Do you find yourself drawn to the warm atmosphere of cosy coffee shops and crave the taste of coffee first thing in the morning? If so, you may be thinking of opening your own coffee shop.
Market research is not only essential in giving you a better understanding of the current state of the coffee shop industry (from how it's doing, to what concepts are hot or not), but it also helps you decipher how to mould different aspects of your business so that it attracts the right customers.
To guide you through this process, we've outlined here the key steps in conducting thorough market research for a coffee shop.
What are the objectives of market research for a coffee shop?
There are three main objectives of carrying out market research for a coffee shop.
The first step is to make sure that the market is not already saturated with existing coffee shops by asking yourself the following questions:
- Is the potential demand for coffee greater than the current supply?
- Is there a specific group of customers that can't find what they're looking for within the city's existing coffee shops and restaurants?
- Is there a street or area, in particular, that's lacking a coffee shop like the one you'd like to open?
- Will your desired area for business be able to support the arrival of a new coffee shop?
Once you've answered these questions, the next step will be using the information you've found to identify a concept that will attract your ideal customers to your coffee shop. If you're close to a university or financial district, you'll, of course, be more likely to welcome a certain group of customers than others and will have to concentrate on adapting to their habits, tastes and needs.
The third (and certainly not least) aim of a coffee shop's market research is to gather the data needed to assess the sales potential of your coffee shop.
3 questions to ask yourself when carrying out market research for a coffee shop
Here's a figure that should kick your coffee shop market research motivation into overdrive: one out of every two businesses fails to pass the five-year mark. Success is anything but a given, but failure is not inevitable.
By taking the time to carefully carry out market research for your coffee shop, you can ask the right questions and limit the risks involved. It's about making the right choices from the outset to give your business every chance of success.
To help you kick off your market research, we've listed the top three questions you should ask yourself:
- What is your target customer, and what products and services are best suited to this group?
- How do you plan to take market share from your competitors? What strategies will you implement to set yourself about from the area's existing coffee shops and restaurants?
- How do you intend to attract and retain customers?
Besides developing an attractive concept, you'll need to develop a strong marketing plan to get your name out there and create some hype around your coffee shop as the weeks and months go by.
Trends to look out for in your coffee shop market research
Whichever industry you're working in, market research requires a detailed analysis of the market, its trends, and consumer expectations. You will also need to familiarise yourself with the regulations in force.
Coffee shops, a growing trade?
Many entrepreneurs begin market research by checking out the health of the sector on a national scale. To do so efficiently, ask yourself the following questions:
- Is the coffee shop market growing or shrinking?
- How is the turnover of coffee shops evolving?
- What are the main obstacles to business development? What kind of difficulties do coffee shop managers encounter? Are they under pressure from their suppliers or find it tricky recruiting qualified long-term staff?
To find this information, you can check out hospitality insight industries, such as Allegra Stategies, which regularly provide online reports on the coffee and related retail and food industries.
You'll also need to take a deep dive into the main trends within the coffee shop market and compare whether your business model aligns with them. If you sense an emerging trend that hasn't yet been tapped into during your coffee shop market research, you may decide it would make more commercial sense to go against the grain.
You should also look at the competitive dynamics of the coffee shop market. The question here is to determine whether coffee chains (such as Costa, Starbucks, and Pret A Manger) truly dominate the market or if the rising popularity of independent coffee shops indicates their potential to come up on top.
Understanding the expectations of coffee shop customers
Once you've delved into the current state of the coffee shop market, it's time to understand the expectations and changing needs of consumers for the market research of your coffee shop.
- What are the consumption habits of coffee shop customers today? Do they drop by on the way to work for a quick take-away latte or visit for a sit-in coffee and snack during lunchtime?
- What are the characteristics of a typical coffee shop customer? Are there significantly more office workers than families and young groups of friends?
- What is the average budget per customer?
- What are the most popular products sold? Americanos, flat whites or snacks such as flapjacks and scones?
To answer these questions thoroughly, we suggest you take some time out to talk to local coffee shop owners and the customers themselves to truly get into the heart of what draws people into coffee shops and keeps them coming back. The deeper you delve into the coffee shop industry, the more reliable and relevant your market research for a coffee shop will be.
The rules and regulations of a coffee shop market research
Your market research for a coffee shop also provides an opportunity to familiarise yourself with the regulations related to operating a coffee shop.
To find out about these specific regulations in more detail, read our guide on how to start a coffee shop.
Analysing the demand for coffee shops in your area
Now that you've built up a decent enough knowledge of the coffee shop sector, it's time to cast your eyes over the characteristics of the area in which you'd like to set up your coffee shop, otherwise known as the local market.
You can start by assessing its size: what is the population of the city or town and how many of them fall within your target group? You'll also want to make note of the profile of the population (from age and gender to job status and level of disposable income) as well as how often people visit the area in which you'd like to operate your coffee shop.
As part of your coffee shop market research, it's also important to identify, within the local market, specific locations that are likely to attract the most potential customers (whether it be a busy shopping street, near offices, or beside the coast). It is undoubtedly near these locations that you'll be most drawn toward when deciding where to set up shop.
Finally, assess local customer expectations. Is there a demand for a hot drink or snack in particular that currently isn't being met?
...and checking out your competitors
Conducting proper coffee shop market research also requires a thorough analysis of the competition at the local level.
Start by rounding up all the coffee shops (as well as cafes, delis and restaurants that offer hot drinks) located near your business. You should look at their concept, the type of products and services they’re offering, as well as the prices charged, and their target clientele.
This information will help place you in the best position to stand out from what everyone else is offering, by serving up a different concept. Or, alternatively, by selling products that compliment the types of services and products offered by other local businesses within the area.
Size them up
You should also check out how much space and seating capacity each of your competitors can offer customers. You'll want to know how many employees they have too, as well as the turnover for each place.
Bear in mind that if some of these coffee shops are operating within an established chain such as Pret a Manger or Costa, their large marketing budgets will make them your fiercest competition in this regard.
Consider their reputation
Analysing the reputation of your competition will also prove very useful when doing the market research for your coffee shop. Speak to local business owners and residents to gather solid opinions on each places quality or products and customer service. Put aside some time to google them, too, and look up online reviews.
The aim here is to understand what customers like and dislike, so researching both good and bad practices will help you draw inspiration for your own concept.
Analyse how they attract customers
Another way to strengthen your business's chances of success is to check out the main ways in which your competitors attract and retain customers. Looking at a variety of different marketing practices will enable you to come up with a unique marketing plan that is just as effective but geared towards your specific target market.
First of all, determine the channels (whether it's Instagram, their own website or an email newsletter) through which your competitors communicate with customers and share news of promotional offers. Evaluate how effective they are and, if you think you can do better, write down how and put these valuable observations into action.
Finally, and most importantly, set aside a budget for promoting your coffee shop and communicating with customers. It's important to remember that even if you do brew the best coffee in the entire city, it won't matter if no one knows about it - so take time to review your marketing plan and how much money you can afford to invest in each action, whether it's setting up a website or printing street flyers.
Defining the concept of your coffee shop
Once you've gathered all the information above, you can consider your coffee shop market research done and it's time to put this data into use.
Perhaps, for example, your research led to the conclusion that the market is simply too small for a new coffee shop or the business idea you had in mind isn't in line with customer expectations.
Or (we're hoping, anyway) you may have found enough data that confirms the existence of a real business opportunity - enabling you to kickstart the process of launching your coffee shop.
In this case, begin by developing your concept. This will enable you to target a clearly defined customer base and offer a service that meets their expectations in every respect, whilst ensuring you stand out from the competition.
Developing your concept will also help you define the ways in which you'll attract and retain customers. Collate these methods (and their costs) into a marketing plan that aligns with the objectives of your business and the desires of your target market.
Carrying out a quantitative study to test your concept on customers
By this stage, you've invested more time than you have the money into your business. Once the money is involved, it's a risky game. So before devoting chunks of your own or other people's cash into your business, test your concept out amongst potential customers by carrying out a quantitative study.
This test aims to accurately present your offer to a maximum of potential customers and to validate your concept, or to refine it even more if necessary for your coffee shop market research.
You can carry out a quantitative study in a variety of ways. For example, If you are present on social networks, you will be able to quickly measure this adhesion thanks to clear marks of interest: a like on your page or, better still, a subscription to your newsletter to be kept informed of the evolution of your coffee shop business.
You can also, before opening your coffee shop, set up a stall at a local food market and let residents try the coffee for themselves. This will not only enable you to get your name out there and showcase your barista skills but also let you chat with visitors face-to-face to get their opinions on the coffee and if they have any suggestions as to how their experience could be improved.
Write a business plan for your coffee shop
Has your coffee shop market research validated that there's room on the coffee shop scene for your concept? You can now get down to the next step in the development of your business: the business plan.
A business plan is a document that describes your business, and its strategic, commercial, and financial objectives for the first three years of operation.
It helps you verify whether your coffee shop has the potential to be profitable, at least on paper. As well as that, it will guide you through the very first steps of implementing your project, from covering what licenses you need to assessing start-up expenses.
Your coffee shop's business plan will also be a valuable tool for presenting your project to potential commercial and financial partners, such as investors and suppliers.
As you can imagine, creating a business plan for a coffee shop is crucial. But it is also a technical and sometimes tedious job - especially if you aren’t a seasoned entrepreneur.
To make the process easier for you, especially if it’s your first business plan, you can use online business plan software.
There are several advantages to using software to create a business plan for your coffee shop:
- It takes care of the calculations and creates the projected financial statements for you (income statement, balance sheet, cash flow statement, break-even calculation, etc.)
- With business plan templates available and instructions for each section, you are guided through how to structure your plan
- As an end result, you receive a professional document, formatted and ready to be sent to your bank or investors
If you are interested in this type of solution, you can try The Business Plan Shop's software for free by signing up here.
You can also have a look at our coffee shop business plan template to get some inspiration!
We hope that this article has helped you better understand how to do market research for a coffee shop.
If you’d like more advice on any of the points mentioned above or any other element related to the creation or takeover of a coffee shop, please don’t hesitate to get in touch.
Also on The Business Plan Shop
- How to improve a coffee shop's profitability
- How to write the business plan for a coffee shop
- How to take over a coffee shop
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