Top 5 reasons to buy a coffee franchise

Sarah Stowe

Interested in a coffee franchise? Here are 5 top reasons you should invest.     

1. Booming industry 

Caf_s and coffee shops represent a booming $5.5 bn industry, set to grow at 7.2 percent per year over the next five years.

2. Australia’s vibrant coffee culture

Australia’s rich coffee culture and the growing number of speciality cafes and coffee shops have resulted in high industry competition, low barriers to entry and low industry concentration.

3. Power of franchised brands

As price competition forces revenue down, and quality forces costs up, operators need to control efficiencies to support profit margins. Many operators will seek to minimise wage and purchase costs, and reduce wastage. Franchised brands can leverage high foot traffic sites and economies of scale.

4. Coffee franchises provide convenience 

A variety of franchise models are available to suit your financial needs such as drive through, caf_, kiosk and mobile options. And each model is targeted to a specific flow of customers.

5. Franchised brands dominate the industry

A shake-up of major coffee chains is expected over the next five-year period. Coffee chains are also anticipated to continue building economies of scale in high density locations.

Here is a snapshot of the dominant franchises coffee businesses:

What you need to consider before buying a coffee business

Profits: profit can vary substantially among players, depending on the size of operations, economies of scale, cost controls and the ability to develop a fashionable image. Make sure you ask the franchisor about expected time for return on investment.

Customer service: this along with price and quality of produce, and the overall cafe experience, sets brands apart. Coffee quality is also crucial, with coffee brand, texture, temperature, milk, and even crema in an espresso becoming increasingly important to customers.

Wages: as with most hospitality industries, cafes and coffee shops are highly labour-intensive. All aspects of cafe operation require manual labour. These include preparing food, making coffee, cooking, cleaning and providing customer service. Wages account for the second-largest share of industry revenue. Coffee quality has become crucial in attracting customers, which has led operators to employ highly skilled and expensive baristas to boost sales.

Purchases: purchases account for the largest share of industry revenue. These include the cost of coffee beans, food items and other ingredients, and beverages for resale.

Rent: rental costs involve leasing premises for cafe operations. Rent is a significant cost for industry operators and has increased as a share of revenue over the past five years. Rent varies greatly according to location and is highest in major cities such as Sydney and Melbourne. Desirable sites are high traffic areas which enable operators to attract customers for a quick coffee.

(Source IBISWorld: Cafes and Coffee Shops August 2016)

Interested in a coffee franchise? Find out more about the category.