The Coffee Shop: To Build or Buy (With Business Plan Example)

Starting Own Coffee Shop Business

Introduction

No entrepreneur is born with the business that is prospering and brings enormous profits (except for the cases with the family business). Thus, one needs to come up with the idea and make it real. Usually, there are two approaches that allow leading a business – to come up with a new idea or to buy the already existing business. It is a question regarding feasibility of each concept. However, one needs to carefully assess all of the options in order to make sure the decision will be profitable.

This paper evaluates the two options – to buy the existing coffee shop, or to start the new one that will make the competition to all of the existing coffee shops.

A coffee shop is a business that targets a certain group of customers. Specifically, coffee shops offer their products and services to teenagers and adults who love coffee. Some products are also offered to kids, who visit coffee shops with parents, but the main target group is the adult population. A coffee shop usually works in a fast-paced environment, so personnel should be well-trained to meet all of the customers’ expectations. There are two groups of clients – those who prefer coffee to go, and those who want to stay and enjoy coffee, while sitting in the comfortable place.

The aim of this particular analysis is to determine which option is more feasible – to buy the existing coffee shop, or to build the new one, as a competing business to the existing one.

The Analysis of the Option 1: Purchasing the Existing Business

Purchasing the existing coffee shop will give a number of benefits to an entrepreneur. In particular, the shop will have the returning customers who form the basis for profitability. The business is already well-developed, and there is no risk that the start-up will not be successful. Everything is already arranged, and the only requirement is to continue with the same strategy. The SWOT analysis of buying the existing coffee shop is presented below.

SWOT Analysis for Purchasing the Coffee Shop

Strengths

• The business is profitable.
• Arrangements with suppliers are set.
• There are regular customers and a formed market niche.
• There are trained personnel who manage to serve customers.

Weaknesses

• The image of the coffee shop is already formed, and it will be difficult to alter something new.
• Buying on-the-go business requires more financial investments than building the new business.

Opportunities

• Improve the quality of services;
• Introduce innovative products and accompanying services;

Threats

• New competitors may enter the market.
• The personnel may express negative attitudes towards the new owner.

The Analysis of the Option 2: Building the New Coffee Shop

SWOT Analysis for Building a New Coffee Shop

Strengths

• Building a new business is significantly cheaper than buying the existing one.
• The company may bring the “fresh” air to the business.
• It is possible to create the new niche (for example, rich selection of coffee-drinks with natural fruit ingredients).
• Also, it is achievable to set own corporate standards and build the entirely new team.
• The company will be free from negative reviews and perceptions.

Weaknesses

• A part of the target audience is customers of the competitor, and it would be difficult to attract them.
• Organizing the new startup will take more time and effort, as it requires getting the documentation, finding the estate, buying machines and equipment, equipping the café with the necessary furniture and coming up with a good design.
• The newly hired personnel will need some time to adapt to the new conditions, learn their duties, etc.

Opportunities

• To win the loyalty of customers with an excellent service and innovative products;
• To develop business by combining traditional coffee tastes with innovative products.

Threats

• The inability to compete with the existing coffee shop;
• The entrance of new additional competitors into the market;
• Switch of the customers’ tastes or fashion in favor of more healthy choices.

The SWOT-analysis of the two options suggests that building a new business is actually cheaper and allows applying a new strategy and an innovative approach.

Customers will not identify a new coffee shop with the existing competitor, so it is a possibility to create an excellent image. Thus, we decided in favor of the option of creating a new business. Further, we will present the business strategy and the business plan for the new coffee shop.

Choosing between Strategic Options

According to Scarborough (2012), the business should decide upon just one strategic option. The author mentions that the number of options to choose from is unlimited. However, the main three options are the cost leadership, differentiation and focus. In the case of coffee shop, it is feasible to use the focus strategy – choose one market niche (coffee-lovers) and offer the product they expect. As soon as the modern customer expects healthy innovations, the idea of offering healthy options in the menu is the example of focus strategy. Besides, our coffee shop will partly use the cost leadership approach and offer traditional espresso drinks for prices lower than those of competitors.

The Business Plan

1. EXECUTIVE SUMMARY

• 1.1 Product
  Our coffee shop will combine the traditional gourmet coffee drinks and newly invented soft drinks prepared on the basis of fresh fruits, ice-cream, and yoghurts. Besides, the coffee shop will have a number of fresh deli choices, muffins, and other pastry options that serve as a great addition to the cup of coffee. Customers will enjoy both to-go and stay-in service. The interior design will consist of two zones – shopping and relaxing. The shopping zone will have a counter, where customers can order drinks and desserts. The relax zone will be equipped with comfortable leather coaches and wooden tables. The key competitive edge of the business would be the combination of traditional coffee taste with innovative drinks, targeting “health-concerned” customers.
• 1.2 Customers
  Adult coffee-lovers and teenagers
• 1.3 What Drives Us
  Our company will be driven by the rich corporate culture and the principles of ethical sustainable business.

2. COMPANY DESCRIPTION

• 2.1 Mission Statement
  The mission statement of the business is to create the coffee shop that will be able to react to the market demand changes and be able to offer the sustainable alternative to customers. The current requirement is a healthy direction.
• 2.2 Principal Members
  The single principal member of the business is the owner.
• 2.3 Legal Structure
  It is supposed to be sole proprietorship, since it is the best choice in this particular business. Investments in the project are not very high, so it is possible to organize all of the expenses in the form of a sole proprietorship.

The main advantages of this ownership type are the ease of starting a business, tax benefits, decision-making process, and the possibility to hire employees. Thus, sole proprietorship is a good structure for a small start-up with a single owner who will control the business all by himself.

3. MARKET RESEARCH

• 3.1 Industry
  Definition of the business: the gourmet industry shows the constant growth in recent years in the United States. According to Brown (2014), the U.S. consumers prefer gourmet coffee (espresso-based beverages and regular coffee) to the specialty-foods based coffee drinks. Thus, there is a place for start-ups and growth along with the growth of the entire industry.
• 3.2 Customers
  As it was previously mentioned, the coffee shop’s main audience is adults and teenagers who love coffee. Thus, it is necessary to carefully analyze the unmet needs and wants of customers. The analysis reveals that competitors offer only traditional coffee tastes. At the same time, modern coffee drinking culture turns to two main ideas – ethical consumption and health concerns. Thus, the target customer expects the coffee shop to ensure all of the ethical rules are met. Regarding the health concerns, there are many people who would like to enjoy new coffee-based drinks with such ingredients as fruits and yoghurts.
• 3.3 Competitors
  The main competitor is the existing coffee shop, as it has earned the positive image among customers and has many returning clientele. In addition, we will have to compete with the huge coffee chains, like Starbucks and Dunkin Donuts. The advantage over Starbucks is the relatively lower price. The advantage over Dunkin Donuts is the availability of more healthy choices.
• 3.4 Competitive Advantage
  Our competitive advantage will be a combination of traditionally popular gourmet coffee and the innovative coffee-based healthy drinks with natural ingredients.

4. PRODUCT/SERVICE LINE

4.1 Product or Service

The entrepreneurship idea consists in building the coffee shop.

The Goals for Building a New Coffee Shop Business

Usually, goals are divided into short-term and long-term ones. In the start-up planning, the short-term goals are out of the outmost importance.

Thus, we set the following short-term goals for the coffee shop opening:

• Prepare all of the required documentation and receive the legal authorization for the business.
• Find the appropriate premises and sign the rent contract.
• Create the menu.
• Buy the equipment that will serve the needs according to the developed menu.
• Design the interior and buy the furniture.
• Arrange the advertisement (promotion campaign) of a new coffee shop to potential customers.
• Sign contracts with suppliers for the approximate supply of the needed amount of coffee beans, milk, ice-cream, taste-adds, fruits, deli, pastry, etc.
• Perform the interviews and hire the personnel. We will need one cashier, one barista and one administrator for the shift. The café will work from 7 a.m. till 11p.m., so we will need staff for two shifts.

Long-term goals (for the period of up to five years) include:

• Win customers’ loyalty to the brand.
• Open the chain of coffee shops consisting of at least five shops.
• Improve net profits.
• Create the image of the ethically responsible business, employer, and vendor.

4.2 Pricing Structure
We will offer the average prices that will reflect the top-quality of our product but will be able to beat the pricing strategy of more advanced and advertised brands. For example, the cup of traditional espresso drinks at Starbucks starts from $2. Fancy drinks are twice more expensive. We will offer cheaper prices for the exceptional quality and will try to earn on the scale.
The cup of Americano coffee will start from $1.6. The price for fancy drinks (Latte, Chocolate Cream Coffee, Yoghurt Coffee Drink, and Juice Coffee Drink) will start from $2.5.

4.3 Product/Service Life Cycle
The traditional business life cycle consists of four stages – introduction, growth, maturity, and decline. The highest revenues are expected on the stage of maturity, which is projected for the 3rd-4th years of the lifecycle.

5. MARKETING AND SALES

• 5.1 Growth Strategy
  We plan to grow by opening the chain of coffee shops under the same name. The chain will contain both owner-run shops and franchises.
• 5.2 Communication
  The main source of communication is the word of mouth. Those customers who are satisfied with the quality of products and services would recommend the coffee shop to their friends.

Besides, we plan to offer the discount coupons in the local newspaper and journals. In future, when we will operate a chain, it is important to develop the website of the company and cooperate with various smartphone applications, where people can browse the coupons, specials, etc.

6. FINANCIAL MATTERS

The analysis of financial matters is concentrated around the three main issues:

Start-up investment

According to “Frequently Asked Questions about Opening a Coffee Shop” (n.d.), the cost of opening the sit-down coffee business is between $200,000 to $300,000. This amount includes such expenditures as obtaining documents and licenses, buying furniture and equipment, renting space (first month rent cost and the security deposit), supplies, utensils for the first month, and advertisement.

Operating costs

• It is difficult to project the operating costs, but the approximate sums are:
• Salary of all employees (16 hours (working daily hours are from 7 a.m. to 11 p.m.)*$14 (average hourly rate)*30*3 (number of employees)=$20,160);
• Rent ($3,500)
• Utilities ($400)
• Supply cost, including the coffee, ingredients, napkins, soap, etc. ($16,000)
• Insurance ($700)
• Advertising costs ($500)
• The total operating monthly costs are $40,560.

Estimated monthly revenues

We estimate (within the neutral scenario for the first month) to sell 300 coffee cups with the average price of $2.8, and 50 pieces of cakes with the average price $2; 40 sandwiches with the average price $5; 40 salads with the average price $5. The total daily revenue, in this case, will be $1,340. The monthly revenue will be $40,200. This revenue will cover the operating costs. In addition, there is also a tax expenditure that is around 35%.

For the next several months, we expect some growth in revenues. When the total monthly revenues exceed the total monthly costs, we could calculate the payoff period.

Conclusion

This paper provided the analysis of two different options – to buy a coffee shop or to build the new business. The decision was made in favor of building the new business. The business will use a combination of focus and low-cost strategy. The competitive advantage of the new coffee shop is in the offer of healthy choices for customers who are interested in “healthy” consumption. The business plan for a project provided the outlook on the strategy, goals, approximate expenses, and revenues.