Choosing a Site for Your Coffee Shop

Choosing a Site for Your Coffee Shop

Choosing a site is a critical step in the planning process for any coffee business owner.  Whether you are a barista or another coffee professional wanting to open your own coffee shop or an entrepreneur in the planning stage of opening your own coffee shop, this guide will help you understand the best-practice approach and key items to consider when searching for a location for your business and securing a lease for the site.  Many of the topics in this guide are covered in coffee education classes at the New Jersey Coffee School in Hoboken, New Jersey.

Some business owners who want to open a coffee shop start their coffee journey by first finding a location for their coffee shop.  They might come across a building with nice tall windows on a busy corner with a lot of people walking by and think that it must be a good spot for a coffee shop.  Then they negotiate a long-term lease with the landlord for that spot.  

In terms of best practices, finding a location and signing a long-term lease as a first step in your coffee journey is not optimal as a lot of due diligence and homework should be done as part of your planning process before you ever select a site and definitely before being locked into a long-term lease.  Without a well-thought-out approach for finding the best and most affordable location for your business, a business owner may be saddled with a long-term fixed cost obligation that the business may never to able to cover and which may not result in a profit margin that the owner hoped to achieve.

What are some of the key considerations before choosing a potential location and site for your coffee shop?

Following a best practice approach, there are several first steps in the planning process that a business owner should do BEFORE selecting a location for their business including developing a concept and identifying a target market for their business, planning a potential menu, and planning what type of equipment will be needed to support their concept and menu.  All these factors are covered in coffee shop management courses as they are critical in determining a location that will work for their business and the size (i.e., square footage) of the site that will be best for the business.

Developing your concept and target market

This is the number one critical first step in any coffee planning process.  The location must be consistent with and able to support your target market.  For example, if your concept was to open a health-conscious café serving coffee, smoothies, and healthy salads and food choices, you would benefit from finding a location close to a fitness facility.

Developing your menu and planning your equipment needs 

The development of your menu, including potential beverage and food options, is also a critical step before deciding on a location.  The development of your menu will have an impact on the type of equipment you will need to support your menu.  These factors will influence the type of site needed and the space requirements in terms of space needed to support back-office, front-of-house, customer flow, and seating needs.  

Additionally, your equipment needs will influence the infrastructure needs (e.g., electrical, plumbing, and drainage requirements for the site) that the site may or may not be able to support.

Once you have identified one or more potential locations, what are the next steps to determine if the location will work for your business?

Performing a Location Analysis

Once you identify a potential location for your business, you should perform a thorough location analysis for your business, including, but not limited to, looking at demographics of the area, identifying nearby competition and foot traffic generators, and understanding and quantifying traffic patterns. 

• Nearby competition is not necessarily a bad thing as long as your concept, product offerings, and customer experience is “different and better”.

• Foot traffic generators such as supermarkets, office and municipal buildings, transit hubs, hospitals, health clubs, college campuses, and apartment buildings/condominiums might also be an important consideration for your location, again depending on your concept and target market.

• Understanding and quantifying traffic patterns, both foot traffic and drive-by traffic counts, are important metrics for any potential location and can help you when comparing multiple locations you are considering.

What are some additional considerations to consider when evaluating a particular location for your business?

Some key additional considerations in your evaluation of a particular location include the following:

• Will the municipality allow a drive-through on the site? Despite some sites having adequate space for a drive-through, some municipalities will not allow any drive-throughs in a given area or any drive-through that will present congestion or other traffic challenges so check with your municipality early on if a drive-through is an important consideration for your business.
• Are there adequate parking spaces on or near the location?  The municipality may limit the number of parking spaces allowed at your location despite the location having ample space for more parking spots.
• Are there any regulations regarding what signage is the business owner allowed to display outside the site?

Taking into account all of these considerations and factors, if you are in the early phases of planning to start a coffee shop business, don’t make the mistake of starting with the site.  Avoid the pitfall that some coffee business owners have faced whereby they started by picking a site and signing a long-term lease only to find out the business could not adequately support the lease payment. 

Subsequently, they were forced to either close the business and/or accept sub-optimal profit margins. While there are no guarantees, the business owners who complete the due diligence and key planning items outlined above will put themselves in a better position to find a location that can help optimize the long-term success of their business.

Once you find a location, what are some of the key considerations BEFORE signing a long-term lease?

Once you find a location and site that fits your business, you still need to do more due diligence before signing a long-term lease.  Assuming the lease negotiations are going well, we at the New Jersey Coffee School recommend business owners do not sign a lease until they have evaluated some additional key items including:

• Hiring a professional to perform a feasibility study and a cost estimate for their build-out
• Ensuring ample access to a qualified and affordable workforce
• Completing a preliminary revenue estimate for space

Feasibility study and build-out cost estimate

You should discuss your vision for your coffee shop with an interior designer and a contractor.  Have a contractor perform a feasibility study to ensure the site can handle electrical, plumbing, drainage, and waste management requirements needed for your business.  The contractor you select should ideally be familiar with the zoning laws, and building, health, and fire codes for your municipality and let you know if the build-out of your site will have any challenges meeting these requirements.  

These items can have significant cost ramifications if you are not aware of the limitations and challenges required to execute your vision for the business.  You should also get multiple contractor bids for the cost of the build-out work required and ensure the cost estimate for a given location is affordable and within your start-up budget.  Do not make the mistake of getting the contractor to come in and give you a cost estimate for the build-out after you sign the lease only to find out the costs required for the build-out are out of reach and well beyond your budgeted expectation!

Access to a qualified and affordable workforce

Ensure that your location provides access to a qualified workforce that represents your vision and can provide superior customer service.  If you can find staff that have prior barista experience or have taken barista training classes, that will be helpful.  Many coffee shops employ young part-time high school or college workers who may not have cars so ensure there are adequate public transit options available so your staff can easily get to your location. 

You need to understand the minimum wage requirements in your area and what nearby competitors are paying their workers or what benefits they are providing them.  The success of your business in many ways will count on having an effective workforce so ensure the location you select can provide that.

Preliminary revenue estimate of your space

Business owners should perform a preliminary revenue estimate of the space to help determine if they believe the business at that location can adequately support the rent required in the lease they are negotiating.  As mentioned above, knowing the average foot and drive-by traffic counts for any location is important.  This information allows you to compare multiple locations you may be considering to one another.  But again, when comparing multiple locations, the business owners must ensure that their concept will work and their target market consumer exists in any location they are considering.

Business owners can estimate a range of potential revenue that a particular location can generate.  To do so, business owners can apply some conservative conversion percentages to the traffic counts of a particular location to derive the estimated number of daily customer transactions. Once they have the estimated number of daily customer transactions, they can apply an average ticket price to each transaction to determine an estimate of daily revenue. Then they can compute the monthly or annual sales and compare that to the lease payment required each month.  

As a general rule of thumb, the lease payment should be 7-15% of estimated sales, but again this is just a general rule and individual circumstances may require a different percentage.  More importantly, this revenue estimate done BEFORE ever signing a lease will help business owners feel more confident about whether or not the business in that location can support the lease cost.  While there are no guarantees that this will be the case, it will provide another prudent factor in their risk-taking decision to sign a long-term lease.

Summary

In summary, finding a location and site for your coffee shop is an exciting and rewarding endeavor as part of the coffee journey for any business owner.  This guide will help you avoid the pitfalls some owners face and if the best practices outlined in this guide are followed, it will provide the business owner with more confidence in their decision making.  While there are no guarantees, these best practices herein can provide a prudent approach for selecting a site that can help business owners increase their chance for success in their business.

New Jersey Coffee School

At the New Jersey Coffee School, located in Hoboken New Jersey, our Professional Coffee Business classes go into much more detail about the best practices mentioned in this guide and provide deeper knowledge, tools, and benchmarks that can further assist a business owner in finding a suitable location and site for their business.  Additionally, our classes provide much more information on lease negotiation strategies and tactics that can help save money over the term of the lease.

Anyone who is considering opening a coffee shop may want to consider registering for the New Jersey Coffee School’s 3-Day Professional Coffee Business Class which provides coffee and business knowledge, skills, and tools to help potential and existing owners understand what it takes to effectively plan, open, market, brand, and profitably manage a coffee business.