Since the early 90s, with the explosion in popularity of national chains like Starbucks and numerous local shops, Americans have made visiting coffee shops a part of their daily lives. And even with a recent pandemic, the coffee shop industry was still able to grow between 2018 and 2023 at a rate of 1.4%. The total revenue of the sector is expected to continue to grow by 3.5% through 2029.
Coffee is a highly consumable product, and the demand for specialty coffee has grown steadily in recent years. However, the success of coffee shops is due to more than just coffee. Local and national shops serve as gathering places for friends, families, and coworkers. Meeting for a cup of coffee or tea gives people a sense of community and social interaction.
By offering high-quality coffee, unique blends, and a welcoming atmosphere, a coffee shop can attract a loyal customer base that is willing to pay a premium for their daily dose of caffeine. If you have a love of coffee and community, you may have thought about starting your own coffee shop business. The good news is that there are several types of business models used by modern coffee shops which now makes it possible for just about any passionate entrepreneur to start their own.
In this article, we’ll look at a few of the main business models used by coffee shops.
The oldest and most well-known business model used by coffee shop companies is the retail model. Using this model, coffee shops sell coffee and other related products directly to customers in a physical location. However, the appeal is not in the coffee alone, but also in the atmosphere.
Typically, the coffee shop will create a welcoming and comfortable atmosphere for customers to enjoy their coffee. This means providing a variety of seating options. Outside seating, couches with coffee tables, and a variety of comfortable chairs are often found in some of the most popular coffee shops. This was one of the ways Starbucks attracted its customer base.
Another key to this model is to provide something else besides coffee and a nice atmosphere. Shops that use the retail business model also provide pastries and other snacks to attract and retain customers.
One advantage of the retail business model is that it allows coffee shops to create a physical presence in their community and build relationships with customers. However, the retail business model can also come with challenges. For one, coffee shops are usually very labor intensive. This means one of the goals for your coffee shop should be to hire the right staff and to retain them. You will also have costs for rent, supplies, and inventory management, to name a few.
Some coffee shops operate using the franchise business model. This allows entrepreneurs an opportunity to own coffee shops under an established brand and business model. Like with all franchises, franchisees typically pay a fee to the franchisor in exchange for access to the brand, training, and ongoing support.
Many coffee shops use the franchise model to expand their brand and reach new markets. Under this model, a coffee shop franchisor licenses its brand and business model to a franchisee, who operates its coffee shop under the established brand.
Here are some of the most well-known coffee shop franchises:
- Dunkin’ (Previously Dunkin’ Donuts)
- Scooter’s Coffee
- Biggby Coffee
- Aroma Joe’s Coffee
- Dunn Brothers Coffee
- Cafe Barbera
- The Human Bean
- The Coffee Bean and Tea Leaf
Although a company like Starbucks does not have franchises, they do allow licensing of their brand.
Under this model, the franchisor typically provides training, support, and ongoing assistance to the franchisee. In exchange, the franchisor receives fees and a share of the franchisee’s revenue. The franchisee benefits from the established brand and business model, which can help to attract customers and build a loyal customer base.
There are several pros and cons of the franchise model that potential owners need to be aware of. For coffee shop franchisors, the franchise model can be an effective way to expand their business. All without taking on the full cost and risk of opening new locations. The franchisor also benefits from a share of the franchisee’s revenue, which can provide a steady source of income.
Like with every franchise, one major challenge is ensuring consistency across all franchise locations. With so many franchisees, it can become difficult to ensure that customers are provided the same great experience no matter the location they choose to visit.
The mobile model is a relatively new business model that some coffee shops use to reach customers who are on the go. Under this model, coffee shops operate mobile coffee trucks or carts that are set up at various locations, such as busy street corners, parks, or events. Essentially, this type of shop is more closely related to a food truck business than a traditional coffee shop.
A benefit to this type of business model is the ease of launch and operation. Most mobile coffee trucks and carts startup costs can range from $5,000 to $50,000. Costs depend on many different factors such as the size of the cart or truck. This business model also comes with less operating costs than a traditional shop. Costs like rent, staff, and utilities are nonexistent or are minimized using the mobile model.
However, the mobile coffee shop model comes with some unique challenges. Including some that are out of the control of the business owner. For example, as a mobile business that operates outside, you are susceptible to weather conditions. If it rains, snows, or is too warm outside, the mobile coffee shop owner may struggle to gain the foot traffic they need to sell their products.
Another challenge is the nature of being mobile. Shop owners must be able to transport their equipment and supplies from location to location and adapt to changing customer needs and preferences.
Another, fairly new, addition to the coffee shop business family is subscription coffee boxes and services. Coffee manufacturers and sellers are now using this model to deliver their coffee right to their customers’ homes each month. Using this model, coffee sellers are shipping regular deliveries of coffee beans or other products regularly. This can be a way to generate predictable revenue and build a loyal customer base. Unlike the traditional coffee shop, however, most companies that use this model are internet-based.
Coffee shops that use the subscription model typically offer a range of subscription options. For example, they may offer monthly, bi-monthly, or quarterly subscriptions, as well as different blends and roast levels to appeal to different tastes.
Here are some of the most popular subscription coffee companies:
- Trade Coffee
- Atlas Coffee Club
- Bean Box
- Blue Bottle
To maximize the potential of this business model, entrepreneurs must find their target market and do a really good job at serving them. They must also manage their inventory carefully to ensure that they have enough products on hand to fulfill subscription orders. Shops must also keep prices competitive as there are several other services for customers to choose from.
Gone are the days of coffee shops being a one-dimensional location-based business. Now, coffee shop owners can look to a variety of ways to drive brand recognition, increase their customer base, and grow revenues. The urban population continues to increase and so is the amount of disposable income for many. With coffee product demands increasing each year, now is the time to launch your coffee shop dreams. But, be sure to weigh the pros and cons and select the right business model to drive the success of your business.