Bruce Milletto, president of Bellissimo Coffee InfoGroup and founder of the American Barista and Coffee School, offers his insight about how to start a coffee business. He reveals expert advice about getting started, choosing a location, picking the right coffee and espresso equipment, and more. [24 min.]
Almost everyone I know loves coffee. I read somewhere that some 330 million cups of coffee are consumed in the U.S. every single day. That’s a lot of coffee. Talk about the specialty coffee business and what makes it so attractive as a start-up.
First of all, the entry into coffee from a dollar standpoint is very, very, very, low, considering other businesses. Say, for example, somebody decided to open a clothing store. They may be looking at half a million dollars with build-out and inventory. In the coffee business, if you wanted to open a small cart or a kiosk in an office building, you could be looking at an initial outlay as low as $50,000 to $100,000. If you wanted to open an in-line coffee store, there are ways that that can be done for $150,000, although I would say most of our clients spend around $200,000 opening a store. But in the scheme of things $200,000 is not a lot of money when you’re thinking of opening a business. I think the second thing that makes it really appealing is the fact that although it is food service, which has the highest attrition rate of any type of business that there is, you have a higher profit margin in coffee than you do in say, for example, a restaurant. So you have that advantage. Coffee is really a sexy product. Everybody seems to want to have “their own coffee shop” that they visit, that they frequent, that they tell their friends about. Not too many people get that excited about their dry cleaners or a lot of other retail establishments that they may patronize. Coffee bars are something that’s very personal, and the reasons that they’re very personal – one of the reasons – is because it truly is the third place for a lot of us. Coffee bars are relaxing spot that people can take their computers into, they can meet friends at, and opening a coffee bar you can totally promote it as local and you certainly can compete with the chains. With chains, basically somebody in Manhattan, if they’re designing 400 stores, they have to design a store that would work in Florida and a similar store may be in Alaska and a similar store in Arizona, and those are three very, very, very different demographics. Now if you’re opening a store, say, in Raleigh, North Carolina, if you live there you know Raleigh, you know the habits of the people, you know the specifics of that demographic that you’re aiming for. Where a large chain has to pretty much do something very middle of the road that’s going to work all over the entire United States, and I think that’s one of the reasons that coffee truly has been a prime interest to people in wanting to start their own business.
You talked about the initial investment needed. List out some of the major expenses if you would.
Every case and every scenario is different. You may be signing a lease where a large majority of the build-out may be done by the landlord called leasehold improvements. You know, if somebody said to me, “I want to open a coffee bar and how much is going to cost,” that would be the hardest question to ever answer because there are just so many variables. Some of your major expenses are going to be, of course, your build-out, your cabinetry. Another large expense is going to be your equipment. And all of that is going to be extremely dependent on your menu. So when a person decides to go into the coffee business, the very first thing they need to do before they do anything else is they really need to solidify a menu and figure out what they’re going to serve and what they’re going to sell. And that’s going to dictate the cost of the build-out, it’s going to definitely dictate the layout and the design. And then the other thing that’s going to dictate that is going to what I was saying, what type of coffee bar do you want to open for your speicific audience. If you’re opening in a very edgy part of a very hip city, you may want to put together a coffee bar where tables don’t even match and chairs don’t match because I’ve seen this many, many times. Coffee bars like that can be extremely successful. There’s a coffee bar here in Portland that actually put their entire operation together for about $60,000 and it’s phenomenally successful. Where if you’re going to build a coffee bar in Beverly Hills or a very upscale area, you may have to put in $300,000 to satisfy the wants and the needs of who you think your prospective customer is going to be. So it’s really all over the board, but people need to start by doing some research – who their customer is in particular – and then try to develop a business that they think will be successful that will fulfill the wants and needs of that particular customer.
What are some important factors to consider when choosing a location for your coffee business?
Coffee generally is an impulse buy, so it’s seldom that a coffee bar is successful where people have to drive out of their way to get to it. A coffee bar usually should be on a major thoroughfare, a major area with a lot of traffic where people are actually walking by every day, because oftentimes people aren’t thinking coffee, and suddenly they walk by your shop and say, “Gee, a nice iced coffee sounds really good today,” or “I need a pick-me-up” and so a lot of your business may come from that form. Location of course, as we all know the old adage “location, location, location” is definitely one of the most important factors that you’re going to be dealing with, and one of the most important factors that will either garner success or failure. So you need to pay particular attention to that, but you must truly understand and really look for the A+ location, but if you can’t find an A+ location you definitely need to find a B+ location and not settle for anything less than that.
What kind of coffee and espresso equipment do you need and what are some reputable manufacturers?
Well, I don’t want to really go into specific manufacturers. There are a lot of great manufacturers out there as far as espresso machines today. There are probably a dozen great brands that are pretty much apples to apples. There are a lot of great espresso machines out there in the $5,000-$8,000 range. That’s equipment that you need to start an espresso operation coffee bar. You need refrigeration and once again, depending on what your menu is it’s all over the board. If you’re going to be doing parbaking you need certain equipment, you need a certain amount of space, so a lot of this is going to be equipment and your menu and your entire planning process is going to be dictated primarily on the amount of square footage you have. If you found a wonderful space and it’s 800 square feet and you’re looking at another space and it’s 1,800 square feet, there’s a lot more that you can do in 1,800 square feet and the equipment that you’re going to have to put in is going to be much greater because your menu more than likely is going to be greater and the offerings that you’re going to have for your customers in the larger space will definitely be expanded over the 800 square foot space.
Can you learn how to pour fancy espresso drinks by trial and error, or do you really need to attend some kind of formal coffee training? What are your thoughts on this?
Well that’s pretty near and dear to my heart since we have a coffee school. I think it would be really, really difficult to try to learn to do this without some instruction. If you want to pour rosettas and hearts and steam and foam your milk properly it would be very, very, very difficult to do that without having somebody give you some hands-on training. In our coffee school downstairs from my office that I’m speaking in right now, is a coffee group that came in for two days of training. And this is a very, very upscale and very well-known coffee company, and they’re actually bringing in four people from Canada and four other people from here in the United States for us to run through a very particular hands-on one-on-one demonstration on how to pour great drinks. And in every case all eight of these baristas that we’re training today are already baristas. They’re already fairly knowledgeable in their craft, but what we’re trying to do, and what this company that sent them here realizes, is to take them to the next level they really do need some further one-on-one hands-on training. Guaranteed, by the end of tomorrow afternoon they’ll be pouring great drinks, and those great drinks are what will bring your customers back over and over and over. Because once you taste a drink that’s been properly prepared, it’s going to be really difficult for them to ever go to a large chain and have this auto-steaming and have everything automatic and to get a drink, a latte or a cappuccino, prepared improperly. Once we’ve eaten Haagen-Dazs ice cream it’s really hard to go back to the big box cheap ice cream. And it’s the same thing with coffee. It’s the same with wine. It’s the same thing with almost anything that we consume. Our palates have memories and it’s going to be probably one of the most important things that somebody learns properly. It would be pretty darn hard to learn that over the Internet.
What’s your take on coffee franchises? How would you decide whether or not to buy one, and if you do go the franchise route, how do you choose which one?
I don’t think there are a lot of good reasons personally to buy a coffee franchise. The only people that I would recommend to go the franchise route would be somebody that has been told what to do their entire life, what to wear, that has no entrepreneurial experience. They’ve been given orders every single day of their life. I think that type of an individual may find a franchise a little more comfortable, just in the fact that the franchise is oftentimes going to tell them everything to do. They’re going to make all their decisions for them. I don’t see a lot of advantages of coffee franchises. I never have. There are good coffee franchises out there, and there are some really, really, really bad ones. And all you have to do is go to the Internet to find a lot of them. It’s really quite scary. I run into it all the time where people come up to me at a trade show and say we bought a coffee franchise, it was the biggest mistake we ever made, we were promised A through Z and we’ve only received A, B, and C and you have to really step back and say what are the advantages of buying a franchise. I mean you’re going to pay a franchise fee, you’re going to be told oftentimes everything to do, you’re going to have to oftentimes use their syrup, their machines, they’re going to do your build-out for you, they’re going to make a profit on every one of those aspects, and it’s not like buying a McDonald’s or Burger King or a Wendy’s or one of a hundred other franchises in other areas outside of coffee. Oftentimes when you buy a franchise you’re buying a name, you’re buying the name that people understand, they know the product they’re going to receive. With coffee it’s quite different in that most of the big names in coffee are not even coffee companies that you can franchise. So I don’t see many advantages in that, and I have a thousand horror stories that I’ve heard through the years of people that have done this and wished they hadn’t.
If you decide to forgo a coffee franchise and take the independent route, how do you pick the coffee you’re going to be serving?
Certainly what you want to do is if you decide to invest a large amount of money, you need to find and work with a reputable company. Most consultants are going to tell you that they’re not associated with any particular company and machines or any particular brand of coffee, and if you go into our school you’re going to find ten different espresso machines, you’re going to find at least fifteen different great coffee companies, you’re going to be able to try their coffees during the week that you’re here at the school. But it’s really difficult I think if you try to do all of this on your own. You could certainly go to your local coffee company, and hopefully they’re going to be a good coffee company, and have them make recommendations, but once again everybody has an ax to grind and most every coffee company sells machines. They’re going to not only try to convince you that their coffee’s the best, of course that’s what everybody’s going to say, and they’re going to obviously try to sell you the syrup that they represent, the machine that they represent, and it goes on and on from there. So I think an independent consultant that’s truly independent that is going to give you recommendations based on possibly where you are. If you’re in a very remote part of North Dakota, there may be only one or two espresso machine companies that I would recommend, that I’m positive that you can get serviced in that area. If you’re in Los Angeles, San Francisco, New York City, there are going to be possibly six or eight or ten different machine brands that I would like you to take time and visit their showrooms and evaluate and use the machines and see what’s available. The most important thing is when you choose a coffee it’s going to be a decision that’s going to be very important. Your coffee roaster is one of your most important decisions. Look around, it definitely does not have to be the coffee company in your backyard, although that’s wonderful if it is, but if you have to have your coffee shipped in from another state that certainly wouldn’t be prohibitive. And I would certainly look at the same ramifications when you’re looking at picking and choosing espresso machines and other equipment. If your espresso machine goes down, you want to make sure you have a company that can be there within a matter of hours to repair it because it’s basically the heart of your business.
Are there any good trade magazines that someone interested in starting a coffee business might be interested in?
Yeah, there are a lot of them. There’s a very, very good trade magazine called Fresh Cup, there’s another magazine out of Portland called Roast Magazine, there’s another magazine out of Portland called Barista Magazine. There’s another trade journal that’s out of the Midwest called Specialty Coffee Retailer, and another magazine that is a little bit more green oriented but also a really good magazine called Tea and Coffee Trade Journal. I would highly recommend that anybody going into the coffee business buy every single one of them because there’s a plethora of wonderful information in every one of those every month.
Can you survive just selling coffee, or do you need to provide a larger menu of choices like bagels or doughnuts or sandwiches, that kind of thing? How do you offer a wide variety of items without diluting your image as a purveyor of fine coffee first and foremost?
Once again this all goes back to who are you, and what is your brand and what type of an operation are you going to run. If I had to answer that generically I would say it’s very difficult for most people to open a coffee operation and only serve coffee. Or only serve coffee and morning pastries. I have seen over and over again coffee shops fail because they actually don’t have any appeal beyond their coffee to customers in the evenings. So what we’re seeing is most of our customers open retail operations that incorporate fine teas, pastries that would be suitable for evening consumption, even beer and wine. We have a lot of coffee operations that started out only as daytime operations and have added beer and wine and you certainly don’t want to compete with the bar down the street. You want to have maybe three or four really exquisite high-end beers, maybe beers that they couldn’t even find readily at other establishments, and maybe five or six different wines that they would serve. It’s really up to the person opening the coffee bar knowing who their customer base is going to be. They may be opening in a spot in a downtown area that is virtually vacant in the evening and there is no chance of having evening clientele come in. But they may be opening in a location that is near a performing arts center or near a movie theater. Something where they’re going to have high traffic in the evening. We’ve seen many, many, many operations that do double the business in the evening that they do in the daytime, and that means that they are also selling coffee and tea in the evening, but they also add other products. So it’s really difficult to open in most cases a coffee operation that just serves a very limited menu. But there are operations, for example, in office buildings, that may only be open from 7:00 in the morning until 4:30 in the afternoon, and in that case you can get by with a lot less. But once again if it’s a kiosk and they have room to do a small lunch menu, they’re probably going to double the amount of dollars that they add to the bottom line by adding some food.
What are some of the qualities you look for when hiring employees for a coffee shop business?
I think probably the number one quality that you should look for is personality, without a doubt. And of course, honesty. But you can certainly train people how to be a great barista. I’ve found in training hundreds if not thousands of people, that nine out of ten people can learn to be a really really excellent barista, it’s not that difficult, but the one thing that is impossible to train is you’re not going to teach somebody friendliness. It’s really difficult to change somebody’s personality, so I would definitely look for personality above everything else. I would also look for people that have never ever worked in a coffee operation before, so that you can train them right in the beginning. It’s very difficult and I’ve seen it many times, where I’ve recommended to a client not to hire anybody that’s ever worked in coffee previously, and I’ve gone back for the opening and training and they have hired people that have had prior coffee experiences and it’s really difficult to change old habits. Now, if somebody comes from a very high-end wonderful coffee bar that’s preparing wonderful drinks then that all goes by the wayside, but once again they have to have a great personality. You really become people’s friends, and you have to have people working for you that can genuinely give that sort of friendship. Basically that is one of the main things that people are coming into your coffee bar for. They’re coming in for the coffee, but they’re really coming in for the break and they’re really coming in to be treated differently than they may be treated at a large generic chain.
It seems like everyone is trying to get into the specialty coffee business, from McDonald’s to the local gas station. How can you differentiate yourself and market your coffee bar successfully?
Well, everybody is getting into it. I mean McDonald’s is making this gigantic push right now, the reason is that there are huge profit margins in coffee. A person may not go into a McDonald’s every day, they may only go in once a week, once a month, but they’re going to go in every single day and have their coffee fix. So that’s one of the reasons. Getting back to your question, how do you differentiate yourself, you have to show your customers that you are not a large chain. I personally think that there’s a gigantic difference in a mom and pop operation or an operation that has three or four stores that are locally owned. I think you promote yourself as local. I think you try to show your customers why you are different than a large chain operation. That’s something that can be done, but it’s going to take a marketing effort, and it’s going to take some work. It’s something that is going to be imperative to your success. You have to separate yourself. Price points oftentimes are not what people are really looking for when they’re looking for great coffee. I mean if they’re going to be able to get a latte for $2 and your latte costs $2.50, oftentimes that’s not going to persuade somebody. What you need to sell is your high quality and also the fact that you’re local.
Bruce, what are the biggest mistakes you see people making when starting their own coffee shop business.
People oftentimes are under-funded. They must realize going into it they have to have cash available until they turn a profit. Oftentimes a coffee operation or any retail operation is not going to turn a profit for 6-12 months. So they need to be able to pay themselves, they need to keep the lights on, they need to pay their purveyors, they definitely need to not be under-funded. They can’t spend every dollar that they have getting the doors open and expect to make a profit the first week or the first month. It probably is not going to happen. I’ve seen many cases where it has, but you certainly can’t bank on that. Other mistakes I’ve seen, people spend enormous amounts of energy in getting their coffee operation open, and once it’s open they say, “Where are the customers?” I always say that once you open your doors, you’re only half way up the hill, and now you have to pedal twice as hard because now you’ve got a beautiful operation hopefully, you have to get clients in the door and you have to be successful. Your entire investment is on the line at that point. I’ve seen people oftentimes make the mistake of working very hard and then once they open they sit back on their laurels and hope that people are just going to find them. You have to be able to market properly, you have to be able to get people in. Having done this for twenty years I have hundreds of stories of people that I’ve seen that have done a wonderful job getting an operation open, and then not marketed it properly. They would have been successful, but they haven’t been because they have done virtually no marketing once they open up.
Bruce Milletto is president of Bellissimo Coffee InfoGroup, founder of the American Barista and Coffee School, and is recognized internationally as the voice of the specialty coffee industry. He’s owned several successful coffee operations, and serves as a coffee start-up consultant to individuals and corporations worldwide. He can be reached by phone at (503) 232-2222.