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Permalink Reply by Jay Caragay on January 4, 2010 at 6:04am

Some people (like me), hit the streets, meet people and talk about places that are available or coming to market.

Others (not me), establish a list of criteria then send staff or a real estate agent to seek out the properties based on the criteria.

Criteria - lots of pedestrian traffic, residential/commercial mix (Cambridge around Harvard Square is ideal)
Business/Financing Plan - it was in my head (not recommended)
Waited years and looked at lots of spaces before finding the "right" one.
I would be very hesitant to buy an existing coffeeshop.
Walking the streets, chatting with people, craigslist and whatever I can find.

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Permalink Reply by Eric Hammond on January 4, 2010 at 7:16am

The old saying, "location, location, location" is generally true but not always. I could take you to two shops right now that blow that out of the water. One is on a one way street going the wrong way for the morning traffic and has no drive through. And it is totally doing well. The other is on the cross of two major streets, near a university, with plenty of street parking and a small parking lot. And they are empty. The trick in these two were the fact that one serves great coffee and the other just plain sucks (oddly enough, both serve coffee from the same roaster, have simular equipment, use the same distributer.)

In my experience, the "great" locations a real estate agent might send you to are the most expensive. I would figure out a budget. So you may have to be pretty far into you business plan to start seriously looking. But start looking in the aria you want to be in. Call numbers and ask prices of store fronts you see. If you see an empty place, go ask a neighbor and see if they will give you a number. Call an agent and see what they come up with. We called one about one property and they turned us on to another. It was an existing shop, the building owner owned the equipment, and was willing to lease it to us for a song (we didn't go with it. Too many things we didn't like. The roaster was in the middle of the shop-no windows or wall around the roaster. Just a 400 degree roaster in the middle of the room-, only 17 seats in the whole shop, and too far from my house to drive everyday).

Buying an existing shop (which we have done) could be good or bad. Good is that you don't have to buy, install, and source. You have an existing customer base. You have a sign, that can be very very very expensive. On the down side. You don't get to buy exactly what you want, where you want it, and the shop may not be where you want it to be. And you do not get to choose the decore. And you could change all of that if you get a good enough deal and your budget allows. It kinda depends on what the last shop was like. Was it a good shop that made money and the people just want to retire or move, or was it a shop where someone had a ton of money and thought, "That looks easy. I'll buy one of those expresso thingies and make a s&*t load of money!" I think either way could be good for the right person, but it does have huge draw backs.

So my advice: Know what your doing. Get good beans, good equipment (we all want a Slayer, but we're going to have to settle for something that does a great job instead of perfect), buy quality, charge a decent price, work hard and long, and love what you do. That does not mean success. But if it goes bad, go down fighting! Look for a decent location you can afford. Don't loose your shirt because you rented a location that was $40 a square foot, and can only afford $15. Don't buy a $250,000 location when your budget sais you can only afford $500 a month. Know your limitations. Check any source you can. I think Google maps online has an option to look up sites over a large aria. Go to the location, check it out, and sit in your car and watch. If no one drives by, look at another place. After all, this is how your going to feed yourself. If you don't feel right, go to another.

Be encouraged. I believe in small shops and working hard. Be smart. Work hard. Plan! Ask advice. Find someone who has started businesses (any kind) and take them out for lunch, build a repor and ask advice. They may be able to help you write a plan that gets you a good loan or send you to someone who can help you. Go to the small business offices and get them involved. Don't be afraid to say, "I don't know. Can you help me?" or, "I have no idea how to do this, what's your advice?"

Have fun in your search. It most likely will take longer than you plan for it to. It can be done and done well.

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Permalink Reply by teresa pilarz on January 4, 2010 at 8:26am

Great discussion so far w/ lots of interesting thoughts. Mike, I'm not a shop owner but thought I'd post anyways because I'm sort of in your position, knowing I want my own shop and having gone through many of the steps.

My main advice is don't rush it. Take your time and look around a lot, and in the meantime plan and plan some more. I thought I was almost ready last summer and had been looking for locations, but then I got a great opportunity to work for a local roaster. Although my plans are temporarily on hold, I know it'll happen when the time is right.

I can't emphasize the importance of a clear, thorough business plan. I've revised mine many, many times as new information comes to light. You HAVE to know what everything's going to cost, have good sales projections, and know what you can afford as Jay and Eric have already mentioned. It takes a lot of research and planning to do it right; on the surface it looks like it should be easy to make money in coffee, but there are so many hidden expenses and lots of waste that you need to account for.

My approach in deciding on a location has been to first nail down a community or two where your concept would work and spend time there observing and talking to people. I've found out about properties on websites like craigslist and loopnet, from driving by and seeing signs, and from talking to other shop owners. Just get out there!

Best of luck!

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Permalink Reply by Jay Caragay on January 4, 2010 at 12:02pm

I wanted to add that you shouldn't be scared away of spaces with high rent. Cautious, yes - but scared away? No. About two years ago now, I had the opportunity to bid on a space in Washington DC. It was in a tremendously high-traffic area with very high rents. The 600sf space was asking $6500/mo, which is most certainly high. However, our projections put the potential yearly revenue of the space at $750K - and possibly upwards of $1.2mil (that was before our economy tanked). With those revenue projections, the high rent was worth the risk. In the end, we didn't finalize the deal and looked for opportunities elsewhere.

Which leads me to my next thought: No deal is "too good" to walk away from. Take that to heart and make it part of your mantra. Know the business, know the real estate market and know the leasing game. No deal is "too good" to walk away from. I passed on many a deal over the years that I thought I wanted but the terms were not right. Don't fall in love with a space. Know when to fold.

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Permalink Reply by Marek on January 4, 2010 at 4:03pm

Ideally you want to find a space (good location) where the surrounding businesses are all long term established tenants. Why? Everybody and thier uncle wants to open a coffee shop... So you find what you think is the perfect location, do all the leg work and finally open... you're busy and things are going great... Somebody notices what you've done with the location and decides to invade your turf... there might be enough business for one shop but with two closely located they might well drive each other out of business.

We have one such location and as soon as I saw it I knew why I wanted it. it's at an intersection where five different streets merge... the traffic count is insane... but within our 310 degree line of sight view are a courthouse, several government offices, a library, four banks, two office buildings and a historic building.

None of those locations offers commercial space and of course they all provide a high traffic count... essentially we own the corner...

If you're locating in a commercial plaza, ask the landlord to include in the lease that they will not lease to like minded businesses... the wording of this is a little tricky.

On the downside... we have a similar story... we're in a mall with an exclusive clause... but the landlord has leased space to both an ice shop and a deli... both are serving coffee/espresso... we're not too happy about it but the landlord says 'oh ... they're not COFFEE SHOPS'... I asked... so... we can sell icecream? No... they have an exclusive.. OK... so DOH... they can compete with us but we can't compete with them... messed up...

Another thing to watch for is CAMS ... common area charges... you lease a space... the landlord says it's $40 a square foot and it's a 1,000 square feet... so you do the math and say oh... this is $3,400 a month... I can live with that. Then you find out you have $10 for common areas, $4 for insurance, $2 for advertising and it's based on 20% over your base square footage (1,200 square feet... not 1,000). So your $40 a square foot rent is actually $5,600 a month... almost double what you thought it was.

I agree with the poster who wrote, don't be afraid of a higher rent. A Rolls Royce for $50,000 is cheap.. Likewise $20,000 a month is cheap... in Times Square... :)

Check with the health department... are floor drains required... can they be installed... will the landlord let you chop up the floors... look at fire exits... make sure everything is within the local codes... You don't want to have your shop built and have the inspector show up and tell you the fire exit is too narrow.

Things that may have been approved for the past tenant ... could no longer be acceptable because the codes may have changed... your permit will require you to comply with those changes.

Finally CHECK THE ZONING !!! Let me repeat CHECK THE ZONING. If you sign a lease make sure that it includes a clause... subject to zoning approval... if a change of zoing is required... ask your landlord to make the application and make approval a condition of the lease. We know somebody who leased a space... and didn't take those steps... it was converted space... formerly office... the new use RETAIL FOOD & AND BEVERAGE required one parking space for every 200 square feet ... so the change of use was DENIED... the tenant had already made extensive plans, purchased equipment, hired a designer and paid for the plans to be drafted... only to have to walk away from the whole thing.

After you think you have thought of everything... sit down and rethink it... because you forgot something.

Marek

PS: A small thing and a common mistake... framing in 2"x4" is actually 3 5/8ths ... but each side gets 1/2" drywall... watch your contractor... your plans call for an opening of 48" for your under counter cooler ... they have to frame that to 49"... it's a very common mistake... has happened to us more than once.

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Permalink Reply by Mike M on January 6, 2010 at 4:06am

Apologies for the late response. Thank you all for your feedback!

Jay, great points about location not being everything. I absolutely agree, but I would contend that the location speeds up the process of identifying the superior product that will keep customers coming back, even if the shop is not located in the most convenient location for them. Also some great feedback on the price of the location. I'm curious to see what the property owners will be looking to charge for the areas I'm interested in, and how accurately one could forecast sales given the traffic/pedestrian traffic volume.

Eric, with regard to finding the location, the only obstacle I can see at this point is that I may not be as able to spot prime locations from driving around as some. I don't know where I'll be for work once I get back to the US after having spent 2.5 years overseas, but the plan is to stay in the service (military) for a couple of years until I am prepared to make the transition. So the problem is, if I'm in NJ, or CA, etc. and I plan to open a shop in MA (home sweet home), I'm going to have to make the most of whatever time I can get to take trips out there.

I also couldn't agree more with what you said about seeking out people with experience, and I'm trying to bridge the knowledge gap with books, internet research, and here on BX, but I plan to bridge the experience gap with an internship at a local shop once I get back to the US.

Teresa, sounds like a solid approach! I actually just finished the first *very* rough draft of my business plan, less the finances, which will come later. Right now I'm focusing on developing the menu, working out a marketing plan, and the other pre-operational necessitites that will have to be sorted out ahead of time.

Marek, great input on the leasing considerations in terms of the threat of close (proximity wise) competition. That's definitely a smart clause to negotiate for in a contract! I would hate to open a shop one week only to watch a Starbucks open up next door a month later. I'm excited about the build-out though, even though I'm sure it will be a headache and a half.

How long should I plan for (financially), after finalizing the lease for the build-out to be completed, the equipment added, etc. before opening the doors? Even if it's a WAG.. 2-2.5 months? I realize this is all dependent upon the amount of construction needed and a million other factors, but is there a rough window of time I should use for planning purposes?

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Permalink Reply by Jack Shipley on January 6, 2010 at 6:48am

1. Community demographics. You want to cultivate frequent customers and that means people who can afford it. Know who the people are in a 10-minute or 10-mile radius. That's your market and focus your advertising tightly within that circle.
2. Location: Rent buys traffic. Don't settle for a quaint spot with low rent because too few people will find you.
3. Does the shop you plan have a differentiation from competition? What do you do that really wows people that other places don't.
4. Understand that you are not in competition with other coffee shops but any business trying to tease $5 out of people's pockets.
5. Are you surrounded by people -- workers, residents -- in the location?
6. Quality trumps location but location multiplies the benefits of quality.

Those are some quick thoughts. We started from the ground up. You have to have money in hand and be ready to seize opportunity when it presents itself. Wear out your shoes looking for sites. Walk the neighborhoods. Shop the area.

Agents are not necessarily on your side in negotiations but can be helpful. Do you trust the people you're working with? Get a DAMN good real estate attorney, someone who can help you craft a letter of intent (which opens lease negotiations) as well as craft the deal itself. You pay the attorney so they rep you.

Why is an existing shop for sale? Is it profitable? Is the location strong? Are the books accurate? Get the books AND the tax filings to examine myth and reality.

I wish everyone could walk or bike to our cafe but that's not reality in our suburb. Drive-through is a strong part of our business and the location must support it.

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Permalink Reply by Mike M on January 7, 2010 at 4:04am

Jack Shipley said:

Location: Rent buys traffic. Don't settle for a quaint spot with low rent because too few people will find you.

Quality trumps location but location multiplies the benefits of quality.

Why is an existing shop for sale? Is it profitable? Is the location strong? Are the books accurate? Get the books AND the tax filings to examine myth and reality.

Well put! Thank you, Jack.

Certainly the margins are more important than the costs, and the sales forecasts will have to be carefully considered especially for the locations with higher rent costs.

I was thinking the other day about the prospect of buying an existing restaurant or shop for the benefit of having the appropriate zoning and (hopefully) some of the permits and the other considerations, but wasn't sure how to go about scruitinizing their sales volume and other financial markers to figure out how viable the location was and is. Great advise about checking their records!

Perhaps I'm committing blasphemy against the book of indie coffee shops, but why are drive-thru shops vilified? Is it because drive-thrus go against the sit-down-and-enjoy-your-cup ambiance and the heraldry of coffee shops as pseudo-community centers?

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Permalink Reply by Jay Caragay on January 7, 2010 at 4:29am

Hold on Mike, I didn't say that location isn't everything. It most certainly is. What I was saying is not to discount an expensive location. Because an expensive location may be worth the risk because of the potential return on investment. Like the Washington DC location above, at $6500/mo, it was worth the risk because our calculations for revenue were exceeding $750K per year.

Learning to identify prime spots gets easier the more you do your research. Just get out there, observe, read, call the For Rent signs to see what the landlords are charging, meet the business owners, ask them the going rates - after a while, you'll have a good idea of what space should go for in particular neighborhoods. Add to that census data, traffic flow data and demographics and you'll be better prepared.

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Permalink Reply by Mike M on January 7, 2010 at 4:41am

I understand, and what you said makes perfect sense.

Further down the line, I'll definitely be bugging you for feedback on specific plans and projections if you wouldn't mind!

Jay Caragay said:

Hold on Mike, I didn't say that location isn't everything. It most certainly is. What I was saying is not to discount an expensive location. Because an expensive location may be worth the risk because of the potential return on investment. Like the Washington DC location above, at $6500/mo, it was worth the risk because our calculations for revenue were exceeding $750K per year.

Learning to identify prime spots gets easier the more you do your research. Just get out there, observe, read, call the For Rent signs to see what the landlords are charging, meet the business owners, ask them the going rates - after a while, you'll have a good idea of what space should go for in particular neighborhoods. Add to that census data, traffic flow data and demographics and you'll be better prepared.

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Permalink Reply by Mark on January 8, 2010 at 9:34am

Great thread!

My thoughts:
If going for college crowd, then you want a place in walking distance to the school/where students live. Where do they currently hang out? Also consider this, in my city there is one starbucks open 24hrs. It is always packed with students of all ages studying. It is not very close to any of the major schools, but more central to all...but still kids drive here to study late night, and drink coffee drinks. But guess who also frequents this starbucks? Cops! I swear there can be up to 5 cops at one time ordering there...My wife and I have been there as late as 3am studying and it's always packed. So for me, that would be #1. Finding a location where the lease allows late night hours if I was going for that target market.

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