Starting a Coffee Business in Orange County

We are still working on this.  Please let us know what you think should be included.

Photo of Coffee and bagel and news paper

Coffee, tea, bagel, news paper. A great way to start off your day. Photo Cred David Parikh www.ocbusinessstartup.com (cc)

A while back we decided to look into the coffee business.  It seems like a great business to get into for a number of reasons.  (1) There is a huge gross markup.   Coffee drinkers in retail establishments typically pay more than three-four times the cost of the product.  There are not many industries that have such a large markup.  And margins are also large in selling coffee retail.  People will pay a lot for a small bag of gourmet coffee.  (1.5) Synergies with other high margin products. Whether you want to serve coffee or sell coffee retail there are also huge markups in the products sold along with coffee.  You can also make big markups on baked goods.  And if you are selling retail, there are large markups in all the coffee gear — grinders, french presses, …  The synergy with the biggest impact is selling bags of gourmet coffee to coffee drinkers at a shop.  So we will cover both gourmet coffee business, coffee shops and retail coffee sales, in this article.   In the gourmet coffee business, customers are not buying coffee because they “need” it.  After all, it’s a lot cheaper to buy coffee on sale at the grocery store, then to buy gourmet coffee retail.  People are paying for the perceived benefits and status of gourmet coffee.

(2) There are relatively low capital requirements to get into selling gourmet coffee.  You will pay a lot for the equipment compared to the Mr. Coffee machine in your kitchen.  But the equipment and inventory cost is a lot less than in many other businesses.

(3) It’s fun.  And who doesn’t like coffee?

Please note that as with all the other products on our page, with the exception of a few cents from Amazon links, we make no commissions if you click on the links below.  We make no commissions if you buy from the many coffee businesses we have listed below.

While discussing the business, we began to wonder, why have a couple of major chains been so successful if the gross profit margins are so huge ? and  Unlike other fast-serve food businesses, why don’t we see more coffee shops offering coffee at lower prices?  There seems to be no equivalent to Subway’s five-dollar footlong in the coffee world.

What business are you really in? The profit comes from turning a commodity into an aspirational product.  But you have to ask yourself “what is it that you are really selling?”  Yes, you can get huge markups on the coffee, but most people realize they could save money by making their coffee at home, yet they keep on paying those incredible markups.  It is important to distinguish between what people are buying and what they are paying for.  They are paying for coffee.  But they are buying convenience such as in an airport or office building where you need a cup of coffee and you don’t have the option of going home; or they are buying the coffee house experience?  That’s a nice place to sit down and enjoy WiFi, reading a book, chatting with pleasant people, the living room you had BC (before children), a place to meet up with your friends, or a place to get away.  Another way to look at this is considering that in other parts of the English speaking world, people go to a pub after work.  But in America that is looked down on so people hang out at a coffee shop.  We have to conclude that gourmet coffee consumption is part of a lifestyle that people aspire to be associated with.

There is no recipe that automatically turns empty retail space into the coffee shop experience.  You can’t just add nice furniture, lighting, fancy equipment and a perky employee to 1,000 sq feet of retail space and assume it will work.  That’s why many people are willing to pay for a franchise that has worked all this out.  That said, one of the most important elements of success is your ability to connect with customers, and your ability to make a premium product.  So a good place to start your research is by looking into professional training.

Professional Associations and Education

Fresh Cup Magazine http://www.freshcup.com/ This is a magazine for coffee shop owners and workers.

Specialty Coffee Association of America www.scaa.org  They have a big trade show every April.  If you have not been in the business before, you might want to invest in a tax-deductible trip to their show to see what equipment is in, get training, and check out the current trends.

Barista Guild of America (BGA)  http://www.baristaguildofamerica.net  $45 to join.  They offer courses and three levels of certification.  (FYI for you cheep-skates who are at home with a cup of Folgers now getting this off your neighbor’s WiFi, a Barista is the person who makes the coffee drinks at a coffee shop.)  Their annual event has a “camping or road trip” vibe to it, and is sponsored by many of the people who make equipment and products.

Ivy League Barista Academy  http://www.ivyleaguebaristaacademy.com  This San Diego School (in Vista just south of Oceanside) tries to teach you everything you need to know to get started in the coffee business.  They cover everything from how coffee carts are manufactured to how to judge coffee quality.  Also, the school will help you with writing a business plan and work on developing your brand.  The cost is $2050 for a five day course with discounts for additional students.  –Something you want to invest in before you sign a lease and buy equipment. 

Vacation to Italy or Austria  Ask your CPA before you book.  If you are interested into going into this business, an educational trip might be tax deductible.  You may want to get the true coffee house feel—and have a deductible vacation.

 

Klatch Coffee is a local business dedicated to getting you into the coffee business.  This might be a great place to start.  They can help with the art coffee service, sourcing coffee, and providing private label coffee, wholesale, new/used equipment.  klatchroasting.com They describe their business as an all-in-one partner and will take the time to help start-up coffee businesses.  They have been around for over twenty years and have locations in LA and Rancho Cucamonga.

Books on the Coffee Business

There seem to be a lot of books, but they are quite general in nature. One we were looking at discussed the fact that you will need to have a phone line installed from the phone company. Other books are more about coffee recipes. If you know of any good books, please let us know.
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The Complete Idiot’s Guide to Starting and Running a Coffee Bar
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Coffee Shop Location

Java to Go Sunset Beach or Huntington Harbour

We believe this business Java to Go used to be a photo processing kiosk on PCH and Warner in Huntington Harbour or Sunset Beach. Now it’s a drive through coffee place with outside dining. Photo cred David Parikh www.ocbusinestartup.com (cc)

 

Your Location is the most important factor that will lead to the success or failure of your business; and as can be seen above you don’t need to have conventional location to be successful.  You would be advised to seek the advice of a commercial real estate agent, but it would be wise for you to do your search first.  There are two options.  First, look for a place where people might need a cup of coffee.  They have to wait around in the early morning or in the afternoon.  This place is located in an area where people have higher then average income, and along a busy street.  It takes up about two parking spaces and was originally a kiosk for something like film development (Kodak) or a  locksmith service.

Secondly you could look for a place that people will take a break from their home, school or work life.  Perhaps you will be serving a residential customers that will stop by on their way to work, or you will be serving an office environment where people just come in for breaks.  The conventional wisdom is that you need to seek out the higher income areas populated by White/Caucasian people.  But you may find a lot of competition in these areas.  There may be underserved areas in our county because people have the mis-perception that coffee drinking is not a Hispanic or Asian thing.

There seems to be no easy way to evaluate a location.  If you are buying a Franchise, they will help you with location.  If not, you may want to see our section on leasing commercial property and contact a good commercial real estate agent.  But be careful  They may have access to data, but they are paid well if you sign a long term lease even if the space is not ideal.   But it might be best to do the leg work yourself–look at listings, talk to leasing agents and owners, just walk around the area.  That way you will know what you are looking for when you get the help of a dedicated agent.

Creating your own Coffee Brand (Independent Coffee Shop)

You can create the upscale coffee experience you are want to without spending a lot on franchise fees to pay for someone else’s image.  Coffee is imported from growers in South and Central America; very few coffee companies have exclusive deals with growers.  Industry leaders have made millions turning this commodity into an exclusive experience for your customers.

There are plenty of companies that will sell private labeled coffee.  People won’t know you just called Jose at the wholesale house and had him put your label on it.  They will assume you must have a team of coffee experts flying about the globe to find the true bold taste that your customers can appreciate it.  You can have a custom blend made, or you can take their blend and slap your label on it.  The roasters will actually print up the label for you and put it on the bags.  Some will even help you design your label.  Your customers will be impressed with l lbs bags and 5 lbs bags with your name and logo on it.

For reasons unbeknownst to us, none of these companies seem to be located south of the Orange Curtain.  One issue that we ran into is that these companies do not disclose their wholesale prices because they generally also sell retail; and they don’t want to compete against their customer’s retail operations.

Here are a few wholesale coffee importers and rosters that will put your logo on bags.   Again, the deal is that you need to establish a wholesale relationship with these companies to get their wholesale prices.  You must establish that you are in business and not someone trying to score a good deal for personal use.  Most name brands are reluctant to list them on their website because they do not want to undercut their own customers.

If you have some others let us know and we will add them to our list.

  • Coffee Bean Express –> now Coffee Been Direct www.coffeebeandirect.com/commercial   You need to establish a commercial partnership for specials …
  • California Coffee Company www.californiacoffeecompany.com  (Private Label)
  • Coffee Importers LLC  (Private Label) (website not working)
  • Gavina Coffee gavina.com You see this brand at many independent coffee shops in OC.  This company was formed by Cuban immigrants.   You need to call for the accurate pricing.  Prices in their catalog seemed kind-of high.  They sell merchandiser stuff like table umbrellas, aprons and hats.
  • Java State Coffee www.javaestate.com  Located in the Carolina they offer wholesale prices and free shipping if you buy more than 20 lbs.  They also offer equipment.  They offer Fair Trade coffee which is about $1 more per pound than coffee that has not been certified Fair Trade.  You can download their wholesale catalog, then call for discounts of the stated price that’s available to everyone.
  • K&F Coffee kfcoffee.com/private_label  Located in Portland, they claim they can provide you with everything you need.  Might be worth the trip.  They also offer training.
  • QueensPort Coffee http://www.queensportcoffee.com/Coffees/Wholesale_Coffee_Blends.htm  They are in the peach state, but they list wholesale prices and offer free shipping.  They also offer Torani Coffee Syrups and other supplies.  Their motto is “HELPING COFFEE SHOPS GROW”  As an independent your can buy supplies from wherever you want.  Your customers will never know.  This place seems to compete on price.
  • Custom Coffee Packs.  A start-up coffee whole seller has contacted us from Puerto Rico.  He makes small packs of gourmet coffee designed for gift baskets and he can make custom packages of coffee for your business.  This is great for people who want to brand their own gourmet coffee experience.  He ships from Puerto Rico, so he can take advantage of the US Post Office’s low shipping rates.  He can put your brand name directly on the labels so your gift baskets will have a custom look.  He also can produce small batches for those of you just getting started in business.    [Click here to see samples of his products] 

Surfs Up Many coffees are certified as Fair Trade  This basically means that the growers are not exploited.  Many farmers do not have access to importers or markets because coffee tends to be grown in remote areas.  A lot of them don’t own a car.  In some cases they had to sell their crops for very low prices, and this kept them in poverty.  The Fair Trade organization makes sure that the price they are paid is not too much lower than the price importers pay for coffee.

Reader Suggestion  A reader in Anaheim suggested that these exotic foreign coffees taste awful and that if you are going into business you should serve an American brand like Maxwell House Coffee.  Also, prices are too high.  It used to go for a dime and that was with free refills.

Branded Cups and Supplies.

Companies like Carry out Supplies (See their coffee store inventory  www.carryoutsupplies.com/business-type/coffee-shop.html) in the City of Industry will put your name and logo on cups.  They can print in one color or multi color.  See samples of their printed cups here  They have a 20,000 item minimum and it takes at least 7 weeks to get them.

Coffee Franchising & Licensing Opportunities

Even though most coffee snobs cannot tell good coffee from bad, they will pay for a known brand.  At upteen degrees all the coffees taste about the same—hot.  You may want to consider buying a franchise or licensing the right to sell a coffee brand.

Caribou Coffee www.cariboucoffee.com/page/1/Licensing.jsp is located in British Columbia.  They are expanding into the US and are offering licensing opportunities for high traffic locations.

Gloria Jeans Coffee www.gloriajeans.com/t-franchising.aspx

Diedrich Coffee  This was a popular OC chain of coffee shops founded by local OC residents.  But it was bought out by Starbucks in 2009.  There are a few local Deidrichs around which were franchises.  They were not converted to Starbucks, but they are not selling any more franchises.  The company focuses on making equipment for roasting coffee.

It’s a Grind www.itsagrindcoffeehousefranchise.com/content/focus-leads-matter-lead-scoring  They say total start up costs are from $311,000 – $485,000 and the initial franchise fee is $30,000.  There is also a 7% royalty and advertising fee on gross sales.  To qualify you need to have a net worth of $450,000 and liquid assets of $250,000.  They do not offer in-house financing.  Their coffee houses have around 15 full and part time employees—it doesn’t look like they want to do the mom and pop thing.

Java Dave’s javadavescoffee.com/?showText=licensing.htm  (Editor’s note:  Java Dave’s is the BEST NAME.  It’s catchy, easy to remember and just plain cool! ) This Oklahoma based firm seems to have the most flexible licensing terms.  They tell you straight up that the licensing fee is $125/year.  Their start up fees go from $500-$3,500.  There is in royalty fee per se, but it is assumed that you will be buying mostly their coffee.  You are not locked into using their name, equipment, or participating in their advertising program.  Based on their Q & A. you are not locked into buying any of their other stuff—they just want you to buy $500 of stuff per month.  –But if it doesn’t work out, you have just lost your licensing fee, you have to take a loss on the equipment you liquidate, and possibly a lifetime supply of Java Dave’s coffee in your garage.

Healthy Coffee Cafe  Looks like they are no longer in business.  Please contact us to let us know your status.  Someone told us they just opened a franchise in the Westminster Mall.  As the name implies, they have a “healthy” angle on drinking coffee.  Their coffee has herbs and Ginseng which allows it to reduce stress and give you good energy.  They also use “cane sugar” which is better than regular sugars.  This is an upscale product, and they are an international brand.  They have a direct sales opperation on their website  www.healthycoffee.com/opportunity_compensation.php  They offer opportunities for retail, cart, and vending machine sales. They are clear that this is a  Multi Level Marketing scheme which allows you to make money by selling their product and getting people under you to sell it.  You have to buy to the MLM.  And high volume sellers are reworded with a luxury car program.  www.healthycoffee.com/opportunity_car-club.php  They franchis the retail opperations www.healthycoffee.com/cafe.php  but we didn’t find any details or disclosures in faq format on their website.

Maui Wowi  Okay, the name might be better known for a different product.  But this company has been expanding through its Franchise Model.  Based on a Bloomberg Taking Stock interview, this company not restrict franchisees to a territory.  Many set up in a Maui Wowi trailer which you might have seen at the OC Fair.  You can be full time or part time.  They have an advantage over the competition because of their authentic Hawaiian Coffee and Smoothies.  Coffee beans come in from the Aloha State and is roasted in their facility before being shipped out to their franchisees.  According to what we saw on the aforementioned TV interview, it $70,000 can get you going.   Video–Founder explains Concept   Video Franchise Clip

As with any other franchise opportunity, investors should be cautious.  We found this website which shares the views of people who are not that happy with this concept.

Pete’s Coffee.  It looks like they are company owned stores.  We thought we would include it because when we visited one someone was asking about buying a Pete’s Coffee Franchise and the person working behind the counter did not know.

Seattle’s Best  http://www.seattlesbestfranchise.com/about-us.html  Their franchise website has been taken down.  According to the website, in 2011, they are currently looking for franchisees in Southern California.  You are paying for a well recognized brand and a proven system.  The franchise fee is $30,000 + around 7% of revenues and the total initial investment is from $200,000 to $450,000 depending on factors such as location.  The ideal candidate has a new worth of at least $500,000 and liquid assets of at least $125,000.  You will be required to get your own financing.  (Thanks for being honest and putting it out there !!!!)  As it turns out this company is owned/affiliated with Starbucks, and a franchise owner has sued both companies because of alleged misrepresentation about profit potential and exclusivity of territory (They opened up a competing store too close by.)  We don’t know if this is true or not (article)

Starbucks  This is the biggest coffee ship in our area.  According to Urbanspoon http://www.urbanspoon.com/ch/20/21622/OC/Starbucks.html there are currently 138 Starbucks in Orange County.  Starbucks does not seem to franchise in our area (they seem to be affiliated-own-other brands which do franchise see seattle’s best above.)  But as they offer the opportunity to open a licensed operation in high traffic areas such as a building lobby, college or large retail store.  http://www.starbucks.com/business/licensed-stores

Coffee Carts and Kiosks

Coffee Cart Biz coffeecartbiz.com This company is just south of Oceanside.  They build custom carts and Kiosks.  They also sell equipment—everything you need to get started.

Bridge Industry of Washington   For around $10,000 plus shipping, they offer several types of carts that you can put in a larger building such as a mall, transport center, or convention center these are permanent structures.  They also have designed aluminum carts that can fit through a standard doorway (?36″ or 40″ … we are not sure what’s standard) that have a fridge, power outlets, a sink with water tank.  These would be good if you had to set up for events or had a facility that has storage.  They go for about $7,500 new, but you could potentially find used ones on the internet for less.

Buy and Existing Business

You will want to work with a business broker.  See our page on buying or selling a business for more info.


Coffee Shop Start Up Costs

(incomplete list)

Deposits–If you are renting space you can expect to pay a couple of months in deposit.  You may ask for some help with the first couple of months.  This is sometimes called a tenant improvement allowance.

General Site Improvement

  • Signage  Figure $800 for a general store sign.  Be sure to ask if it costs extra to be on the shopping center’s sign.
  • Flooring  Ball park it at $2.25/sq ft.
  • Paint Figure $1,200 for a fresh coat of paint
  • Furniture, display cases,  and store fixtures.  The good news is that you can find a lot of this used as many restaurants don’t last that long.
  • Store fixtures.  The counter, drink prep area … These may need to be custom built to fit your space.
  • Electrical Upgrade.  You will be running a lot of machines that use a lot of power.  Figure $400 for an electrician to run some lines from the circuit box.  Commercial Espresso Machines use a lot of power.  220v 19amp and will need special outlets.
  • Plumbing.  The health department will require at least two sinks.  One for washing stuff and one for employees to wash their hands.  You will also need to have hot water and probably a third Mop Sink so you can clean the floor.
  • ADA compliant rest rooms.  Since you will be serving food and drinks to the public, you may be required to install restrooms that meet the Americans with Disabilities Act requirements.   If the restrooms look like the ones in your house, you will need to upgrade them by increasing the size, installing a large with door, installing hand rails, installing a shelf type sink…  This might cost up to $15,000.  This is something you may want to talk about before you sign the lease because it’s your responsibility as the business owner.
  • Government permits.  The major cost of this is delay.  If you have to do any upgrades, you will need to get a permit for that, you will need a business permit from the city, you will need a permit from the health department, and you will need a re-sale permit from the State Board of Equalization.   See our section on business regulatory compliance for more info.   You could ball park this expense at around $3,000 depending on the city you are going to and the aforementioned factors.
  • Credit card swipper and a Cash Register.  There are some value to going through a warehouse club rather than a bank.  See our business links section for more info.
  • Miscellaneous items like cream holders, mops, utensils. …

Coffee Shop Equipment

  • Espresso machine and Espresso Grinder
  • Large bean coffee grinder
  • Coffee brewers (Drip Brewers)
  • Fridge–you will need a fridge for milk storage …
  • If you will be serving food, you may need a refrigerated display case, a freezer, soda dispenser and ice maker.
Surf’s Up  Your best deal might be on E-Bay or Craigslist.  Many people who have gone out of business now post ads and sell the equipment themselves rather than selling to a liquidator.  Ask why people are selling the equipment used.  Generally people keep using them until they go out of business or the equipment starts having issues.  Refrigeration can look like it’s working okay, but if it cannot get down to the right temp, it’s useless; and  machines with motors may work okay for a few seconds.

Used Equipment

One place to check out is the Dish Factory In addition to discounts on dishes, cups and such they liquidate used restaurant equipment.  They only put the more expensive stuff up on the internet so you have to visit their 35,000 sq ft location in LA and their other location in Colton.  Another interesting place is Kohn Megibow Sales in Anaheim  http://kmcsales.com/index.htm.  They have auctions of stuff that’s left over when a restaurant goes out of business or is evicted–and you can get some real bargains if you are the only one interested in a piece of equipment.  They deal with Restaurant stuff, but can get some coffee shop stuff in occasionally.  If you need display cases, booths, tables they might have what you want.  It’s a similar deal with Economy Equipment near San Diego http://www.economyrestaurantequip.com/  Since it’s a drive, you may want to e-mail them and see if they have any specific equipment.
If you have time, you will want to revisit these places again and again because you never know when the stuff you want will be available.
Another interesting company we found is Creative Coffee of Texas.  This company rebuilds coffee equipment and guarantees it.  We could not find any local business  that does the same thing. (See FN1)  But given the cost of new equipment, you might want to look into it.  They don’t list any prices on their website.  We would suggest e-mailing them with the items that you need since they might not have everything on their website.
There are plenty of slick websites selling gourmet equipment.  So be careful before you buy off them–just because they come up on top of the google list does not mean they necessarily offer the best value.  The information below is based on prices on one such website we found a couple of years ago.  We have been asked not to mention their name.  Assuming a rule-of-thumb 65% discount for used equipment, 1,000 sq foot store going at between $2 and $3 sq ft and the possibility of just using an office fridge, we came up with these ball park numbers.  We have assumed that you are starting from scratch and you will need tome to get permits along with three months to get going.

 

Coffee Shop Start Up Ball-Park Budget Estimate

Lower Estimate Higher Estimate
Three Months of Rent  $                 6,000.00  $         10,500.00
Insurance  $                 1,400.00  $           2,000.00
Paint/Flooring  $                 2,500.00  $           4,000.00
Customer Furnature  $                 3,000.00  $           4,000.00
Dishes etc  $                    800.00  $           1,200.00
Store Fixtures  $                 4,000.00  $         12,000.00
Plumbing Electrical  $                    800.00  $           1,500.00
Permits  $                 1,000.00  $           3,000.00
Cash Register  $                    200.00  $           2,000.00
Misc  $                    600.00  $           1,000.00
Equipment  Used @ 65% New cost  New
2lbs Coffee Grinder  $                    479.05  $             737.00
Bunn Dual airport brewers  $                    856.70  $           1,318.00
Second set of Brewers  $                    856.70  $           1,318.00
Commercial Espresso Machine  $                 3,328.00  $           5,120.00
Espresso Grinder  $                    466.70  $             718.00
Fridge  $                    300.00  $           1,500.00
Ice Maker  $             900.00
Blender  $             365.00
 Inventory  $ 3,000  $ 3,000
 $                29,587.15  $         56,176.00

 

Customer Acquisition Costs — um, Not that quantifiable.

Once you open your doors, you will need some time and money to connect with your potential customers.  This is one expense that’s easy to forget, but there is no way to avoid it.  It is hard to know how long this will take.  Assuming a couple months would be short sighted.

  • You will need to spend money to advertise your establishment.  This is something that you cannot skimp on.  If no one knows where you are, you cannot succeed.
  • Lead time.  It will take a while for people to find you.  Once they do, you can hope they will become repeat customers.  Think about all the places you spend money at.  Unless you have moved recently, you have been going to most of them for years.  You don’t automatically go to new places.  So don’t be surprised if it takes people a couple of years to find you even if you are just around the corner.

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FN1.  Please note, per request, links and references to http://www.kaldi.com and Kaldi Coffee have been removed from this page.  References to this business should not be considered and endorsement of their products.  To be clear, we have not had a business or other type of relationship with this company.  If you have any questions about their products or services, please contact the company directly.

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