Evolution of a Coffeehouse: Site Selection

by Karen L. Wagner

The beans can be from the finest coffee estate. The roastmaster may be trained by the best. The equipment may be state-of-the-art. The inviting chairs and eclectic artwork may rival any urban living room. And yet none of this means a thing if there’s one element of your new coffeehouse that’s off–location. In the restaurant business, as in retail and real estate, it’s not only No. 1, but also No. 2 and No. 3 in the list of the leading indicators for success.
We’ve all heard it before–location, location, location.

Yes, even the business plan that you’ve just written can be a masterpiece, but if you open up shop in a lousy locale–well, at least you’ll have something to read. This is definitely one area where you don’t want to learn by mistakes. Simply open up on the wrong side of the street and results cannot only be costly, but deadly–for the business, that is.

Industry consultants, property development executives, and successful independents all will tell you: location makes or breaks a business. These experts may all have slightly different guidelines or formulas to follow when it comes to selecting a site, but there are some factors that across the board must be part of a location if it’s expected to be a success.

What matters are traffic count, area density, visibility and accessibility. Maybe a location won’t be tops in all of these categories, but keep these factors in mind when selecting your site and chances are you won’t have a problem attracting customers to sit on your perfectly relaxing couch while sipping a perfectly made latte.

LOTS OF PEOPLE

Some consultants or coffeehouse owners may have magic numbers that a prospective location must offer in order to be considered. But the underlying concept of what makes a good location is really quite simple–lots of people.

Density is paramount no matter the type of operation, whether it’s a sit-down coffeehouse, drive-through, cart or kiosk, says Ed Arvidson, co-founder of Bellissimo Coffee InfoGroup and now an independent consultant based out of Bend, Ore.

Arvidson has helped hundreds of clients open specialty coffee concepts throughout the country. He advises newcomers to the industry to remember that coffee drinks are primarily an impulse buy and most people won’t go out of their way to seek a cup of coffee. Therefore, the more people, the more prospective impulses will be passing your door.

"You want to put yourself where there’s a lot of people, whether it be

a) they’re passing by you on their way to their destination for the day or

b) if you’re actually located around their probable destination for the day," he explains.

In general, Arvidson says, the formula is a capture rate of 10 percent to 20 percent of passersby for sit-down locations and carts and kiosks, and between a 1/2 percent and 2 percent of drive-by traffic for drive-throughs. So, he calculates, if a drive-through has 50,000 cars passing by every day, at least 250 of those cars should be pulling up to your window.

HOW CAN YOU TELL?

OK, so an area looks like it has a lot of people and/or car traffic–but how do you get some good hard numbers that will back up appearances?

Arvidson says that traffic-flow maps are sometimes available for free from city or county agencies. These maps are derived from measuring the traffic flow on specific streets, he explains.

In addition to objective demographic data, The Coffee Bean & Tea Leaf collects subjective data on its potential sites, which can involve visits to get a feel for the location.

Research consultants can be one source of demographical information. Paul Goldman, whose company runs The Coffee Bean & Tea Leaf concept, says he uses firms that provide precise information that pinpoints data to a specific intersection. The data, Goldman explains, is based on U.S. Census research that includes, among other statistics, population density, daytime population, income levels, number of people per household, and even the percentage of people who commute to work. In addition to this objective data, Goldman says they also look at subjective data, which requires some legwork. This data comes from actual visits to the prospective location.
"Sort of kicking the dirt, getting out and taking a look at the particular piece of real estate," says Goldman, vice president of real estate and construction for Los Angeles-based International Coffee & Tea, LLC.

While researching a site, Timothy’s Coffees of the World conducts an objective analysis of all its common demographic information.

Becky McKinnon, president of Toronto-based Timothy’s Coffees of the World, LLC, says her company also does an objective analysis that includes all the common demographic information that would interest any coffeehouse owner.
"It’s generally a pretty yuppie profile," McKinnon says, not unexpectedly.
"It really lends itself to a more urban mindset."

While obviously important, objective information is not enough to evaluate a site properly, McKinnon says. Like Goldman, she suggests that prospective coffeehouse owners actually go to the location and spend time surveying the site.
"The only way to really make the objective information make sense is to actually look at who does go by. What is the behavior? What is the competitive landscape? What are people doing when they’re passing your space?" McKinnon offers.
"You can have a lot of traffic going past, but if it’s in a location where it’s not convenient for them to stop, that may not do you any good."

Goldman suggests going to the site different days of the week at different times of the day to gauge when traffic is highest. It’s pretty standard that coffee concepts do the highest percentage of their business in the morning hours, but there needs to be some business coming in the afternoon hours, as well.

"What might be a very busy intersection at 8 or 9 in the morning is relatively quiet at 1 or 2 in the afternoon," he says.

OUT IN THE OPEN

In addition to traffic count and density, other criteria by which to measure the potential of a coffeehouse site include visibility and accessibility.

First, if the business is going to depend on commuter traffic from a major roadway, then the building must be visible from that roadway.
"In other words, are you going to stand out? Are you going to be easy to see to people passing by, or are they going to have to come hunting for you?" asks consultant Ed Arvidson. Remember Arvidson’s contention that coffee tends to be an impulse buy, so if your coffeehouse can’t be seen, there can’t be an impulse.

Arvidson recommends locations on the site of strip shopping malls that are not within the main strip of the mall, but pushed out near the street. These may be the sites of former convenience stores or banks.
"That’s a great location," says Arvidson, explaining that it’s better to stick out from the other businesses than to be saddled on each side by other retailers. Such a stand-alone site may even accommodate a drive-through window, he adds.

Going along with visibility is accessibility. Maybe commuters can see your location from the highway, but is it easy for them to get there? Is the entrance easy to access? The same goes for the exit, but in reverse. Is it easy to gain access back to the roadway from the location? Ingress/egress issues may not be apparent at first, but if it’s hard for customers to access your store, well then, they won’t.

The opportunity for visible signage, along with proximity/access to parking are other factors to consider, says Paul Goldman, who adds that the quality of these criteria can really only be measured by onsite inspections.

"Certainly on the more subjective side, we look for great visibility, great accessibility, an opportunity for highly visible signage, good, easily
accessible parking within close proximity of our front door," he says.

RE-THINK THAT STRATEGY

You’ve found a location that gets 100,000 cars passing by every day. It’s clearly visible from the road, easy to get into and out of. There’s even a convenient place to put a sign that those 200,000 eyes will be seeing every morning. Think you’ve found your dream locale? Wake up. Yup, there’s yet another factor that needs to be considered–that little thing called rent.

Sure, that traffic count is astronomical but it ultimately has to be rolled up into revenue estimates so you can compare the rent with the revenue stream.
"I think often, particularly when people see a location they think is going to be great, they talk themselves into a higher rent than they probably really should be willing to pay," Becky McKinnon says.
"You might have a good location, but you might still not make it if you’re paying too much rent."

Timothy’s, for example, used to have locations in Manhattan, where there is some of the most expensive real estate in the world. McKinnon says the high rent was a factor in the decision to close all 18 Timothy’s locations in Manhattan, the first of which opened 10 years ago. Sales volume couldn’t justify the cost of rent, and McKinnon says the company decided to focus marketing resources on the Canadian market rather than New York.

Arvidson uses a simple formula to gauge whether potential revenues will be enough to cover the rent and then some. He advises clients to multiply the amount of the rent by 10. The result is the breakeven number. So, for example, if rent is $3,000 per month, a coffeehouse will have to bring in revenues of $30,000 per month. Breaking that figure down, the daily intake is $1,000 a day. Figure an average check of $3.50 to $5 per person, he says, and that means about 200 customers per day, which means if a store is open 10 hours, then you’ll need to serve 20 customers per hour.

However, don’t let a high rent figure scare you off right away. Arvidson recalls a client who paid $6,500 per month for a kiosk site at an airport.
Arvidson was astounded at the figure until his client told him she took in $5,000 to $6,000 a day in sales. A good deal? Just do the math.

Another common mistake that his clients have fallen prey to happens when they lead with their heart and not their head. Sometimes, Arvidson says, clients fall in love with the site’s building, which is something you definitely don’t want to do in business. He tells about one client in Monterey, Calif., who found a site with a beautiful location in an Spanish-style building adorned with terra cotta floors and arched windows and overlooking the bay. The problem? There was nothing around the building except for a bike path. Where, Arvidson remembers asking his client, would business come from?

"That’s a primary mistake that I see people make," he says. "They get emotionally involved in their business."

Arvidson also advises clients not to rush into any decisions. Even if it takes two years to find a location, he says it’s worth the wait because it can mean the difference between success and failure.

Goldman adds that certain demographic information, such as income level, may no longer be as important as originally thought. A neighborhood may not have an average household income of $60,000, but it doesn’t mean that people won’t buy coffee.

"What we’re offering is really sort of an affordable luxury," says Goldman, noting that most of The Coffee Bean & Tea Leaf coffeehouses in the United States are located in affluent areas of California because the original thinking was that the customer base was price-sensitive.
"But the more we grow and the more we expand, we’re finding that we can be equally successful in areas that aren’t quite as affluent."

PULL IT TOGETHER

Traffic count may be the most important of the criteria of site selection but all the factors really need to be weighed together. Relying on objective information such as demographics and traffic count is crucial, but also remember that going out and getting a feel for the place is equally important. Stand on the corner, talk to customers of nearby retailers. Talk to other business owners. Would a coffeehouse fit in? Is there a lot of traffic–vehicular and foot–in the morning?

Yes, you’ll also have to do some handy calculating to evaluate whether the rent (or cost of the property) is too high for the sales that a coffeehouse business could generate at that location. This is not subjective information–these are cold, hard facts–use your head, not your heart.

Finally, settling for a mediocre location just because it’s been six months and you can’t find anything else is not a strategic move. Take your time. It will mean all the difference.

"You can have an absolutely wonderful business idea. You can execute your build-out wonderfully, you can have a great menu, you can have great service," Arvidson warns.
"If you have a terrible location, you’re probably going to fail anyway."

—————

SUREFIRE SITES

1. Are there locations that scream,
2. "Put your specialty coffee concept here!"
3. Factories, office buildings/complexes, college campuses and large airports are wonderful locations, says industry consultant Ed Arvidson.

While there are more opportunities on the East Coast than the West Coast, the problem is in finding available sites, he comments.

Arvidson advises against shopping mall locales because they tend to be afternoon destinations and coffee is mainly a morning beverage, but others see the malls as good prospects.

Timothy’s Coffees of the World, LLC, a Toronto-based franchiser of Timothy’s World Coffee, views shopping malls as a viable location. Many of Timothy’s 150 specialty coffee stores are in shopping mall sites, where they have set up kiosks. The small stores are out in the open in the midst of a lot of foot traffic and not tucked in between stores, says Timothy’s president, Becky McKinnon.
"The kiosks are small, but locations don’t have to be perfect to be profitable. So we’ll sacrifice quantity of space for prominence of location."

In addition to shopping malls, McKinnon says the company’s really successful locations have been in convention centers with attached office buildings and office complexes.

Locations that can draw on all types of traffic–from residential to retail to commercial–are, of course, ideal.

"The perfect scenario for us is being located in a high-density retail center or retail corridor that is surrounded by residential. You kind of get the best of all worlds," says Paul Goldman, vice president of real estate and construction for Los Angeles-based Coffee & Tea, LLC, which operates 240 The Coffee Bean & Tea Leaf stores globally and are located in business districts, shopping centers and residential areas.

What they really look for, says Goldman, is co-tenancy: locations next to large retailers, such as supermarkets.
"You can feed off the traffic that the other retailers or businesses in the area generate," Goldman says.

Goldman says his company steers away from budding population areas that haven’t reached their peak growth, such as new residential communities. The supermarkets may stake hold first, but Goldman says they want to see a proven track record first.
"We don’t want to get there ahead of the curve, necessarily," he says.
"We want to get there when the population, the density is already there."

What if there’s already a coffeehouse within close proximity? Competition doesn’t necessarily have to be a negative. Arvidson says he prefers locations where there isn’t another coffeehouse for miles around, but if there is then you have to work on offering better service, a better product, a more attractive store, or a wider selection of drinks.
"You need to carve out some type of niche," he says.

McKinnon adds that any competition needs to be carefully considered. If there is another coffeehouse across the street, then you want to be sure you’re on the breakfast side of the street to catch morning commuters. In general, though, she says competition is just a fact of life.

"If you’ve got a great street corner, and you’ve got (customers) lined up out the door," she comments,
"the odds that you’re going to have another coffee store near you fairly soon are pretty high."

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