According to the Coffee Shop Owners Survey of 232 coffee shop business owners conducted in April of 2019, between 50% – 74% of independent coffee shops will fail in the first five years. That’s not an alluring success rate. But why is failure rate so high?
To get the answer we reached out to survey independent coffee shop owners located in the United States, Canada, and United Kingdom for their perspective on the top reasons coffee shops fail. Our goal was to identify the common causes for failure so that you know what to avoid in your own business.
A grand total of 232 independent coffee shop owners responded to our survey and the responses were enlightening to say the least.
Key Survey Findings
What’s the Biggest Reasons Independent Coffee Shops Fail?
- Poor customer service – 23 responses
- Insufficient working capital – 43 responses
- Competition – 46 responses
- Poor location – 68 responses
- Get tired / Worn out – 30 responses
- Employee Challenges (hiring, cost) – 18 responses
- Unprepared for business ownership – 128 responses
- No Distinct Brand / Experience – 94 responses
- Poor Product / Bad Coffee – 2 responses
- Other – 12 responses
Summary: Each respondent in our survey was asked to select the top two reasons that coffee shops in their area go out of business.
- The number one reason failure cited within coffee shops is being unprepared for ownership according to the survey (55% of respondents listed this as a primary reason). Put simply, new coffee business owners don’t know what they’re getting themselves into when starting this business. Many are not aware of the complexities of the business. Judgement is often clouded by what the dream of owning a cafe will really be like. What’s unfortunate is this cause of failure is reduced through training and education.
- The second biggest reason was lack of a unique brand or customer experience for guests. 40.51% of the responses included this cause of failure. Building a recognizable brand and mission statement is a key requirement for success according Bryan Reynolds, Co-Founder of Anthem Coffee & Tea.
- Surprisingly, serving bad coffee was almost never the reason a coffee shop closed down. Less than 1% of those surveyed gave this response.
Based on Your Experience, What Percentage of Independent Coffee Shops Do You Think Fail in the First Five Years?
- 75% or More Fail – 18 responses
- 50% – 74% Fail – 114 responses
- 26% – 49% Fail – 84 responses
- 25% or Less Fail – 16 responses
Summary: Reputable data is scarce on coffee shop failure rates. Most articles and news stories cite general small business data when referencing cafe success rates. The data collected in this graph illustrates anecdotal evidence provided by current coffee shop owners. The graph illustrates the success / failure rates small business owners observe in their local market.
- 56% of the respondents agree that more than half of all coffee shops will fail within five years.
- Only 6.9% of the respondents say that 3 in 4 coffee shops will be in business at the 5-year mark.
About Survey Methodology
According to Statistica, there are over 31,000 specialty coffee shops in the United States. We sent email surveys to 1,400 independent shops we identified through online research across the United States, Canada, and the United Kingdom. The survey included only two questions since business owners have limited time. Ultimately, 232 owners responded to the questionnaire.
We did not incentivize owners to respond to our survey in anyway through gift cards or a prize drawing. Also, we did not send surveys to owners of franchise coffee opportunities. A larger set of responses and broader viewpoints could have been gleaned had we decided to go that direction in the research. However, we wanted to segment the experience of independent coffee shops for this piece.
There is some ambiguity in the industry on what constitutes a coffee house versus a cafe / restaurant. For our survey, we only submitted requests to businesses whose main product is to serve specialty coffee and related beverages.
In Their Own Words
Data tells part of the story, but sometimes statistics and graphs from a survey aren’t enough. So we asked a few successful coffee shop owners and business experts to tell us in their own words why coffee shops fail. Here are the best responses we recieved.
The common denominator with all of them is that they lack a really clear sense of purpose. – Bryan Reynolds, Co-Founder and CEO of Anthem Coffee & Tea.
I think businesses fail now because they see how “easy” it has been in the past for shops to open without a lot of business basics and succeed. When I first moved to Denver you could have opened a shop in a location with no parking, no sign, have terrible customer service, weird hours, and no seating and succeed. This was possible because there were no options. If you wanted a great cup of coffee you had to go to the 2 – 4 shops that had great coffee in Denver. The industry is not like that any more. Consumers have shops opening all around them with great customer service, good seating, high visibility, and parking all over. You don’t have to endure bad business to get good coffee any longer, and so the barrier to entry is higher. In short, you have to open a good business to serve good coffee. – Phil Goodlaxson of Corvus Coffee Roasters.
Coffee shops seem like fun, profitable businesses, and they can be, but they are a lot of work. I think they tend to fail because the owner underestimates the amount of work it takes and over estimates the amount of sales they will have. You can’t just open your doors and expect people to show up. – Hannah Ulbrich, proprietress Copper Door Coffee Roasters.
Bad location choice and inconsistency. Also, the world is full homogeneity these days, do something different with your shop and your customers won’t forget you. – Lindsay & Alex Dalton of Weathervane Cafe in Denver.
Having working capital is imperative for those repairs and equipment replacement, slow sales days, and expenditures to help you grow -such as spending money on marketing efforts. The ability to go without a paycheck for like a year, can also help give you some flexibility for those unplanned expenses, especially if your aren’t as flush with capital. – Michelle Ackerman, Owner of Black Eye Coffee LoHi
I really don’t think people know what they are getting into, they think the coffee business is just Fun. In our experience we see business owners who have no idea how to run a business. You need capital, to control your inventory, be hands on and have a great staff that supports your vision. In a small business if you ignore any of these your chance of survival in a competitive industry are threatened. – Erica Lowery, Show Director at Coffee Fest Trade Show.
We think coffee shops should be warm, inviting, and play a powerful role in their communities being that third place between home and work that people feel they can be themselves and unwind or chat with the neighbors without any judgment or task at hand. A place to gather and meet new people or chat with the staff. If coffee shops don’t have this culture or ambience it really defeats why it should be there in the first place. We also feel that the owners need to be very involved with creating a certain feel and emotion that goes into everything including the colors, materials, food, coffee, branding and listen to what the market whats and needs.
Be open minded and take feedback seriously. If the owners aren’t around to instill this standard from day one, it can lead to a faulty system and miscommunication to what is expected. It then confuses the community and regulars on what your intentions were. Its a very tough business and showing face and being involved is what’s important, and the most common problem with closures. Understanding the numbers and overhead compared to projected revenue, does it even work or makes sense? Always watching the numbers to be sure its working simultaneously together instead of against each other. – Austin & Tony Ferrari “The Ferrari Bros”, founders of Provender Coffee, San Francisco
Failure is complex. I generally see it break down to three reasons:
- Inability to make disciplined / healthy business decisions.
- Lack of experience in the field – not insurmountable… but it just means you have to work multiple times harder than all your competitors. You’re up against all the challenges that they are, and you’re having to learn the specific product category at the same time – very time consuming. So for every hour your competitors are working… you’re probably working 3!
- People get tired. Lots of cafes close (they might even be doing fine) when the owner / owner(s) decide they want to take the massive amount of time they are investing in the business & invest it somewhere else. – Sam Purvis, co-owner of Good Coffee in Portland
Competition is fierce. It’s hard to do enough volume with so many shops opening. – Jack Kelly, CEO of Caffe Ladro
I would say a lot of independent shops fails because they don’t quite understand what they’re getting themselves into and don’t quite understand the neighborhoods in which they’re opening up. A lot of people see coffee as a quick way to make a buck, but that couldn’t be further from the truth. If you also think specialty coffee will work in just about any neighborhood, it won’t. – Bobak Roshan, founder of Demitasse Coffee
The second half of my business is we wholesale our product to other coffee shops. So we have a unique and inside view of many coffee shops throughout New England. The two biggest issues with indie coffee shops is 1) Profit margins. Coffee is, per pound, an extremely expensive product. You have to ship it halfway around the world from Ethiopia or Indonesia just to get it. Then for your coffee shop to be “hip” you have to have a great location, like downtown Portland Maine with a beautiful brick facade. The problem with this is, that location for your shop coffee shop has to pay some of the highest rent in the city just to be there. And then you only sell a $4 latte? A restaurant in the same spot will be doing $40 per person and an entire family will come in. But a coffee shop has much smaller sales per person. You may not know it, but many coffee shops you see in your town are probably hemorrhaging money. If you’re going to open a coffee shop you need to be extremely prepared and well thought out in your business plan. You need to have many ways to get people in your door to buy things other than coffee. Or you need to really know your market. The second issue is competition. There’s many ways to make coffee at home, and there has been a boom in coffee shops. It is, in my opinion, a flooded market. – Will Hardy, Proprietor of Vagabond Coffee- Maine
Lack of foresight into how much cost and overhead is actually involved in selling 2-5 dollar cups of coffee. Luckily we’ve figured out other avenues of revenue to make it work for us. We have made a well-rounded experience here at See See that has been hard for others to successfully replicate for longevity. It’s definitely a passion driven company here. – Thor Drake, Founder and Creative Director for See See