Opening A Café

Some years back there was this trend of opening cafés in Singapore. I did not know if this trend is also the same for other countries, but during that time many cafés popped up, and everywhere you go you see cafés. Naturally due to overwhelming supply of cafés with unchanging demand from customers, competition became stiff and subsequently many of them closed down one by one, with some opting to be more creative and survive on. Even till today, there are still some people who wish to open cafés.

This article talks about the considerations and planning you have to make when opening a physical retail shop, using a café in Singapore as a specific example. Of course, not all physical retail shops are like cafés, but the logic when going into the planning can be applied across.

Reasons For Opening A Café
From what I had observed that time, there were a few reasons behind wanting to open a café, most of which were admittedly lacking in much considerations.

  1. Cafés are easy business. Set up shop, wait for customers to come. Make some beverage and food for customers with a significant mark-up.
  2. Running a café does not require much effort. Preparing that few standard beverage, serving some deep fried or grilled food is not difficult.
  3. The setting of a café is that of a chilled, relaxed place. Work is easy, money is easy, and you are in a very comfortable air-conditioned shop with some nice music.

Actually if you noticed, many people start businesses with the same reasons as above – easy money with minimal effort. Take another example, many people selling baby or children items are the new mothers. They have a kid, they feel they know what a child would need, through their child rearing they thought they have unlocked certain purchasing or sales channels etc, and lastly they believe they are familiar with the market.

But going in with such a mindset is dangerous. As mentioned earlier, all easy money are either illegal, immoral or risky. There is no safe and easy money, especially in industries where the barriers of entry is low and every commoner can get into it. In a business where every commoner can get in easily, one should be prepared to fight harder than the others in order to stand out and achieve success.

Now if we really want to open a café (physical store), these are the few things you may wish to consider. Of course, they are not exhaustive, but get these points down and you will be at least somewhat prepared to go for it. Note that I am not talking about online business, because the impact of failure is minimal.

Shop Location
As with all real estate, good locations come with high rental. For a business, good locations generally mean areas with high human traffic. The kind of traffic that is valuable is also dependent on your type of business. A café near a primary school will have high human traffic from the students and their parents, as well as the teachers and staff working in the school, but the quality of the human traffic is not good. Students and their parents are unlikely to stop by for a coffee near the school. A shopping district or office area (such as the CBD) would be considered a good location as they generally have high human traffic and the people there have the purchasing power, as compared to a primary school student. People in those areas are also more likely to use a café to have a coffee with friends, for a quiet meeting place, for an informal chat between working partners or just simply to chill after work or after their shopping.

Shop Space
What kind of café you intend to open will directly affect your shop space. A bare minimum of order-and-go type of coffee shop will require much lesser space than a full service one offering food and beverage to perhaps about 50 people. Now we will start small with our café, perhaps with a limited selection of food and which can sit for about 30 people. Now I understand that overseas, land is cheaper and consequently the cafés are usually larger with more space, such as the one shown below.

As land in Singapore is small and expensive, there is no practical need to have too much of empty space. By keeping it to a small size and optimising every area, we can reduce the shop space to about 700 square feet and still sit about 20 people. Do take note that your kitchen and backend preparation area do take up certain space.

Credits in the picture above.

I have seen the kitchen and backend preparation area before, so we do not need that much of a space as mentioned above. The purpose of the picture above is to show you what are the equipment you need. We can make a few tweaks from the details above, such as removing the office area and throwing in an oven and a cooking stove. All in, I would say it is a reasonable estimation to allocate about 200 square feet for kitchen and backend preparation area, 50 square feet for toilet, 50 square feet for cashier and display area and the last 300 square feet to sit about 20 people. We can treat the kitchen, toilet and display area as a fixed area cost which we must have for any decent sized café, and any area more than that is purely used for customers. With that we can approximate the following:
700 square feet – 20 customers
775 square feet – 25 customers
850 square feet – 30 customers

Now I know very well that the area calculated above will result in a somewhat tight space for the customers in the café. But in the context of Singapore, people are generally used to it. We have no choice, being born and living in a country where land is a scarcity. Using the same logic, depending on what kind of physical retail shop you need, you can also have a good estimate as to the size of the shop space you need.

As we are just starting out, we will go for a 700 square feet shop which can sit about 20 customers.

Tenancy agreements start from 1 year. No shop owner will lease you a space for 3 months for you to test it out. While there are many businesses who go for a longer agreement such as a 3 or 5 year tenancy for the sake of stability, we will go for a 1-year tenancy first as we are starting out. First we will look at some data to get an idea of how much rental cost.

The data above is provided by the Singapore Government, so I would say it is fairly accurate. For context, Orchard is our central retail district, so it is the most expensive retail area. Let us assume you have found a good value for money location outside of the central area, where the rental cost is considered on the lower side for the traffic it provides. With an estimated rental of $4.75 per square foot per month, you will be expected to take out $4.75 x 700 square feet = $3325 of rental per month, over a period of 12 months, bringing it to a total of $39,900. Do note that rental of such amount is on the cheaper side.

Layout And Renovation
Renovation is not just hiring some interior designer or contractor to come and drill some holes, replace a few tiles and connect some pipe to get a fanciful and functional place ready for business. No it does not work like that. Or rather, it can be done by throwing everything to the interior designer at a sum of unnecessary cost, which you will want to cut. For a limited place where you want to squeeze in as many customers as possible without letting them feel cramped as well as a back kitchen where you have sufficient space to work in, layout is very important in utilising every inch of space as it directly affects revenue and cost. It is also important to know what kind of theme you want for your café, as this will directly affect the renovation you do.

We can safely assume the cost of renovation to be about $30,000.

Furniture And Equipment
Relating to the theme of your café, you will need to choose the appropriate furniture to match the style. Even if your café is just a simple and normal one, taking the time to choose the type of tables and chairs appropriate for it will also be necessary. You will want your customers to feel comfortable and to enjoy being at your place, so not only is the visual design important, the functional design is also something you need to look into. As for equipment, it is more for your backend use. How many customers do you wish to cater for? How many variety of food do you wish to have on your menu? That will determine how many of the ovens, cooking stoves etc you need.

Supply Chain
You are operating a Food & Beverage outlet, there are daily supplies which you need to get. From the coffee beans to raw ingredients for food, from plastic cups for takeaways to tissue papers, have you worked out how much supplies you need and talk to the relevant suppliers? Sourcing is also a skill, as you will need to find value for money supplies from reliable suppliers.

While the traditional cafes just set up shop and wait for customers to come, with increasing competition, are you doing something more? Some have specific themes like Hello Kitty café, cat café, board game café etc. What is your edge over others? Whether you have a special theme or not, you need to do basic advertising. I do not mean to say you need to spend money splashing advertisements on TV and magazines, but there are free options. A Facebook page, a Twitter handle, an Instagram account, find one or a few which suits you and advertise through them. Be thick-skinned and ask your friends to follow your café on social media and share the word on it. Post regularly so people are always reminded of your café. If McDonalds advertise regularly, you better do the same.

Are you partnering with someone, or opening alone? If you are opening the café alone, you most likely will not be able to do everything yourself, unless you go for the most basic of all cafés. If you are offering food and drinks, then you definitely need at least one more staff. While it may not be difficult to recruit, but hiring a staff cost money. Have you checked the prevailing market rate on hiring a F&B staff? Whether you are hiring a part-time or full-time staff, you will need to factor it into the operating cost.

Opening Hours
This may be easy to determine, but nonetheless it still requires some thought. Are you going to open shop everyday from morning till late night? Do you or your staff need to rest? If you are opening everyday, chances are you will need more than 1 staff. If you are not, which day of the week are you choosing to rest? Although it is common sense for most retail shops to open on the weekends, but depending on your location and target customers, it might be even logical to close shop on weekends. For example, there are pubs and cafés opening right in the middle of the CBDs and business parks, and their target customers are the working professionals in the area. They open till late at night on the weekdays for nearby workers to enjoy an evening after work, but close during the weekends because nobody else goes back there. If nobody else goes back to your location at certain periods of time, then it might be more logical to close shop rather than opening it and waste manpower, water and electricity. Enjoy your off day.

Customer Turnover
Unlike a roadside food stall where people come, eat and go, patrons of a café do not simply hang around for only 30 minutes. They can easily stay for an hour or two, sometimes even longer. The nature of a café is not the selling of food for people to eat and drink. People go to such places to relax, hang out with friends over a dinner or beverage, or simply to take their laptop to do some work there. The turnover is not quick. Hence how big your café is is also directly related to this. If you have sufficient space, you will have the capacity to take in customers without stressing out why a particular customer sits there for an hour while only ordering one small cup of latte. This customer turnover is also critical in estimating revenue. How do we get a good estimate on this then? Well you are not the only café around. Sit in a few cafés in similar locations (eg other office areas, other shopping districts etc), observe the traffic flow and take note of their turnover.

You are operating a F&B shop. Surely the authorities would require you to apply for a licence. From food handling to getting a business permit, all the paperwork while not difficult to obtain, is a pain to deal with. Not to mention there are some minor cost here and there too if you do well, and a potential huge cost if you screw up. You would not want to have everything set up only to realise that you do not have the legal paperwork to allow you to operate a business. I know someone personally who opened a childcare centre, have everything set up and renovated, only to be informed she cannot open for business because her licence has not yet been approved. Especially when your licencing comes from a Government body, be prepared to allocate time for it. Efficiency is not something Governments around the world are known for. That friend of mine could only wait in horror as she paid rent every month and lose sleep every night because the person dealing with her licencing went on a vacation leave and she had to wait for the staff to come back to get the queue moving. 4 months on and she had not yet obtained her licence.

With all these in mind, you can roughly work out a budget for both the setting up and the operating cost of your business. Not only that, for the period you are recouping your losses, you have no salary. You are your own boss now. You pay yourself. But how do you pay yourself if you are not earning money? During this period of time when you are recouping your investments, you still need to eat and survive. Do you have the capital to do that? If you do not have it, and are thinking of borrowing money, work out realistically how long you need to pay the debt off, factoring in the interest rates. You would not want your business to collapse halfway through simply because your source of funds run dry.

Starting a business is not easy. It is far more difficult to set up a retail store than an online store. Although I have also written an article on dropshipping, which I believe is the safest method I know on an online business, there is not too much for you to consider when setting up an online store. Just get the general direction and the concept down, and you are good to go. But for physical shops, the cost and planning involve are far greater than what many thought of.

Of course, for all the points mentioned above, one may not need to put equal weight in terms of planning for all of them. Some of them are quite straightforward, like opening hours. But doing business is like fighting a battle, where the enemies are your competitors and your trophies are the revenue and ultimately profits which the paying customers bring in. The more details you get it sorted out, the more advantageous it is to you. Every single bit counts and every single detail matters, because every single decision is profit and cost.

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