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How to work out if your barista will be there next week

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Size and location are two key aspects of a retail business which are drastically changing in concept. Video retailers are closing shopfronts in preference for kiosks within shopping centres, and now coffee shops are becoming more niche, a hole-in-the-wall and located in laneways or side streets. 

What's driving this? 

Eric Johnston (SMH, Oct 12, 2013) argued that smart coffee operators have worked out that they didn't need to have a cafe if their business is selling takeaways. They don't want customers who buy one coffee and read the paper for 30 minutes because:

  • the average rent for a boutique coffee shop in the city is $1500m2 
  • this requires 35-40 kgs of coffee per week to be viable. 

I asked my new barista who opened up about four months ago in an inner city suburb what numbers he used. Allowing for doubles and mugs, he used 18 grams per cup. He is doing 3.5 kgs of coffee per day. 

Let's work out what his numbers might look like.


His (Revenue less Rent) leaves him with $3074 to pay for staff, superannuation and leave, produce and other business costs. This is a lifestyle business. He's working hard for his money. 

What are the rent and revenue numbers for the example in the newspaper? We don't know the size of the city cafes so I took the 'rule of thumb' that rent (occupancy costs) should be about 10% of revenue but prime locations may cost 15% of revenue. This shows that a coffee shop needs to sell 1,944 cups per day or 234 cups per hour or 61 per 15 minutes:      


The difference between a lifestyle business and a business which might give a reasonable return is a lot of work. When you next buy a takeaway coffee, you do your own numbers.  Look at the staffing, count the number of coffees sold while you are there..       


Two points to consider

Delusion is dangerous

Many people, for some unfathomable reason, dream of owning their own shop and 'running their own business'. Do the numbers. It's not just about "A cup of coffee costs 30c and you sell it for $3.50. How easy is that?" Daniel Kahneman, who won the Nobel economics prize for his work on over-optimism in executive decision making, gives many good tools and exercises to help sensible thinking. 

Good business people know all their metrics

Slices of tomato per sandwich, $ per m2, $ per sales person per hour, per customer, margin per product...Don't just stand on a queue: use that time to sharpen your commercial acumen. How much is each customer spending? What's the average sale per customer? Are the product high or low margin? What did the retailer make from that customer? How could that retailer improve his or her business? 

Two questions to ask

1. If rent is the critical business factor, and a retailer is paying $1,000 rent per week and sells fresh spring rolls @$2.80 each, how many spring rolls will he need to sell to stay in business? 

2. What does that retailer have to do to stay in business? 

Do the numbers for the coffee shops you visit and buy another product - coffee shops need at least an average sale of $15.

This blog is for an education purpose.

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