How to start up a café – small business guide

Now is the perfect time to start a cafe in the UK as there are no signs that the rapid growth of the coffee shop market is starting to slow down, but there is increasing competition from both supermarkets and pubs/bars who are all fighting for a share of the daytime eating out market. Despite these challenges, the coffee shop sector is still forecast to grow in the coming years as consumers continue to demand good quality coffee and convenient locations.

Cafes have become quite a phenomenon in the United Kingdom, with huge popularity and extreme levels of competition. This is why setting up your very own business venture within this market might make for a great financial opportunity. This guide will run you through all the steps of opening up a cafe.

What competition will your café face?

The UK coffee shop market is worth an estimated £9.6 billion and is growing at a rate of 3% per year[1]. This makes it one of the most dynamic and exciting foodservice markets in Europe. The top five coffee shop chains in the UK (Costa Coffee, Starbucks, Caffe Nero, Pret A Manger and Greggs) account for just over 50% of the total market[2]. There are now over 22,000 coffee shops in the UK, with London having the most density with one coffee shop for every 6,500 people[3].

The rise of the coffee shop culture in the UK has been driven by several factors including the desire for better quality coffee, the work/life balance and increased leisure time. The average spend per visit to a coffee shop is around £3.50, which is relatively inexpensive compared to other foodservice outlets such as restaurants.

In addition, many of the larger coffee chains offer free wifi which has made them popular meeting places for both business and social gatherings. For many consumers, going to a coffee shop has become part of their daily routine.

Making an estimate of demand is important when planning your cafe or restaurant business. Additionally, you should learn as much as you can about the competition. You can accomplish this by conducting some market research.

Estimating demand

If you plan to open a café or restaurant in your area, you should find out if there is a space available. The first thing you should do is look at the competition. See how many different types of cuisine are available in the locality and how many restaurants already exist. You should keep in mind that most pubs now serve food, and many have recently upgraded their offerings to appeal to families and casual diners.

Find out how busy the establishments are on different days and nights of the week by sampling the food. In order to win customers, you might want to locate in an area that is known as a place to eat, but you will probably have to offer something different.

Find the right location

Identify the types of potential customers who live and work in the area. Consider whether there are plenty of workplaces in the area if you are hoping to attract businesspeople during lunchtime. You may hope to attract people from a distance as well as those who arrive on foot. Here are some things to consider:

• Is public transportation available in the area?
• Is there plenty of parking nearby?
• Can a vehicle be left in a safe area?

Get properly licensed

Opening a cafe in the United Kingdom is a relatively straightforward process, but there are a few licenses and permissions that you will need to obtain before you can start serving up food and drink to your customers. First of all, you will need to register your business with HMRC and get a food hygiene certificate. You will also need to apply for a premises license from your local authority, which will allow you to serve alcohol on the premises.

Finally, you will need to take out public liability insurance to protect yourself against any claims that may be made against you. Once you have everything in place, you’ll be able to start serving up your delicious creations to the public.

Pavement license

A pavement license is a license granted by a local council to allow businesses to place tables and chairs on the pavement outside their premises. This can be a great way to increase the number of customers that a business can serve, as well as providing a more pleasurable experience for those who do choose to eat or drink outside.

However, before applying for a pavement license, businesses need to consider a number of factors. For example, they will need to ensure that there is enough space on the pavement for both customers and pedestrians, and that the tables and chairs are not obstructing any entrances or exits. In addition, businesses will also need to have public liability insurance in place in case of any accidents or injuries. Once these considerations have been taken into account, businesses can then apply for a pavement license from their local council.

 

Why will customers choose your café?

The goal is to attract enough customers to choose your establishment over other eating establishments. Take a look at your competitors to find out:

• What type of food and drink they serve
• How much they charge
• Is there a take-away service available?
• When are they open?
• What type of customer they attract
• Decoration of the premises
• What kind of atmosphere is created
• How quick and professional the service is

For example, a vegetarian restaurant or a lunch alternative to a sandwich bar might be a clear indication that there is a market niche for a particular type of eating establishment. If your margins are low, it’s hard to provide the high quality food and service that customers today expect.

Find out what people want

Speaking with locals about your proposals can be a good idea. You can ask them:

• What kind of dishes they would like you to serve
• If they would use a take-out service
• What would be the best opening hours for them?
• Whether they would prefer you to have an alcohol license
• What do they dislike about existing cafes and restaurants in the area, if anything

Keep in mind that market research is a continuous process. Talk to your customers once your cafe or restaurant is open. Inquire about their likes and dislikes, and ask if they have any special requests that aren’t on the menu. Observe which dishes sell well and which ones don’t.

Establish your customer profile

There are several factors that will affect your customer base:

• The portion of the market you are targeting
• Where you are located
• The time of day

Depending on the time of day and day of the week, some restaurants and cafes develop a core of regular customers. On Sundays, for instance, local families might take advantage of Sunday lunch promotions, while during the working week you might cater to local businesspeople.

In busy city centres and holiday areas, some cafes may rarely see the same customer twice.

Special offers and discounts

For promotional reasons, many cafes offer discounted or even free meals to customers. Market and promote special deals from time to time using ‘daily deal’ websites like Groupon and Wowcher. The 18-24 age group spends the least on eating out but eats out the most frequently. Perhaps you can offer discounts to students and pensioners. If you decide to offer special offers, be sure to make enough profit so that they will be popular with customers.

Make sure your staff knows which customers are eligible for discounts, and how much they can save. It is important to prevent employees from offering unauthorised discounts to their family and friends.

No-shows

No-shows are a problem for cafes of all kinds – people who book a table but don’t show up. Different businesses approach this differently – some don’t take bookings, others regularly overbook. Choose the approach that suits you best.

Decide what café services to offer

It might be a good idea to offer a take-away service at lunchtime if you have enough employees. The popularity of take-away breakfasts is growing, so you might want to explore whether your customers are interested in this service. Just Eat or Deliveroo offer delivery services. Additionally, you might want to consider offering a local delivery service, either by using your own drivers or by working with a taxi company.

A daily specials board can be useful. Every once in a while, regular customers look forward to trying a new recipe. It would be great to have featured wines from time to time as well.

Your café or restaurant could also be converted into a WIFI hotspot so that your customers can surf the web.

Quality standards

As a result, consumers have become accustomed to high standards of presentation and service. Therefore, it is imperative that:

• The premises are clean, smart, and inviting
• There is no error with orders because your staff is well trained, polite, and efficient
• The ingredients you use in your recipes are of high quality
• Value for money is perceived as good by customers

In order to gain repeat business, it is important to maintain high standards of food and service. In addition to recommending your café or restaurant to their friends, customers who enjoy their dining experience are also likely to tell them about it.

Advertising your catering services

Providing catering services to your café or restaurant is a great way to attract potential customers.

To promote your café or restaurant, you can do a wide number of things.

There is a cost to almost all types of advertising and promotion, whether it is financial, time-consuming, or both. Spend time and money on advertising that will produce positive results. The type of advertising that works best for you is up to you – sometimes trial and error is the best method.

Estimating your café income

The following factors will affect your weekly income:

• The number of seats in your restaurant or café
• During each weekday, how full you are
• A customer’s average ‘spend’

Having a half-empty restaurant through the first half of the week can be extremely frustrating for cafe business owners, and then having to turn away bookings on Fridays and Saturdays due to full tables. It is possible to improve matters in a few ways – for example, limiting the length of sittings during busy nights (at the risk of irritating some customers) and offering special menu prices on quiet days – but most businesses have to adapt to this pattern of trade on a weekly basis.

Imagine opening a cafe with 60 seats. In reality, you will be able to serve 100 people over 2 or more sittings only on Friday and Saturday. You may also be quite busy on Thursday, when you serve 65 people, but the rest of the week is usually quiet. You decide to close your store on Mondays and Sundays. On Tuesdays and Wednesdays, there are only a few people in the office. The only time you are open is in the evening. You might see something like this in your weekly sales pattern:

Number of covers served:

• Monday – closed
• Tuesday – 10
• Wednesday – 20
• Thursday – 65
• Friday – 100
• Saturday – 100
• Sunday – closed

In a mid-priced restaurant, the average spend per head is likely to be around £15 – £25. According to the above example, 295 covers at £20 per head would generate £5,900 in income.

The income from drinks might amount to 15% to 20% of your income if you are licensed to sell alcohol.

You should enter your estimate of monthly income in the cash flow once you have determined the size and pricing policy of your café. In the run-up to Christmas and over New Year, you may serve more customers than usual in the hospitality industry. During the first few months of trading, your income is probably not going to reach its full potential because your business is still developing.

Financing your café

Starting a café business in the United Kingdom can be a daunting task, especially when it comes to financing. While there are many ways to raise capital, such as loans or family and friends, one of the most important things to remember is that your café should be self-sustaining. This means that you should have a solid business plan in place that details how you will generate revenue and keep costs low.

Additionally, it is important to consider the location of your café and the type of customers you will be serving. A well-thought-out business plan and careful consideration of your start-up costs will go a long way in helping you secure the financing you need to get your café business off the ground.

However, if your dream is to have a lifestyle business which can provide you with a modest income, then setting up a cafe could be a great decision. The following should give you a few ideas how to finance a cafe.

Startup loans – This government-backed scheme from the start up loan company, allows you to borrow up to £25,000 with a fixed interest rate of 6% p.a.

Business loans – Are startup loans, except with a business loan they are not just for new businesses and don’t have the same caps.

Merchant cash advance – The merchant advance allows your cafe to receive an amount against your card terminal payment, it can be up-to £300,000

Your café menu

There are a number of factors that will influence the choice of dishes you’ll offer your customers, and the variety of alcoholic drinks you’ll stock. Here are some examples:

• You will target a particular sector of the market. Is your restaurant going to be a basic café, a middle-market restaurant, or an exclusive high-end restaurant? Consider offering Fairtrade food and drinks to ethical consumers
• Hours of operation. Will you open early enough to offer breakfast to workers on their way to work, or will you open at lunchtime to offer lunch menus and perhaps take-away food to shoppers? Maybe you’ll only open in the evenings and not during the day
• Your cafe’s or restaurant’s theme. In a Spanish theme party, for instance, most of your dishes and wines will be Spanish, though French or New World wines may be included for variety.
• Your premises’ size. In a spacious bar area, for example, you can stock a variety of alcoholic and non-alcoholic drinks – non-alcoholic drinks are gaining popularity as young people give up drinking alcohol increasingly.
• Creating new dishes that will attract customers is the expertise of your chefs

The catering industry is so competitive that it is important to keep up with consumer preferences and introduce new menu items regularly. On your menus, you might want to indicate how many calories are in each dish.

If you use any of 14 specified food allergens in your dishes, you must provide your customers with information about them. The Food Standards Agency has more information about this.

Think carefully about the pricing of your menu. Your menu should reflect the cost of each dish, allowing a reasonable profit margin. Think about adding a bit of profit to very popular dishes. Calculate how much markup you will add to the cost of wine and other alcoholic drinks as well. The majority of restaurants now offer set menus with fewer choices within each course in order to reduce waste and improve profits.

Fairtrade

Consumers are increasingly seeking ethical products that help producers and farmers in developing countries. Offering Fairtrade teas and coffees, or using Fairtrade ingredients in your dishes, could meet this demand. In this way, you would demonstrate your commitment to fighting global poverty to your customers. Your business can also differentiate itself from its competitors by offering Fairtrade products.

Licensing

The Fairtrade Foundation does not require licensing for cafes and restaurants that already carry the Fairtrade Mark. The Fairtrade Foundation must approve any use of the Fairtrade Mark in your advertising or menus.

Where to get Fairtrade goods

Licensees of the Fairtrade Foundation, such as manufacturers and importers, are the only ones that can use the Fairtrade Mark. A UK wholesaler or catering distributor will likely sell you Fairtrade items. You should ask your current suppliers if they have a Fairtrade range available. More and more suppliers are offering Fairtrade products. Food service distributors and wholesalers who sell Fairtrade products throughout the UK can be found on the Fairtrade Foundation website.

Pricing

You can probably expect to pay more for Fairtrade certified food and drink products when you buy them from a registered wholesaler or caterer. In addition to the set price and social premium that are paid to farmers and producers, supply chain costs and certification and licensing costs are also covered by the slightly higher trade prices.

You may benefit from extra business even though trade prices for Fairtrade products are higher. If you want to cover the extra cost, you can also raise your own prices. When setting your prices, consider the aims and purpose of the Fairtrade movement. Profit margins on Fairtrade items should not be higher than on similar products, according to the Fairtrade Foundation.

Promoting Fairtrade goods

You can attract ethically aware customers to your cafe or restaurant by offering Fairtrade products. Your Fairtrade products must be known to potential customers.

To help you advertise your Fairtrade products, the Fairtrade Foundation is responsible for promoting Fairtrade in the UK. Menus and promotional posters containing the Fairtrade Mark must be approved by the Foundation.

During Fairtrade Fortnight, the Fairtrade Foundation promotes the Fairtrade system. If you offer Fairtrade food and drinks, this might be a good time to raise awareness of them. You could, for instance, organise a Fairtrade tasting evening. Make sure you emphasise the social benefits of Fairtrade products.

Where to find out more

All aspects of Fairtrade in the UK are overseen by the Fairtrade Foundation, which is part of the international Fairtrade movement. Visit the Fairtrade Foundation website to learn more about Fairtrade, the products available, and how you can get involved.

Conclusion

Starting a cafe in the UK requires careful planning and dedication. From securing premises to obtaining licenses, there is a lot of initial legwork involved. It is also necessary to have a comprehensive understanding of local regulations and tax codes, as well as any applicable business insurance policies. Once all of these components are in place, entrepreneurs must also consider how they will compete in an already crowded marketplace. Investing time into research can pay off when it comes to identifying niches that could be exploited by a new venture.

It is essential not to overlook the importance of promotional materials either – creative marketing can make all the difference when it comes to drawing customers in. In conclusion, while starting a cafe in the UK may require some effort upfront, with careful planning and existing market research it is entirely possible to create an impressive, successful venture. Following guidance from industry experts and staying organised is key for any would-be entrepreneur looking to launch their cafe business in Britain.