Cost of a Coffee

I read an article in the Sydney morning Herald this week and it really resonated with me. The article used an image of a cup of coffee to describe how onerous legal wages are, and I decided to modify this image to explain the typical costs familiar to me within Sydney’s café industry; perhaps the most accessible of all businesses within the food services sector.

“It’s the free market at work… You get your liquor licence, you get your lease, you do your fit out, hire a chef and buy a coffee machine and you’re a restaurant.” Juliana Payne, chief executive of industry lobby Restaurant & Catering Australia

Each day I talk to new-business-owners-to-be who are excited about making their mark on an already competitive, and somewhat fragmented food and beverage hospitality industry. Their excitement is palpable, and why wouldn’t it be? Sydney’s food scene is vibrant and exciting, celebrity chefs and new concepts are awash. It is an alluring industry to get into, and so accessible… so is it any wonder why so many people yearn to make their food dream come true. Any hardened retailer will tell you just how challenging it is to get ahead and to stay ahead; there is a lot more to the successful running of a café business than the morning chillhop music, high-fives and banter can let on. It is an exciting industry - but prepare to dig deep, work hard and embrace the ever-changing landscape around you.

“The food services sector has the highest failure rate of all industry sectors, with only slightly more than half of businesses still open after four years.” Ben Schneider & Royce Millar, Sydney Morning Herald

The most crucial ingredient to success is almost always good business planning, sensible costing and realistic forecasting. It all starts with the Lease… the success of a business and indeed the value of said business is all within the underlying Lease. I model that the average rent to turnover ratio in Sydney’s food and beverage hospitality industry is currently around 15%, which is a large slice of the pie. When cost of goods, wages and other expenses are factored in, the profit margins are often negligible, up to 10%. So that $4 coffee, ends up making a 40c profit!

Take your time to study how you expect your business to take off; what stages of growth you can implement along the way to make your business scalable, and how can you make the most of your lease conditions, premises and tenure... all BEFORE you sign!

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