On the Road to Retailer Profitability, Part 1

Let’s talk about how to be profitable.  Simple concept but for some it is difficult to attain.  There are so many areas to look at whether your shop is already open or you are just about to open a coffee shop.  This will be the first of a two-part article on the subject.

It all starts with an excellent location because all the marketing, cost control and working your arse off in the shop are not going to help if customers cannot find your door and get to it easily.   Furthermore if you fall into the bad location dilemma, even if you iron out all of your costs and increase sales it does not mean a thing if you yourself are still left working 150hrs a week from now until the end of time because you can’t afford to pay more employees.  It’s physically not possible.   Ask me how I know this.

What is particular is that if your rent is way out of line, there is not much you can do unless you renegotiate your lease, complete it, get out of it or buy it out and move. This is often the biggest $$$ issue before COGS and payroll.  Having said all of this presuming you are in a good location (A or B tier), let’s look at a few areas that can give you more profit as a coffee retailer.

Pastries and food are almost always a problem area.  When opening a coffee shop this can be the toughest area to control until you get some sales history.  Then you can base purchasing on historical figures. Fact is sometimes it is the waste factor (amount tossed at day-end) or the cost of the ingredients if you are baking in-house.  You should watch your ordering closely and track all the waste.  That goes for everything.   As well, your staff should always be trained properly to be consistent.  Anyone that cannot do what you tell them needs to look for a new job. That is just the way it is.

Unfortunately theft is also easy for some and a way for you to lose revenue.  Be on the lookout for free coffee drinker friends of employees and employees helping themselves rather than buying.  You can weigh your coffee beans and measure your products to know what you actually use each day.  Match that up with your sales figures and you can see what you should have in cash vs. inventory used.  This is where a POS comes in handy to achieve this much faster.

Be sure to keep a log of everything that is thrown out.  You also need to keep a log of any comps as well so you know where it is all going.  In the end, your waste should not be more than 2.5%, max.  Even that is a little high.  Of course lower is always better.  However, your waste should be accounted for in your pricing.  Retool your menu prices if need be; once a year is not uncommon to raise prices.  Sometimes just increasing your items a nickel will show high on the bottom line.  I try to keep COGS at a high of 33% and a low of 28%.  For the smaller operator the lower is harder especially since saving sometimes means spending more cash.  However if you are only saving 50 cents on a bottle of syrup is it necessary to spend more cash for the entire pallet?  Probably not.

Another area of concern is payroll.   When starting a coffee shop running high on staff hours can spend through your cash fast, but running too light may make customers leave if the wait is too long so finding the balance is key here.  It will take some time but if you keep on it, you will get the right balance.  I have always budgeted 30% or lower for labor, including my salary.  This would include manager salary as well if you are not managing hands-on and working elsewhere (pronounced ‘not taking a paycheck’).

I wish that this was a finite list but no such luck.  Next time we will dive into a few other areas to watch as well as increasing sales.  Try to think outside of the box when it comes to watching costs.  With a little practice however you should see an increase in your bottom line.

My name is Tony DiCorpo, and I am a coffee roaster, coffee shop business consultant and barista trainer.  I am a coffee shop business consultant and have an eBook I wrote on how to start a coffee shop.  I also own Troubadour Coffee Roasting Co. where I sell coffee and espresso equipment and where you can buy coffee beans.


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