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Franchise vs Coffee Shop Startup: What will be the Best Option for You?
Written by: Parth Parth
Last Updated by
María Sol Fernández Amato: June 23, 2022
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Thinking of starting your own coffee shop or a franchise? That’s amazing! In this article, we will have a look at the initial investments of a couple of franchises offering coffee stores. Starting all the way at the top of the coffee house food chain like Dunkin’, we will look at smaller franchisors like PJ’s New Orleans Coffee house and Biggby Coffee for more detailed coffee shop startup costs.
How Is The Coffee Industry Doing in 2022?
The Food and Beverage industry in the USA accounts for 13% of all manufacturing employment in the country. Around 1.46 million people are employed in this industry. Food franchises make up to 36% of the total franchise establishments in the USA and they are forecasting the creation of 1.6 million more jobs by 2027. The annual growth rate in the industry is around 2%. And the EBITDA multiplier is around 3x for a single restaurant. Multiples can go up to 7x for 5+ restaurants.
One of the benefits of buying a coffee shop is that very little industry-specific knowledge is required. Many first-time business owners buy coffee shops, and this industry is very popular among first-time franchise owners. There is a lot of information about general business practices as well as coffee shop specifics, so the learning curve is less steep. Any owner in the industry must or should be knowledgeable in the specifics of coffee, trends, and coffee-related drinks.
The coffee shop industry is characterized by high turnover and discretionary spending. This industry has experienced a period of rapid expansion over the last decade. There is an expectation of a more intensified existing competition in the industry. Industry profitability is envisioned to increase, recovering from the decline early in the period. International expansion is anticipated to be the largest source of revenue and profit growth.
What are standard Coffee Shop Start-Up Costs in 2022?
For the purposes of this article, we will look at four chains, namely: Dunkin’, Scooter’s Coffee, PJ’s Coffee, and Biggby Coffee.
First at the coffee shop startup costs, let’s look at the Initial Franchise Fee. This fee needs to be paid upfront before starting any work on a franchise.
Dunkin’s IFF is between $40,000 and $90,000. Scooter’s is $40,000. PJ’s is between $10,000; and $35,000 and Biggby charges $20,000 as the Initial Franchise Fee. As we can see, the more popular the franchise, the bigger the Initial Franchise Fee. The huge variation in the Dunkin’ fee is because they offer many franchise concepts.
For this analysis, we are going to club Equipment, Furniture, and Fixture costs together because some franchisors provide this information separately while some group it together. What it includes is exactly what it says: equipment, furniture, and fixtures. This will include things like displays for menus, tables, and chairs, coffee machines, etc. We will also include signage costs in this category in this analysis.
Dunkin’ says you will need between $219,000 and $382,000 to this end. Scooter’s says you will need in the ballpark of $159,200 and $193,300. PJ’s estimates a cost in the range of $137,000 and $183,000; and Biggby comes in at $75,000 to $100,500. Dunkin’ is the highest in this category. Some of that comes from them supplying you with extra equipment to cope with their extensive menu offerings, but some might also be just from the fact that it is Dunkin’ and it is charging you for the brand recognition.
The more popular the franchise, the bigger the initial franchise fee will be
Leasehold Improvements are costs that will go towards getting the physical location set up and up to standards for the franchisor. They refer to the changes made to a rental property to suit the needs of the current tenant. These include things like painting the store, re-flooring it, or putting in electrical fixtures required for the franchise, among other things. These costs do not include the cost to rent/lease or buy the property.
Dunkin’ calls these “Site Development Costs” and they are between $0 and $60,000. This is in addition to Real Estate Costs that Dunkin’ provides figures for in dollar amounts. For Scooter’s, these are between $146,500 to $679,900. PJ’s estimates these costs in the range of $175,000 and $675,000. And lastly, Biggby puts these costs at between $140,000 and $205,000.
Opening Inventory/Inventory Fees are the cost of materials that the franchisor or its vendors will provide you with in order for you to start serving your first customers. These will increase depending on how much margin the franchisor/vendor wants for itself, how good in quality the ingredients are, and how many ingredients you are ordering/will need to get started.
Dunkin’ provides franchisees with between $8,000 and $20,000 in inventory goods. Scooter’s with $14,000 to $17,000. PJ’s between $10,000 and $14,000. And Biggby between $9,000 and $14,000. The higher range for Dunkin’ is because of its verified offerings. That said, this range is clearly standard for these coffee franchises.
Additional funds are money that the franchisor has not specified a category for but expects will be needed in the first three months of opening. You can think of this as miscellaneous spending.
Dunkin’ expects franchisees will need between $0 and $84,000 for this. Scooter’s expects $10,000 to $30,000. PJ’s estimates $30,000, and Biggby asks franchisees to budget between $5,000 and $40,000. Once again, Dunkin’s has the highest expectations while all the others are comfortable in the $30,000 range.
Conclusion
To conclude, we can see that the coffee shop market in the US is rapidly expanding. As we saw in this article, Dunkin’ has the highest fees in almost all categories. That might be because they can charge a premium for brand recognition.
In this article, we looked at franchises that offer brick-and-mortar coffee stores, but there are franchises that offer coffee carts and kiosks as well. If you want to start your own coffee cart business from scratch, we have a guide that you might find very useful. While coffee shops in the industry might be the business you are looking for, make sure also to check out other businesses offered on Vetted Biz and in the Food and Beverage industry.
