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Josh Phillips
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June 21, 2018

Five steps to scaling up your coffee shop business

First your local high street, then the world.
You’ve been running your coffee shop for a while now, and it’s a success — such a success that you’re thinking of opening a new branch.
But scaling up a business isn’t the same as setting one up from scratch. It’s a whole different ball game.

 

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There are a few basic questions you need to ask yourself before you take the plunge and start to turn your cafe from a single-location business into a nascent multi-shop empire. These include:


Does my current location really, really work as well as it can?
What do I want to do differently in a new location?
Will opening up a new location help me to do this, or can it be done in my existing shop?
Does this new location make business sense?

If you can answer these questions, then you’re in business.


This guide will take you through the five steps you absolutely need to take before setting up a second (or third, or fourth) coffee shop.


Step One: Get the basics down

Coffee, beansBefore you can start looking at opening a new location, you need to make sure that you’ve absolutely nailed the basics in  your existing shop, and that it’s firing on all cylinders. If there’s still things you need to optimise, then chances are it’s not the right time to expand — yet.


There are several reasons for this. The first is financial: your new location is unlikely to break even for some time, as you recoup set-up costs, so you need to ensure that you’ve still got a strong cashflow during this period. If you do not, then opening a second location will act like a black hole, sucking in all your money and leaving your first location vulnerable to a drop in trade.


Another is practical: you can’t be in two places at once. If you’re busy fighting fires in your original location, then you can’t focus on opening up your new shop. You need to be confident that your first cafe will run just fine without you being on hand all the time. Opening a new location is always going to be stressful, but your original place shouldn’t be a weight on your mind, or take up a lot of your time.


If you can’t be confident of these two things, then you might be better working on your current location until you’re certain that it’s operating as smoothly as it can.


A survey of over 3,200 startups taken by Startup Genome found that 74% of business failures could be attributed to premature scaling-up — businesses trying to grow before they were ready.


These businesses came in every flavour imaginable, and they failed for reasons that ranged from not having a scalable business model to having too many employees serving too few customers, but on the most basic level, nearly three-quarters of them simply weren’t able to grow.


Step Two: Pick the right location

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It’s vital that you know what you’re looking for from your second cafe’s location, and that you assess how your second cafe’s location will work for you.


If your cafe is always busy, it might well be tempting simply to open up another location as close as possible to your original one to act as somewhat of an overflow for the excess customers, but this isn’t necessarily the best way forward, as you risk splitting an already-engaged customer base in two, and not bringing in any new traffic.


Equally, just trying to do the same thing again, but in another city might not be ideal either, as your suppliers may not ship there, meaning that you might not be able to replicate the food and drink that makes your original location unique, and you’re unlikely to have much traction in a completely new market. You need to find the sweet spot between too near and too far.


While a retail store can get away with opening up another location that does the same thing, but in a different place, opening up another cafe can be much more than simply “expanding.” Instead of just replicating your current offer, opening another cafe can be an opportunity to assess what you’re missing out on in your current location.Coffee, brew, kemeks


For example, if your first location is down a sleepy side street, and attracts customers who settle into an armchair for the afternoon with a book and a latte, you might want to consider setting up shop somewhere with more passing trade, where you can sell to-go coffee and packaged sandwiches to commuters or office workers on lunch breaks.


Or, alternatively, maybe you’ve got a small location, and want to open up somewhere with more space in the kitchen and out front, so you can serve more hot food and cater to sit-down customers.


London-based independent chain Grind and Co. are a good example of a cafe chain that scaled successfully by varying their offer with each new location, expanding from a single Shoreditch location in 2011 to ten branches in 2018, with cafe-bars, restaurants, and a roastery. Each of their branches is unique, some focusing on serving espresso to busy City workers, others catering to guests who want to sit with their laptops and work, and others to late-night crowds looking for drinks, small plates, and tunes.


This holds true whether your cafe is located in the middle of London or in a sleepy village — it’s rare that you’ll find a new location that’s exactly the same as your current one. Instead, you need to work out what your new location offers you, and how to make it work for you. And if your new location gives you the chance to do something differently, take it.


Step Three: Raise the money

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Money’s a pretty useful thing — who knew? It’s quite hard to do a lot of things without it, including scaling up your coffee shop.


So, once you’ve found a location that suits the direction in which you want your business to grow, whether that’s expanding your menu for sit-down customers, catering for busy commuters, or just doing more of the same, you need to build a business case that’s watertight.


You might be in a position to fund your coffee shop’s expansion yourself — lucky you. Perhaps you’ve got a nest egg, or come into some money, or your existing location has just been doing that well.


If that’s not the case then you’re going to have to raise the money somehow. Scaling your business isn’t likely to be cheap — because you’re dealing with bricks and mortar, it’s hard to do it on a budget. You’ll have to rent or buy a new place, kit it out properly, and staff it. None of this comes cheap. Startup Loans estimates that getting your first shop off the ground takes between £20,000 and £100,000, and your second location is going to cost a similar amount.


Although you need to raise a hefty sum to open up your second location, you do have one advantage over a new starter, though — you’re already in business, which means you can pitch to investors and banks with actual trading figures rather than with projections.


There are several ways to finance your cafe’s expansion.

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It’s far easier to get a bank loan when you’re expanding a business than when you’re setting one up because banks — particularly in the wake of the 2008 financial crisis — tend to be quite cautious lenders and want to see a track record of success. One significant downside to financing your expansion through taking out loans is that banks are likely to be secured against either your business’s existing property or your personal assets, which means that if your expansion doesn’t go to plan, you could lose the assets you’ve secured the loan against.


Alternatively, you might consider attracting venture capital, in return for equity in your business. This could be a better option given that you’ve already managed to succeed in one location, and you’re more likely to be a “safe bet” for investors. However, you should be wary of attracting too much investor capital, as investors usually ask for equity in your business in return for their capital, and every penny you attract in venture capital means a stake in your business going to someone else.


You can also attract investment via crowdfunding, using a platform like Crowdfunder — one of the largest UK-based platforms — or Indiegogo. By leveraging the goodwill of customers, locals, and small investors, you can raise money with very few strings attached. Because crowdfunding platforms tend to be all-or-nothing, if your pitch doesn’t raise all the necessary, your investors don’t lose out, and you’re not stuck with a loan that isn’t quite enough.


Step Four: Market your new cafe

Billboard-1Working out a marketing plan that starts well before the doors of your new location open is vital in order to hit the ground running.


Chances are you’ve already worked on a marketing plan for your first cafe, but this new marketing plan is trying to do something different — it’s trying to speak to your existing customers while creating new ones, so you’ll need to pitch it differently.


Your current customers are a valuable asset — they already choose you for their caffeinating needs, after all. You know them, and they know you. So make sure to factor that in when writing a marketing plan for your new location: you have people who can spread the word about your coffee shop’s new branch both verbally and through social media. It’s worth incentivising customers to do this.


Equally, it’s important to remember that your new location isn’t the same as your original one. Even if you’re aiming to replicate your first location as far as possible, your new spot is likely to attract different customers, meaning you’ve got to identify a different customer profile.


You’re likely to need to invest in creating different marketing collateral for your new location. As well as physical marketing material, you’ll need to create a new page on your website for the new shop, as well as separate social media channels. And if you run regular events in your cafe, it’s likely that you’ll have to organise a programme of events for the new location, and advertise them — especially if they’re connected to your new location’s launch.


Basically, you have to start marketing before the paint’s dry, and keep at it until everyone gets the message. Then market some more.

Step Five: Hire the right people

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As we said earlier, you can’t be in two places at once, so it’s important that you make hires you can trust to run the show while you’re not around.


As soon as you open, you’re going to have double the number of staff, serving (hopefully) double the customers and doing double the admin. As much as you’d like to do everything, you can’t. That means you need to know that your new hires are going to run the place smoothly, and you need to be confident that whoever you delegate to will be up to the task.


You’ll probably spend most of your time in the new shop as the place gets kitted out, as you train new baristas and servers, and in the cafe’s opening days. This means you’ll need to find a competent manager for your existing location, whether you’re hiring from within or looking for a new hire, as well as for the new one.


But you’re also going to need a whole new crew you feel confident leaving your cafe’s new location with. That said, you’ve got a head-start when hiring because you already know what works from your original location.


Opening a second location can be difficult — as tricky as doing it first time round, in fact. But follow these five steps and the path will be much less treacherous.