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How to start a café or coffee shop

Thinking of opening a coffee shop business idea? Startups has the ultimate guide to brewing up a perfect business in the café sector

Things you may find helpful to consider when opening a coffee shop are:

The cafe industry

Over the past couple of decades the UK has been steadily moving towards the kind of well-established café culture countries such as France and Italy are famous for. An explosion in coffee chains has left few high streets without their branch of Costa or Starbucks. As the pub industry continues to suffer heavy blows, there's a growing market for boutique and independent cafés offering an alternative place to sit and read the paper. According to research published by The Local Data Company in 2012, there are around 5,000 coffee shop brands and 5,500 independent coffee shops across the UK. Recession or not, us Brits want our coffee and we want it fast, with almost half of consumers valuing convenience of location over brand of coffee. Perhaps that's why coffee shops are opening up in such large quantities across small distances – Holloway Road, north London, holds the record with 24 along one stretch, closely followed by Gloucester Road, Bristol at 23. Plus, it's now very easy to set up a simple store or pop-up with limited equipment, taking payment on your phone using a mobile card reader.

However, quality still overrules convenience and according to Allegra Strategies, people are becoming increasingly aware of factors such as where their coffee is sourced and how it is roasted. Customers are seeking out the best quality caffeine fix, with two thirds of consumers placing quality as the most significant factor in choosing a coffee shop. By far the most successful coffee brand in the UK is Costa, which boasts 1,400 stores across the UK and recently announced plans to open 350 more.

However, while some coffee brands are expanding rapidly, it appears that customers are nonetheless enticed by the intimacy of an independent.

Starbucks have struggled through the recession and have been forced to close a number of stores across the UK. Yet just a week after implementing a radical plan to add a personalised touch to its service, by toning down the logo and writing names on customers' coffee cups, the US-based company experienced a 9% increase in sales.

If you think that this £2bn industry has reached its peak, think again. Jeffrey Young, managing director of coffee analysis firm Allegra Strategies, forecasts there will be more than 7,000 branded coffee shops within the next few years and nearly 18,000 outlets including independent and non-specialist shops.

Are you cut out for starting a cafe?

Who is starting a cafe suited to?

Despite the phenomenal success of chains such as Costa, this is not the kind of business to set up if you're expecting a quick multimillion pound exit. Profit margins will only become significant if you open multiple outlets and even then your initial costs will be significant. It may be worth considering seeing if you can get a business loan to help you with financing starting a café.

If you're after a lifestyle business which provides you with a modest income this could be a great business to start.

However, you need to consider the amount of work involved. Any business in the catering or hospitality industries involves hard physical labour. Unless you afford to employ staff from the outset, running a café will involve standing on your feet for the vast majority of the day.

It's not vital that you've worked in a café before but as with any business, industry experience goes a long way. If you've never worked in a café or coffee shop before, it's a good idea to spend at least a few weeks working in a similar establishment to the kind of one you want to open. If you pick a business in a different area there won't be any issues with competition and you'll find people are surprisingly receptive to offering advice if you're honest about what you're planning to do.

When doing her research, Sahar Hashemi, the co-founder of Coffee Republic, spent a day on the Circle Line, getting off at each of the 27 stops to investigate what type of coffee was on offer. Either way it's important to make sure you have spent some time considering the business from more than just a customer's point of view.

You also need to be clued up the basic principles of food preparation. Have a read of our restaurant and sandwich shop guides as many of the principles for those kind of businesses will apply here.

To help formulate your coffee shop business plan you may find it useful to download our free business plan template.

Next page: Finding premises and rules and regulations.

Things you may find helpful to consider when opening a coffee shop are:

Finding cafe premises

The biggest decision you'll have to make when setting up a café or coffee shop is regarding your premises. Location and size and the two main factors you need to consider when looking at sites.

Two-thirds of consumers, and three in four 16-24-year-olds, buy coffee and other hot drinks when out and about and so it may be worth looking for a busy urban area with a lot of foot traffic. However, properties such as this are expensive and the amount of square feet you will be able to get will be less than if you choose a more suburban or rural location. Equally, you may have envisioned a spacious, airy coffee and tea shop with room for large sofas and coffee tables covered in newspapers, which means you might be more restricted on the kind of location you can afford. As two thirds of consumers considering the quality of the coffee to be the most important factor when choosing a coffee shop, it could also be profitable to consider investing in better beans and saving a little on the location. The important thing is to be a bit flexible, visit a range of properties, big and small, in busy and quiet locations. With 1,400 stores already across the UK and plans to open 350 more, Costa is by far the market leader. Researching your market is essential: look into the locations that are popular among branded coffee shops as these are the areas that have been identified for drawing in a good trade. If these are busy during peak times, there could be room for an independent alternative. It is also important to know your competition. Consider what the most popular brands are offering and how you could improve upon that. Here's a list of the UK's most popular coffee brands to give you a start:

Name Outlets Market Share
Costa Coffee 1,342 40.4%
Starbucks 743 30.7%
Caffè Nero 490 14%
AMT Coffee 65 1.7%
Caffè Ritazza 55 1.4%
Café Thorntons 37 0.9%
Esquires 35 0.8%
Coffee Republic 29 0.6%

Many of these companies are listed. Checking their accounts and annual reports may reveal the most profitable areas, plus you will be expected to supply this kind of in depth information if you are looking to secure a bank loan.

While the size of the property you will buy is intrinsically linked to its location, you should know roughly what sort of size and square footage you need, or how many covers (people seated) it can accommodate, as this will help you when going through property advertisements. You need to be clear about whether you need a large seating area, a kitchen, space for internet access, a performance area or a small retail section for instance. A rough guide to coffee or tea shop size is as follows. For a small café (15-45 covers) you'll need between 500-1000sq ft. For 45-100 covers you'll want at least 1000sq ft and for 100+ covers you'll need to consider spaces bigger than 2000sq ft.

Think about what you need from your coffee or tea shop, what is already provided and what you would need to add yourself. When viewing properties, take the layout into careful consideration and try to imagine your service area fully staffed and a bustling sitting space decked out with tables, chairs and a lot of customers in need of a caffeine injection.

Before you negotiate the lease or purchase of a property you must also check what commercial classification it currently falls under. If the property does not already have the correct classification for a coffee or tea shop you will need to get planning permission from your local authority.

Things you may find helpful to consider when opening a coffee shop are:

Cafe regulations and rules

The Food Standards Agency (FSA) is the body appointed by government as being responsible for all food safety standards. The FSA can provide you with advice on all food hygiene matters and has a publication called ‘Safer Food, Better Business' which will help you comply with the law and make your premises safe for the public. The publication covers key areas on serving food including contamination, cleaning, chilling, cooking, management and keeping a food diary. To order this book contact the FSA on 0845 606 0667 or email foodstandards@ecgroup.uk.com

Currently, there is no law that states you must undertake formal training to open a café or coffee shop. However, you must ensure that you and anyone else working with food at your business has the appropriate level of training and/or supervision to do their job properly. The legal responsibility lies with the business owner so make sure you have all the information you need. Your business must also be registered with the local authorities and you can and likely will face inspections in the future.

A failed inspection is bad for your café both legally (you could be closed down), in terms of business (bad publicity and referrals) and morally as people could be taken ill or even die from contaminated food. In order to avoid such pitfalls you should learn the HACCP, which stands for ‘Hazard Analysis Critical Control Point'. This is an internationally recognised and recommended system of food safety management that focuses on identifying the ‘critical points' in a process where food safety hazards could arise and putting steps in place to prevent things going wrong. For more information visit www.food.gov.uk/foodindustry/hygiene/haccpcontacts

You might want to take a look at the rules and regulations section of our catering guide too as the same restrictions on food preparation will apply. Click here to see our catering guide