners Make a Year?
It depends, but the available report shows that on average, within the industry, a small to medium-sized coffee shop can earn anywhere from $60,000 to $160,000 in personal income for the shop owner.
c. What Factors Determine the Amount of Profit to Be Made?
- The capacity of the coffee shop
- The types of coffee and other products retailed in the shop
- The location the coffee shop is covering
- The management style of the coffee shop
- The business approach of the coffee shop
- The advertising and marketing strategies adopted by the coffee shop
- The number of years the coffee shopis in business
d. What is the Profit Margin of a Coffee shop?
The profit margin of a coffee shop is not fixed. It could range from 25 percent to 45 percent.
e. What is the Sales Forecast?
Below is the sales forecast of a coffee shop. It is based on the location of the business and other factors as it relates to such startups in the United States;
- First Fiscal Year: $320,000
- Second Fiscal Year: $450,000
- Third Fiscal Year: $540,000
Set Up your Shop
a. How Do You Choose a Perfect Location for Coffee Shop?
- The demography of the location especially as it relates to people that drink coffee regularly
- The demand for the coffee and related products offered by coffee shops in the location
- The purchasing power of businesses and the residents of the location
- Accessibility of the location
- The number of coffee shops, and restaurants that serves coffee in the location in the location
- The local laws and regulations in the community/state
- Traffic, parking and security et al
b. What State and City are Best to Open a Coffee shop?
- Las Vegas, Nevada
- Los Angeles, California
- Brattleboro, Vermont
- Tucson, Arizona
- Silver Spring, Maryland
- Rowland Heights, California
- Portland, Oregon
- Richmond, Virginia
- Green Bay, Wisconsin
- New York City, New York
c. What Equipment is Needed to Operate a Coffee shop?
Before you can open a coffee shop, you should budget and buy chairs and dining tables, a commercial espresso machine, automatic drip coffee maker, industrial grinder, refrigeration system, pumps and containers, toasters, ovens, and other cooking equipment, freezers, commercial blenders, storage hardware (bins, rack, shelves, food case), counter area equipment (countertop, sink, ice machine, etc.),
(Flat Screen TVs, sound system, DVD players, Pianos, Satellite dish and decoder, furniture (table, stools, and sofas), telephones, filing cabinets), store equipment (cash register, security, ventilation, signage), serving utensils (plates, ashtrays, glasses, flatware) and fancy lightening amongst others.
When it comes to hiring employees for a standard coffee shop, you should make plans to hire a competent shop manager (you can occupy this position), account clerk, baristas and bartenders, cleaners, and security guard.
Launch the Business Proper
In recent times, no coffee shop opens its door for business without first organizing an opening party to officially launch the business. You can choose to do a soft opening if you are operating on a low budget or you can go for a grand opening party. The bottom line is that with a proper launching of the coffee shop, you will be able to officially inform people that your coffee shop is open for business.
a. What Makes a Coffee Shop Business Successful?
- Choose a good location and shop facility to launch the business
- Make sure your shop is well stocked with different types of coffees (give your customers options)
- Throw a party before officially opening the coffee shop
- Be deliberate with your marketing sales approach
- Encourage the use of word of mouth to promote your coffee shop business
- Leverage on all available online and offline platforms to promote your coffee shop business
b. What Happens During a Typical Day at a Coffee shop?
- The shop is open for the day’s work
- The serving areas, chairs, and tables are properly arranged
- Walk-in customers are attended to
- Deliveries of orders are made
- Stocks are taken and reports are written and submitted to superior officers
- The business is closed for the day.
c. What Skills and Experience Do You Need to Build a Coffee Shop Business?
- Excellent customer services skills
- Interpersonal skill
- Accounting and bookkeeping skills
- Business management skills
- Bargaining skill
- Work experience in a restaurant or bar environment
- Experience in managing people
- Experience in business administration
- Experience in identifying and making different types of coffees
- Experience in handling different types of coffee-making machines.