Kane: The saga of the local coffee shop
The Portland metro is known for a couple of great foodie things, such as craft beer and really well-done vegan options. But don't overlook the coffee scene either.
Around Portland and its suburbs, there are local roasters popping up all the time, providing quality espressos and perfectly brewed coffee. Certainly, these cafes have what it takes to compete with popular chains like Pacific Northwest darling Starbucks. But if that's the case, why is it so hard for those independent coffee shops to survive?
Let's assume a coffee shop owner is working tirelessly six days a week, 52 weeks a year. Let's also assume this shop sees a gratuitous 200 consumers a day who each spend $5 per latte. That works out to a gross revenue of $312,000, according to a very well-researched article by Gene Marks.
Now, factor in the typical cost of coffee as 20% of sales, while cost of labor is 60%, which are the standard percentages according to industry research done by Marks. Using those figures, your profits — before rent, utilities, equipment lease payments, marketing and the owner's salary — come out to $47,000.
All in all, the net profit of a typical, local café is less than stellar. And for working six days a week? Better Business Bureau Northwest + Pacific knows this is not what small business owners want. We hear it all the time. But, it's no wonder many of these mom-and-pop roasters go out of business.
Yet, consumers love them. They frequent these businesses in favor of a more passionate pour over the lukewarm cappuccinos being churned out at some of America's biggest chains.
What's a small business owner to do?
"The answer is important ... for any person running or thinking of running a coffee shop, small restaurant or retail store," according to Marks. "It's scale. With it, you can make it. Without it, you will not."
Most small-time coffee shops won't make enough revenue to stay open long-term if they only have one location, or at least stay open comfortably. In order to truly make money as a business owner, you must consider opening multiple shops. Such is the basic principle of economy of scale: spread overhead, labor and your salary across a bigger revenue base.
Let's take a look at Portland. We've got the massive chains, of course, such as Starbucks and Stumptown Roasters. We've got the medium-sized chains who lay claim to this specific region of the United States, such as Dutch Bros and BlackRock Coffee. And we have dozens of delicious local brews spread out across the city that only have one location.
But, we are seeing more of exactly what Marks is talking about. Local shops that are expanding and scaling out. Case in point: Good Coffee.
"This underdog coffee chain is not quite an underdog anymore," according to Eater Portland. The chain now has four locations. But it's a chain people outside this area have never heard of, and that's OK. It has the local feel coffee connoisseurs are looking for, but its owners are wise enough to know living paycheck to paycheck is not the small-business-owner dream.
So, for any entrepreneurs planning to open a small café or eatery in 2020, the BBB takeaway is this — open one, but plan for more to secure your business' future.
Danielle Kane is Portland marketplace manager for Better Business Bureau Northwest + Pacific, covering Oregon, Washington, Idaho, Montana, Alaska and Hawaii.
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