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Oct 21, 2007 03:21 PM

Do cafes make any money?

If you opened a cafe in a neighborhood that seems like it really needs one, do you think you could make any money? I mean, I go in cafes and see people sitting all day after spending like $3, and I wonder how they stay in business?

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  1. I don't think the "book type" make all that much if the atmosphere lends itself to customers who linger over coffee and little else. Some places are now posting a minimum 'cover' and I was at one recently that had a carefully worded sign that asked customers to please be considerate to those waiting for tables (worded more tactfully) . There are high end cafe's that have pricey items, a la Starbucks types
    There seems to be a rather high turnover RE: Cafes which, in itself, probably answers your OP far more pointedly than any CH'ers could

    1. I think that most restaurants, be they cafes or high-end eateries, need to plan to actually lose money for the first couple of years. If they make it through that, they might start to see a profit. There's a lot of initial investment that far too many small business owners do not plan for, which is why so many restaurants die early.

      1. Cafes have been standard institutions all over Europe for quite a few centuries now, haven't seen them added to any endangered species list. Rent, payroll & other expenses aren't any cheaper either. It seems they're slowly creeping into this side of the pond.

        7 Replies
        1. re: RicRios

          Many European cafe building locations are owned by the family that runs the cafe.
          That isn't the case here.

          1. re: Tay

            Property ownership has nothing to do with business viability.

            If family business operates in same family's property, and business is unproductive, they either sell the business, the property, or both.

            1. re: RicRios

              If you own the building in which your business is located, the cost for your space is fixed. The costs that will escalate are maintenance, insurance and taxes.
              If you lease the space, the landlord can, and likely will, increase the rent as property values increase. Most leases require pass-throughs for property taxes and some insurance. Tenants are responsible for maintenance and some insurance.
              Most commercial leases include automatic increases and escalator clauses. At the end of each lease period, a new lease must be negotiated, generally at a higher rate. There is no guarantee that a landlord will renew a lease.
              Many leases are for raw space only and the tenant is responsible for the entire build-out which, of course, he can't take with him at the expiration of the lease, nor can he sell to a succeeding tenant, unless he sells the business with the leasehold with the approval of the landlord in which case the landlord often reserves the right to renegotiate the lease.

              1. re: MakingSense

                Plus: the family lives upstairs. So an additional source of out-go is eliminated.

                1. re: Chuckles the Clone

                  I hadn't known until a few years ago that the US system of mortgage loans wasn't common in most of the world. Many people abroad would own their buildings free and clear and, in some cases, would have owned the building for many generations.
                  The economics of many European restaurants and caf├ęs are very different than in the US. Family members working in places change the bottom line. More chef/owners, fewer chains. I suppose the apprentice system for restaurants changes things as well.

                2. re: MakingSense

                  this is excellent info for thought--here's another tidbit--most of your profit is on drinks--coffees/juices/sodas--the way to make more money on food is produce more via having a commissary kitchen and more than one location for your cafe (which of course means having more start up money.) You could open one cafe, get a name going for yourself and then start to invest in others. Single cafes are often passion projects. (I have owned one and sold it a profit.)

            2. re: RicRios

              Most European cafes get to serve alcohol, allowing them to survive.

            3. I worked for a cafe that would have a few popular menu items that were pure profit for them so they ended up making a tidy profit at the end of the day despite the people who ordered very little. In other words, the non lingerers make up for the lingerers.

              1 Reply
              1. re: free sample addict aka Tracy L

                i imagine something similar... coffee is often a take-out kind of item for many people. a new coffee shop opened up nearby and is easily my favourite, but when i sat down in the huge and empty room save for a couple others... i easily see near a dozen people stroll in, make an order and take it to go as i sip along.

              2. Well, that $3 latte costs something like 25 or 50 cents to produce, so as long as you sell lots of coffee, you're probably OK, unless the business is mismanaged. Are you talking about coffeeshops with a few pastries, or more casual quick-service hot food places?

                6 Replies
                1. re: babette feasts

                  Maybe 25 to 50 cents for ingredients. But the restaurant has to pay for the store space, utilities, advertising, employees salaries, taxes, insurance, FICA, unemployment comp, workers comp, cleaning, cups and supplies, tables and chairs, possibly WiFi, security, credit card and other bank charges, and a plethora of other business expenses.
                  If they make 25 to 50 cents, they're lucky.

                  1. re: MakingSense

                    Yes, they do make $$$....number ONE factor to remeber when opening/starting/buying a cafe is LOCATION.....just like with realestate.....all the other factors (menu, decor, size, etc) are secondary.....

                    1. re: MakingSense

                      Of course, as does any business. My point was that there is a much higher profit margin on coffee than on many other items. Food cost in restaurants is usually around 30%, so if food cost on coffee is 10%, you're pretty happy if you sell a lot of coffee. So volume is key. As a gross generalization, restaurants make their money on alcohol, cafes make their money on coffee. Plus, compared to other types of restaurants, a coffeshop can have a much lower initial investment, just an espresso machine or two, couple of refrigerators, maybe an ice machine, most places seem to get wholesale pastry so there's no oven, hood, walk-in, etc.

                      Regarding location, a friend of mine took a seminar about opening a coffee business, and was told that the best location is across the street from a Starbucks that doesn't have a drive-through, I guess the theory was that people do want to support the independents, but only if they have to get out of their car anyway. Or at least that's what this guy in PDX claims.

                      1. re: babette feasts

                        What you and Pollo point out about location is very, very true. It's possible that many successful coffee houses might pay more in real estate costs than in food costs to get the volume they need to achieve that success. Starbucks knows that.
                        Many small coffeehouses fail because they choose locations that don't provide adequate foot traffic to support the volume they need to stay in business. The location looks good but it may not be a place where people are likely to get out of their cars, linger, stop for coffee in the middle of other errands, etc.

                        1. re: babette feasts

                          I think a part of it is also what Starbucks' own market research shows. People will often, literally, not cross the street for a different cup of coffee. It's why there are so many Starbucks in blocks opposite each other or perhaps one or two blocks up but on the opposite sides of the street.

                          In Seattle, Tully's was famous for their CEO saying that their basic plan was, literally, to open a shop as close as possible to every Starbucks that opened because you couldn't beat Starbucks' market research.

                          1. re: ccbweb

                            Same for McDonald's market research. Other chains follow them on locations. McDonald's sales were up last year again since they've moved into more adult markets with coffee sales up 20% since they introduced premium coffees. Their overall US sales are up 5.1%, in Europe 8.4%.
                            They're opening more in downtown locations, business districts.