Cafs: Why do most caf startups fail?

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Latest activity 20 May
Peter Baskerville, Founded and managed over 20 cafes and... (more) This question has 2 monitors with 1301226
Votes by Bulat Bochkariov, Arthur Kougias, Eva Michalcak, and 281 more. topic followers.
If only people understood the truth that most cafe startups fail - then they may not 19888 people have viewed this question.
be so tempted to indulge their fantasy in the first place. Failure, not so much in 273 people are following this question.
terms of 'closing the doors', but failure as a business concept to reward
owner/managers to the same level as what their capital and time would secure
from a combination of bank interest and 'working for the man'.

For me, the #1 reason why startup cafes fail to achieve economic sustainability, is
the endless supply of amateurs that fall victim to the siren's enticing call 'to own
our own cafe/restaurant'. These people have no idea about how to price products
that are capable of giving the owner/manager a competitive return for their long
hours worked and a competitive return on their substantial investment. But their
less-than-sustainable prices keeps even the good cafe operators from getting
reasonable returns in the industry. So, as the rotating door of new entrants replace
the outgoing haggared failures, prices remain for all participants below what is
required for the industry to be a sustainable and worthwhile investment. Sure, you
can extract a wage from your cafe investment but 'buying a job' is hardly the stuff
of sustainable business models.

So apart from that general industry issue with price sustainability, the pitfalls that
you can make all by yourself are listed below. Having founded and managed over
20 cafe/restaurant outlets myself, I know they are pitfalls because I have fallen into
them all.
Compliance fear - Being so overawed by the myriad of compliance issues
surrounding food service that you rush into the waiting arms of fear-mitigating
advisers who can single-handedly wipe out your budget and ability to spend
money where it matters most. (i.e. customer experience and marketing). The
cost of compliance at the outset can cripple a cafe in such a way that they
never really recover.
Kitchen rules too much - Same goes for over investing in a state-of-the-art
kitchen rather than the customer experience in the 'front of house'. Beware the
chef who thinks that 'food art' is more important than consistently reliable,
quick and friendly service.
Poor ergonomics in design - With a low average unit sale, cafes need to
process thousands of transactions per day to be sustainable. If the coffee

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Cafs: Why do most caf startups fail? - Quora 6/8/13 12:51 PM

making area is not ergonomically designed, the order taking and payment
system is not efficient and effective and the food production requires lots of
human movement then your cafe's physical service limit may curb your ability
to reach sustainability, not to mention the huge wages bill poor ergonomics can
create.
Coffee only - Coffee has great gross profit margins however you don't pay the
rent in percentages - you pay it in dollars. Cafes with a coffee only/mostly
strategy can be very busy all day, but still not generate enough gross profit
dollars to pay for all the costs. A cafe must have a 'coffee plus' strategy at the
outset if it is going to secure sufficient turnover to be sustainable. i.e. coffee
plus bakery item or food item that is conveniently located to the coffee service
area.
Too wastage focus - Many newbies to the food game are horrified by the
wastage that is inherent in a well run cafe. So, they begin to reduce the amount
of product on display or they hold on to food items longer than they should.
Trouble is, you will never build your business to sustainable levels if the shelves
are scant and customers experience even the hint of stale food. In fact, you
begin the slow spiral slide into failure.
Too profit focused - Similar to wastage focus, a profit focus too early tries to
screw suppliers on price rather than concentrate on building the more important
partnership relationship and reliable delivery and being overtly stingy with
portion sizes and worrying too much about the profit in the sale and not
worrying enough on 'winning the customer' (acquisition style). 'Make the
customer not the sale' is an important startup catch phrase as is the truth that
'you can go broke being obsessed with profit'.
Poor staffing - Cafes don't just sell food/drink ... they sell stress relief,
belonging, recognition, feel good, connection and many other intangible value-
add benefits that only come from how you and your staff engage with the
customers. The cafe with the staff that make a feature out of remembering
customer names, their standard orders and yesterday's discussion succeeds,
while those that don't fail. Customers in cafes may soon forget what you sold
them but they will never forget how you made them feel.
Too wide an offer - Many startup cafes offer too much choice when the
customer is basically just hungry and thirsty. Wide assortment offers are difficult
to manage and can increase costs and lead to poor quality outcomes that lead
to lost sales and lost customers. Better to be 'inch wide - mile deep' when
determining assortment offers in cafes.
Unsuitable location - I agree with Jason Nuss that an unsuitable location can
be the single biggest reason why cafes fail. I have had one fail with too much
unfocused traffic (train station) and too little attention traffic (down a lane). My
best 'A' location cafes served a static, high density clientele during week days
which was also on a busy tourist route during weekends.
Poor pricing strategy - Cafes are already struggling with industry prices that
make the establishment of a sustainable business difficult. Add to this some
poor pricing strategies and you set up a guaranteed failure. For example,
discounting your espresso coffee price to 'get business' when it is the one
product that is least price sensitive if the quality is high. Also, charging an
average price for products or basing the selling price on costs rather than on
market expectation. Sustainable cafe pricing needs to be built on clever
'subjective margins' see here What are some examples of products or services
that are priced by value rather than by cost?
That's not all the reasons why most cafe startups fail but it's a good start. I will
come back and add to this list as the failures of my past come back to haunt me. I
have now updated my answer here with the sequel, What's the secret to a
successful coffee shop? and added my thoughts to the related question What is it
like to own/run a coffee shop?

CLICK HERE to read all my Quora answers on the coffee topic

285
Via Jarrod Cugley.
12+ Comments Share (11 ) Thank Report 27 Oct, 2011

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Cafs: Why do most caf startups fail? - Quora 6/8/13 12:51 PM

Jonas M Luster, trimethylxanthine addict

Votes by Miguel Paraz, Brian Roemmele, Shan Kothari, and 36 more.
There are three areas we need to look at: general business pitfalls, hospitality
business pitfalls, and specific caf related ones.

Most anything that is true for the hospitality business is true for cafs as well.

"feature creep". The "come on, mami, just one more dish" trap. There is a fine
line between having what the customer wants and having things they'd never
buy in a cafe. Sandwiches, cakes, pastry, etc. are secondary products that not
only require additional appliances like coolers but also require training your
employees differently. Some cafs never manage to find that sweet spot, losing
money either by having too little or too much secondary product.
Hospitality employees aren't the best paid ones in the world. In fact, it's more
beneficial, financially, to work at McDonalds as opposed to an independent
caf.
Worse, you're not only competing with Starbucks, Peets, Seattle's Best,
Dunkin' Donuts, etc. for customers, you're also competing for employees.
Starbucks makes it a little easier since they're not hiring visibly tattooed baristas
(sleeve tattoo, primo material for a coffee seller), but you're competing with
ESPP, 401(k), 26 days of paid vacation, college and education assistance,
Write Homeday Coni
care assistance, dental and vision plan, and more. What you're getting are the
people who either can't (tattoo, attitude, too smart, has values) or won't (has
values) work at a chain caf.
The "it's just a caf, what can go wrong?" trap. As I wrote in numerous answers
to questions concerning the restaurant and bar business, we're paid to make
things look easy and keep the pain away from our customers. Many a caf
owner jumped into this business thinking all it was was pouring java into cups.
And then labor laws, food regulations, local issues, unions, competitors, and
more rear their ugly heads.
Along those lines, "it's just a caf" doesn't absolve anyone from having a solid
business plan, financial reserves and planning, contingency plans, and a clear
slate to start with. I've seen many restaurants fail over idiotic little things like not
having six months of operating capital, a broken coffee maker and no money to
buy a new one, or flimsy plans that change every week, leaving employees and
customers wondering and confused.

Many independent cafs are centers of counter- and subculture. That has to end at
the counter, behind those lines a caf is just another business, just another deluge
of rules, regulations, money transfers, and employee drama.

Coffee is a high margin item, no doubt about it, but it's a nickel-and-dime product.
Selling 60 covers at a margin of 8% might pay for my restaurant's daily needs, 60
cups of joe at 60% don't payroll, product, and rent make. So you have to be
nimble, fast, and serve massive amounts every day. The only way this will happen
is through well trained employees, focused marketing, attractive prices and
product, and daily business decisions.

The best way to avoid those traps is to learn from successful restaurants and cafs
and to know one's limitations. It's still a feasible industry to start up in if one does
not succumb to the illusion of ease.

Via Brian Roemmele.

Comment Share (1 ) Thank Report 28 Oct, 2011

Helen Ryles
9 Votes by Handowo Dipo, Jarrod Cugley, B. Sullivan, and 5 more.
The blog post linked below suggests that people often mistake their enjoyment for
something with a desire to own / run a similar type of business. This is especially
true of cafes/coffeeshops. It explains that people often fall in love with the idea of
the business and not the day to day work that running a successful retail location

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