Opening a cafe

June 5, 2006 8:54 PM

Opening a cafe: can it be profitable?

A friend of mine is thinking of opening a cafe/art gallery. What kind of pitfalls should he try to avoid? Can it be profitable in the long run? Anyone with experience running a cafe/restaurant is a plus. For what it's worth he's looking at doing it in the tourist area of Niagara Falls, ON.

posted by saraswati to work & money (13 comments total)

Slate had a piece that might be helpful: Bitter Brew
posted by shoos at 9:15 PM on June 5, 2006 [1 favorite]

My Mom renovated and then ran an antique business in this house in Virgil Ontario (very near Niagara-on-the-Lake). When she sold, the business became a cafe & bakery (The Pie Plate). From all appearances they seem to be doing well.

My guess is that they have captured some Niagara-on-the-Lake type customers without having to pay Queen Street in Niagara-on-the-Lake rents. In hindsight that was a perfect recipe for a good shot at success. I would be surprised if anything that posh could work in Niagara Falls, which is a blue collar town, with campy/touristy parts near the Casino / Falls - not the kind of place where you can charge big bucks for a coffee and a slice of pie..
posted by Chuckles at 9:26 PM on June 5, 2006

From what I've heard, in general any restaurant should expect to lose money for the first two years of operation. If you don't have a big enough wad of investment capital to do that, you won't make it.

I think I read that about half the new restaurants eventually go under.

But it's a lot safer if you open an established franchise, in part because you benefit from name recognition, and in part because the franchiser will help you set up the business. They also have the supply chain set up for you.
posted by Steven C. Den Beste at 10:18 PM on June 5, 2006

It can't be said enough; location is everything, everything.
posted by 517 at 10:22 PM on June 5, 2006

517 is right. Get your location right and then source your suppliers.

Once you have picked your suppliers, create as good a relationship as you can with your rep. Your rep will have execution targets to meet and by being forthcoming in helping them, you place yourself in good stead to get better deals, service and any premium items (like glassware, umbrellas, signage etc). Also, the execution targets are generally designed to be beneficial to your business, so they certainly can't hurt.

In short, make your suppliers work for you.
posted by dantodd at 12:29 AM on June 6, 2006

Not only is location important, but identifying the target market is essential too, and pitching the product accordingly. Niagara Falls will have primarily a passing tourist trade, and the people who live there to service that trade.

When I was in Niagara Falls on the 4th July weekend last year, Denny's was packed to the doors whilst a couple of independent (and slightly (but not much) more expensive) places selling coffee/muffins/desserts were practically empty.

Tourists, especially day trippers, will often seek out the familiar. Locals will probably not pay top dollar for coffee.
posted by essexjan at 1:29 AM on June 6, 2006

Coffee to the People has a relevant blog entry.
posted by joeclark at 5:56 AM on June 6, 2006

I've started a couple of coffee shops. Profitability has a lot to do with location and local competition, but it also has a lot to do with experience. When my partner and I opened, between the two of us we had 6-7 years of coffee shop experience. Year One reported a profit and we ended up selling the first location for a pretty tidy profit.

Experience matters because it teaches you deployment, scheduling, and cash management. You need to know where to spend your money. For instance, instead of buying fancy chairs, expensive cups, and advertising (like ads in the paper, commercials, or hiring a professional marketing company), a great deal of the investment went into buying the best espresso machine and an efficient "bar".

Because we were experienced, training people was second nature to us. We were able to teach our employees our values early because we already had them established. Further, we were able to convey our passion to our customers, which provided in itself a marketing campaign (because everyone and their mother loves raving about this new coffee shop they just found; "You just gotta try it!").

My e-mail is in my profile. If you have specific questions about vendors, pricing, signage, scheduling, or costs in general, feel free to drop me a line. But I can't really comment on Niagara Falls as a location. I've only been there a few times and only as a tourist.
posted by SeizeTheDay at 6:16 AM on June 6, 2006 [1 favorite]

I'll tell you why half the restaurants fail:

1. Bad location
2. Not enough money to get past the first two months after opening
2b. Part of the reason the money's gone is because they bought shiny new equipment and/or blew it on a branding consultation
3. No differentiation in terms of product
4. Owner didn't realize they'd have to work so hard
5. Hiring, motivating and keeping staff is like passing a bowling ball twice a week until you get a good crew

There's more, but that's the top five.

Is your friend ready to work 12 - 16 hour days? For how long? Does your friend have another source of income in the event the cafe doesn't take off as fast as predicted?

What kind of food would your friend sell? Would it be made on site? If so, he will need to get to know the health dept regulations and get equipment. If it'll be bought from a third party, does he have that sourced? If he's getting it from a third party (I'm thinking of a food distributor like FSA, US Foodservice, Sysco, etc), who else serves those same items? Chances are there's quite a few.

Are there any other cafes or galleries in the area? If so, what are they doing right? What are they doing wrong? Look at the competition and look for opportunities. Maybe nobody serves a good breakfast. Maybe lunches suck. Maybe the tourists are cheap. All of those things are opportunities.

A lot of people get married to their concept, can't see the forest for the trees and refuse to change. At the same time there are those who do everything customers ask of them, then go broke trying to be everything to everyone. You have to strike a balance.

If he still wants to do it, GO TO AUCTIONS TO OUTFIT THE KITCHEN. Let the dumb shits pay list price for that ten burner stove, two door freezer and sheet pans. He might have to clean the equipment, but it's a small price to pay. It also gives you the opportunity to figure out how stuff works so you're not paying some dude $350 to put a new window in the convection oven when you can do it yourself.
posted by Atom12 at 7:00 AM on June 6, 2006

I can't stress enough that your friend needs to be fully capitalized, and it's always more than you think you need.

Before your friend does anything, he/she needs to write a full business plan with realistic financial projections. The local university or Canada's equivalent of the Small Business Administration should be able to help. This will tell them how much money they will need to start and set milestones that they can track their progress by.

Also, once they've picked out their location, have the local health department, fire inspectors and code enforcement officials walk through the space and point out any deficiencies and requirements. The last thing you need is to have everything built out and then find out you need a bigger grease trap before you can get your opening permit.

If the space is big enough, your friend should look into renting the gallery for special events. The easiest way to do that is to hold special events that go beyond the usual artist opening: dance classes, charity functions, Japanese tea ceremony demonstrations. Stage events that will interest people and get them thinking about the gallery as somewhere to gather. A local gallery in my town did this and it soon became a hot spot to hold weddings, dinners, birthday parties, etc. If he can provide the catering, all the better.
posted by lemoncello at 9:26 AM on June 6, 2006

I also agree with Atom12 about getting most of the equipment second-hand. However, if your friend has enough cash, they should seriously consider buying the refrigeration new, since food storage at proper temps is such a serious issue. Buying new means that if the compressor goes out the first week or the seals are bad, you have some recourse other than shelling out $$ for repairs.
posted by lemoncello at 1:23 PM on June 6, 2006

Yep. Don't go cheap on refrigerators or freezers. First, used isn't that much cheaper than new in those cases, and second, compressors are expensive.
posted by Atom12 at 6:33 AM on June 7, 2006

To add to lemoncello's comment, in the event the inspectors can't or won't look at the space pre-construction, they'll certainly review blueprints and plans. In some cases (ours, for one) we had to submit blueprints first. They'll still come and inspect it, but that was the first step. Be prepared for many inspections. In our case, the plumbing inspector who checked out the bathroom didn't care that it was handicap accessible. The person in charge of accessibility didn't care about the plumbing, but we had to please both and neither gave us tips about the other. Be prepared for beaurocracy.

If he's really hot on the cafe idea he should visit with owners of businesses similar to his and ask questions. Ideally this will be in cities far away from where he'll be opening -- otherwise it could be seen as an attempt to steal recipes/concepts. Make appointments, and be prepared for the cold shoulder. There are literally thirty people with an idea (oh, a tea and crumpet shop would be fun!) who will come in and waste our time and never draft a business plan, let alone open something.

Feel free to email me with questions.
posted by Atom12 at 6:48 AM on June 7, 2006