If you are looking to enter the UK's bustling coffee market (or expand an existing franchise), you are certainly choosing to be part of a thriving industry that is rich with potential profits.
This is supported by the market's performance in 2016, as the UK's total coffee shop market grew to include 22,845 outlets and attained a cumulative value of £8.9 billion. This is represented by overall growth of 6% and an increase in turnover to the tune of 12%, which highlights the true potential that exists in the marketplace.
While such growth may be alluring to aspiring and existing coffee shop-owners alike, however, the potential in this market can only be realised by those who make informed, strategic and data driven decisions. This is particularly true when selecting the right location for your coffee shop, and one that can help your brand to achieve all of its growth objectives.
So, here are some key considerations when looking to establish your first coffee shop or expand an existing venture.
1. Your Core Business Objectives
Let's start at the beginning; as it is simply impossible to select a relevant location for your store without first establishing a clear set of business objectives.
After all, these objectives should be used to drive every single commercial decision, as this ensures that there remains an holistic connection between your actions and the individual goals that you are looking to accomplish.
When it comes to selecting a premises, you need to determine whether or not each potential unit is capable of helping you to achieve your goals. You will need to pay particular attention to the size of your outlet, as this offers an insight into capacity and can be measured against your revenue projections.
Not only this; but the orientation and layout of each venue must also be considered, as this will also impact on the capacity of the premises and your ability to implement a chosen delivery model cost-effectively.
2. Overhead Costs and Your Potential ROI
Even if you are able to locate suitably sized outlets, you will need to ensure that you can afford the space in question. This is not as simple as appraising a single, monthly lease sum, however, as you must calculate your total overheads and understand how this impacts on your projected profits and ROI.
In simple terms, you need to make sure that your projected sales can cover the cost of securing a lease and running your establishment. You will also need to allow for a viable profit margin, and one that helps to sustain your venture over a prolonged period of time.
This is crucial, as a staggering 96% of all businesses are thought to fail over the course of 10 years, and one of the main reasons for this is an inability to manage costs and achieve a consistent profit.
When calculating total overheads, add your monthly lease repayment to recurring costs such as gas, electricity and stocking your inventory. If you do find that your costs exceed your projected sales, you will need to either find an alternative location or cut expenses elsewhere (without impacting on the quality or the delivery of your product, of course).
3. Your Market Share and the Location of Your Competition
The precise market share among UK coffee shops makes for an interesting study, as while large brands and chains often drive growth in the sector they account for just 31% of the industry as a whole.
In fact, it is non-specialist outlets such as pubs and hotels that now dominate the market, claiming a 39% share and accounting for nearly four in 10 outlets.
Interestingly, independent coffee shops only account for 30% of the market, so anyone looking to enter or expand in this niche faces a particularly steep challenge. It is therefore crucial that you take the time to refine your value proposition and determine any competitive advantage that you have as a brand, before using this insight to estimate how much of the market share you will effectively be able to target from a specific location.
Your choice of location should also be influenced by your proximity to competing outlets, as while high streets and shopping centres may be popular destinations they are also likely to drive intense levels of competition. This can quickly eat in to any sales that you have projected, diminishing your market share as you lose business to more established rivals.
So while you will need to select a location with high footfall, you must balance this against your brand's true value proposition and its ability to compete directly with rivals.
4. Pricing and Your Target Market
On a similar note, you will also need to consider your products and the target market that they are aimed at when signing a commercial lease. Just as you need to be wary of locating your business in close proximity to rival brands, for example, you must also ensure that your proposition is viable from the perspective of both pricing and marketing.
If you aim to establish yourself as an independent seller of expensive, gourmet coffee, you will need to select a premium location that can bear your price points while providing you with access to motivated customers. Similarly, there is little point in selling simple but affordable beverages in a high end location, as you are unlikely to reach your target market and may give the impression that you are selling an inferior product.
Data is key here, as you need to a develop a clear understanding of your brand, its menu and core consumer demographics that they are aimed at. You can then use tools such as analytical CRM to profile your potential customers, as you look to observe their behaviour and identify the locations in which they can be effectively targeted.
This will not only help you to set-up in the right area, but it will also ensure that you sell your products through the most effective outlets.
5. The Visibility of the Location
We have already touched on the challenges posed by setting-up in an ultra-competitive location. This is why selecting viable premises is such delicate balancing act, as you need to secure a location that offers high levels of footfall and access to a viable market share.
Crucially, the location that you choose must also boast excellent visibility. After all, there is little point in securing a shopping centre unit if you are buried away on the third floor, while locations that are set back from the road or in secluded areas can be equally difficult to sustain over time.
Such locations tend to be cheaper to lease, of course, but this is the ultimate false economy if it damages the long-term growth of your business or forces you to spend excessive amounts on marketing and advertising.
So rather than creating a huge challenge for yourself and increasing your long-term cost base, it is better to select a location that is clearly visible and accessible to customers from the outset. High street outlets are particularly suitable for independent shops, but the key is to prioritise locations that benefit from high traffic, can be viewed from afar and are easily accessible to multiple demographics.
6. The Local Area and its Demographics
On a final note, the area that surrounds your outlet is also a key consideration. While you will have already researched a great deal of demographic data when appraising which locations offer you access to your targeted customer segments, however, you should also dig deeper to learn more about your potential consumers and the place in which they live.
Firstly, you will need to understand whether your target market are likely to visit your coffee shop recreationally or on the way to work, as this influences everything from your pricing structure and opening hours to the nature of the service that you deliver.
Additionally, you will need to garner knowledge about local traffic patterns within the region. The presence of bottlenecks could deter customers from visiting your shop at specific times of the day, for example, particularly during the rush hour or the school run. Identifying these issues early can help you to overcome them, or select an alternative location in more extreme cases.
Parking is also an important consideration, especially if you are located in a shopping centre or recreational area. The customers accessed here are likely to spend more time in-store, meaning that you will need to offer suitable parking space within close proximity to the shop.
This is less of an issue when targeting a professional consumer base, but this is why accessing demographic and local area data can ensure that you make an informed decision regarding the location of your coffee shop.
The Bottom Line
As you can see, selecting a location for your new (or latest) coffee shop can be a deceptively challenging pastime. It certainly requires a great deal of knowledge and forethought, particularly if you are to choose a cost-effective location that drives profitability and affords you access to your target markets.