There are currently approximately 880 active coffee shops in Israel. Some are independent and some franchises. Among more established chains are Kapulsky and Apropo. Over the last few years, a number of new chains have penetrated the industry. Among them Aroma, Ilan’s, and Café Hillel. These chains offer some deviation from the traditional coffee shop attitude, such as orders placed at the counter, fast food take away, etc…
- Coffee shops are intended for entertainment of all age groups, therefore operating hours are throughout the day and until midnight.
- Coffee shops have very high turnover rates. Coffee shops that survive for longer periods are well managed and based on steady clientele.
- As they are a recreational facility, coffee shops are founded on a certain atmosphere, with the purpose of creating exclusiveness.
- The industry is affected by seasonality.
Customers: Defining the Target Market and its Size, Market segmenting
Potential industry clientele includes people seeking recreation, segmented according to a number of factors: age and outing preferences, regular customers vs. occasional/random customers, and geographical location.
An additional market potential is derived from the population of employees and businesspersons conducting business meetings outside the office.
The industry is highly competitive. Competitors can be divided into two main groups:
- Direct competitors- coffee shops appealing to the same target market and/or coffee shops located in the same geographical location. As these two parameters grow, so will competition.
- Indirect competitors- other recreational businesses that combine dining and drinking- pubs, restaurants, deliveries, etc.
Vendors are divided into two main groups:
- Equipment vendors: kitchen supplies, dining area supplies, and cutlery.
- Food and Drink vendors.
Marketing resources vary according to coffee shop characteristics and potential clientele. Some of the widely used advertising and marketing methods for the industry are street signs, lunch specials, advertising, and PR.
Being associated with a well-known chain will enable the coffee shop to enjoy marketing and advertising conducted by the chain.
High importance is given reputation and regular customers.
Factors Affecting Success:
Main factors that may affect the coffee shop’s success are location, quality of food and service, design, appropriating coffee shop’s operating hours to clientele and creation of the most appropriate atmosphere for the target market.
In addition, the industry’s competitiveness and dynamics are an additional issue, as they constitute alternatives.
High investment, professional knowledge in running coffee, food, and drink facilities, the process of obtaining a business license from local authorities.
Opening a coffee shop requires recruitment and employment of appropriate human resources. Human resources required are a coffee shop manager, counter workers, cook, waiters, and general workers.
Kitchen equipment and coffee shop furniture and equipment including chairs, tables, air conditioning, counter, cake refrigerator, kitchenware and cutlery, computer.
Investment plan for a coffee shop should include investment in construction, remodeling, design, and purchase of equipment according to the list presented above.
The cost of each varies according to the type, size, and level of planned coffee shop. Acquiring a location where a coffee shop had previously been active could decrease remodeling and design cost, and may ease the process of receiving a business license.
Average investment required to open a coffee shop is 50-100 thousand dollars.
Industry revenue and profitability
Coffee shops offering coffee, cakes, and light meals only: 2003 yearly revenue averaged 1,015,000 NIS.
Coffee shops offering all the above plus main dishes: 2003 yearly revenue averaged 1,420,000 NIS
Note that these amounts are only an estimate.
Factors that affect revenue and profitability: price level, whether the business is operated on weekends and holidays, whether drinks are served in a can/bottle or a cup, self-baking of goods.
The food and restaurant industry is a high-risk industry- there are many new business, but the number of failed or closed businesses is high as well. The highest investment required is in appropriating and remodeling the location, an investment which will be completely lost in case of failure. A partial return on the supply investment may be possible, as the market is abundant with used supplies.
Licenses and Certifications:
In order to open a new coffee shop a business license is required from local authorities, the police, and the Ministry of Health, after qualifying for such a permit.
Business insurance (for content and inventory), third party insurance, employer’s liability insurance, loss of income insurance, and food poisoning insurance. In addition to the above, an insurance agent should be consulted in regards to the need for additional insurance.