The Improved Grab-And-Go Model

Many new coffee business owners may dream of running a destination café in a bustling urban neighborhood, complete with rotating art shows, open-mic nights and a magazine library. However, the upfront costs, ongoing operational fees and commitment may intimidate even the most diligent entrepreneurs. Fortunately, there are a few alternatives to the traditional brick-and-mortar café that offer numerous advantages: carts, kiosks, and drive-thrus.

According to CoffeeCartBiz.com, the difference between carts and kiosks is simple: A coffee cart is an easily mobile structure that may contain its own water supply, while a kiosk is a larger, more permanent unit meant for stationery coffee locations such as in malls and office buildings.

Ed Arvidson, owner of Coffee Drive-Thru Plans and senior consultant at Bellissimo Coffee InfoGroup, is a proponent of coffee drive-thrus, but says that “carts and kiosks are even sweeter.” He touts their relatively low cost of $15,000 to $20,000 and says that if a cart or kiosk business fails, the owner can “fire-sell the equipment, or move it to another location.” And if the operator finds a high-volume location, “it‘s a cash cow,” Arvidson says. When situated in a prime spot, like a university campus, there can be a big return on a minimal upfront cost.

Michael Taylor, owner of City Brew Coffee, says, “Carts can be very successful if you can control other factors.” His company sells a mobile cart for around $29,000, which includes site selection, lease acquisition and permitting assistance. Taylor advises clients to choose locations with predictable traffic flows, such as hospital and hotel lobbies, which also offer more security.

Be sure to calculate likely ongoing monthly costs during the business planning stage, and include factors such as cost of goods, equipment maintenance, labor, advertising and rent. CoffeeCartBiz.com offers a cost estimate calculator that assists business owners in determining their upfront investment, in addition to a detailed pro-forma sheet for calculating potential costs and profits. CoffeeCartBiz.com’s Stephanie Garden says, “Depending on how the fixed expenses are negotiated, it is safe to say that the net profit could be as high as 40 percent of gross sales, sometimes more with a low rent and if the business owner is operating the cart or kiosk themselves.” 
 
When negotiating the lease arrangement for a cart or kiosk with the property owner, “Make sure you have renewal options in your lease with predetermined rates,” Taylor says. If your business is successful enough, the landlord may try to raise the rent, so a long-term lease or one with predetermined rates is advisable.

Kelly Traw, vice president of marketing for Brevita Cooperative Association, which sells drive-thru units and everything needed to stock them, claims that owning a drive-thru is right for most budding coffee business owners. “They’re the least expensive option and offer the most profit per square inch,” Traw says. “There’s a lot less overhead and typically fewer employees needed. It just makes sense.”

Loren Cocking, senior sales executive at drive-thru window manufacturer Easi-Serv Products, says, “Within the QSR industry, it is said that drive-thru service can account for as much as 60 percent of the total revenue” of a business. And for this reason, “coffee-shop owners who wish to grow their business and increase their revenues would do well to consider the adoption of a walk-up or a drive-thru window to their building.”

Start-up costs for purchasing a prefabricated drive-thru can hover around $90,000, with an additional $15,000 for installation and the rest of the buildout. But comparing that to the $300,000 to $500,000 needed to build out a permanent café makes the leaner option look a lot more desirable, especially in a tough economic climate.

Some business owners may prefer to become part of a franchise, an option that often provides startups with a built-in brand, menu, building specs, training and ongoing coaching. Dutch Bros. Coffee, a popular franchise in the western United States, grows in a unique way: from the ground up. New franchisees must have at least three months experience working at a Dutch Bros. before submitting a franchise application. Brian Maxwell, the company’s vice president of growth, says Dutch Bros. has “grown organically” and that employees-turned-franchisees “want to be part of something that’s bigger than just our business—it’s our culture.”

To become part of the Dutch Bros. family, as staffers refer to it, expect to pay a minimum of $250,000 for initial franchising costs. Depending on the location, rental fees, buildout and zoning requirements, Maxwell says the upfront costs can quickly reach $300,000 or more. In addition, franchisees pay Dutch Bros. 5 percent of their gross sales for royalties and put 1 percent back into the community, either through donations or sponsorships. Franchisees purchase their supplies and coffee from the company, and pay rent and utilities on their own.

The disadvantages of franchising may be the large overhead, continuing fees, and lack of freedom regarding the company’s aesthetics and menu. Yet many franchisees (136 and counting at Dutch Bros.) like the idea of having a parent company that offers training, support and a family vibe. Regarding the advantages of franchising over going it alone, Maxwell says, “People want the love and support that Dutch Bros. provides.”

An alternative that gives entrepreneurs more freedom—and more personal responsibility—is to purchase architectural plans and hire a contractor to build a drive-thru. Coffee Drive-Thru Plans sells plans that are “structurally sound, ergonomically efficient, economical to build, and esthetically appealing,” according to the company’s Web site. The upfront costs vary greatly by building size, construction features and aesthetics. Coffee Drive-Thru Plans’ plans cost $4,900, buildout can cost an estimated $150 per square foot, and equipment can run $25,000 to $30,000.

Besides financials, there are many factors to consider when building a drive-thru, especially size, construction quality and property leasing. For shops with an estimated business volume of 100 to 250 cups per day, Arvidson suggests building a drive-thru that’s at least 200 square feet; for higher volume and demand for iced and frozen drinks, 500 square feet or more is ideal. He also recommends using plans that were designed by someone who has worked in the coffee industry. “If the building is not designed well, it can be a nightmare to work in,” he says. “You’re going to be living in this building—it’s got to be functional.”

The same advice goes for structural elements like drive-thru windows. Easi-Serv’s Cocking says business owners “should recognize that these windows will see a high degree of daily use. Residential-grade windows might be designed for a duty cycle of once- or twice-a-day operation for a 20-year lifespan,” but “our commercial-duty windows are built with an intended duty cycle of over one million cycles.” When you consider the costs of having a subpar window break down, replacing it and losing business, Cocking says, “It only makes sense to invest in a quality window at the outset.”

An option that offers freedom, as well as assistance in all aspects of getting up and running, is to work with an advisory company like Advanced Fabrication, parent firm of CoffeeCartBiz.com. Sales representative Tim Langdon says the company’s services include “location assistance, business plan development, design and layout, architectural plan development, project management, construction and fabrication, equipment and refrigeration, marketing assistance, coffee products and training.” This alternative works for business owners who want both control and guidance when setting up a new drive-thru. Because each of its projects is custom, “Our clients have a choice as to what materials will best fit their business with reference to cost, volume, location and products being sold,” Langdon says.

Fortunately, the same type of consultancy is available for cart and kiosk owners as well. CoffeeCartBiz.com offers its clients “the assistance, guidance, training and advice that franchises offer without the restrictions, royalty fees and hassle,” Garden says. “New business owners have the freedom to select their own locations, concept, colors and design.” 
  

Café Vélo
One of the most visionary, and assuredly mobile, coffee carts has been delighting Portland farmers market attendees since last spring: the bicycle-operated Café Vélo. Owner and operator Rick Wilson, who recently quit his software marketing gig to focus on his coffee business, purchased the cargo bicycle, or bakfiet, from the Amsterdam-based Nijland Company. This type of bike carrier has been common in European cities since the turn of the 20th century, traditionally carting everything from bread and flowers to children.

The bicycle arrived from Europe with a six-foot-by-three-foot mahogany box over the front wheel, in which Wilson transports most of the café’s supplies to the markets. Wheeling 500 pounds of coffee equipment may sound like an impossible uphill battle, but the bike is actually constructed to haul up to 1,000 pounds. Once at the market, the volume of hot water and electricity needed to run a full-sized espresso machine and turbo blenders aren’t readily available at an urban park daylighting as a farmers market. Fortunately, the gourmet drip and French press coffee that Café Vélo sells to its devotees requires only a propane burner, a stainless-steel stockpot and about 100 gallons of water. And this method is perfectly attuned to Wilson’s quality-over-quantity values: “I’m not willing to brew big vats of coffee that sit around, like the typical chain-store approach,” he says. “We know exactly where the beans are coming from, and we brew it in a way that maximizes the freshness.”

Despite the café’s popularity, Wilson admits that it took some time and effort to win customers over without offering standard espresso drinks. “Convincing people to drink drip-to-order coffee after living in espresso land has been interesting and challenging,” Wilson says. But the upside is that “people are starting to recognize it now. It’s been a lot of fun.”

While most coffee kiosks and drive-thrus rose from the U.S.’s car culture and rush-hour crowds, Wilson associates his unique cart more with the slow food movement: “It makes people feel more individual and special, even as low-tech and old school as it is.” And the café’s idyllic location is an intentional one: “I wanted to echo the small farm ethos that surrounds us at the farmers market, aesthetically and philosophically,” Wilson says. “We have an audience that’s thinking about local food issues and reading  ‘The Omnivore’s Dilemma.’”

The advantages of bringing Dutch bicycle culture to an American city are plentiful. The cart’s mobility enables Wilson to work at farmers markets in different locations as they occur. There are no issues like overhead and furniture, not to mention rent. The upfront costs for the bicycle and equipment, including the Beehouse coffee drippers used for individual orders, were relatively minimal, totaling around $10,000. It’s also a radically eco-friendly alternative. “Part of what I want to do,” Wilson says, “is show people you don’t need a lot of energy to run a business.”

Arvidson advises securing a long-term lease when negotiating with the property manager, especially if you’re paying for your drive-thru’s construction. “If you are going to physically build, you want contingency for a long-term lease—at least a five-year lease with possibility for a five-year renewal,” he says.

A potentially lower-cost alternative is buying an existing drive-thru or kiosk, as long as it’s in a good location, i.e. on the market for other reasons. Seth Smart, a gymnastics coach, and Jefferey Agee, a vintage car collector and musician, bought Brewed Awakenings, a drive-thru coffee establishment in Tigard, Ore., in September 2006 for $50,000. The cost included equipment, inventory and business, but not the actual structure. Smart and Agee pay roughly $2,000 each month for supplies, $1,200 for coffee (from Portland direct-trade roaster Stumptown) and $1,500 for rent.

Pitfalls one may encounter when buying an existing structure, like space constriction or an awkward setup, are more common in drive-thrus that weren’t originally built for a coffee establishment. Because Brewed Awakenings was formerly a drive-thru locksmith, only one person can comfortably fit in the four-foot-by-five-foot working space, so the owners take turns working. There also isn’t room for a bathroom, so they use ones at neighboring restaurants. Regardless, the benefits of buying a used drive-thru are the affordable price tag and the possibility of being grandfathered in to zoning requirements. Smart says, “We didn’t have to go through any of the zoning issues.”

When looking to buy an existing coffee structure (or one you want to convert), it’s worth it to comparison shop. Smart says that he and Agee considered purchasing a similar drive-thru in a comparable location for $100,000. They would have owned the building, but since the structure itself was only worth about $6,000, their decision was made easy when they found their current shop for half the price.
 
Location is naturally the top consideration when setting up shop. On a macro level, keep your mind open to regions that don’t necessarily conjure up images of latte sippers and tea aficionados. “Espresso is surprisingly hot in the Midwest and in a lot of states people wouldn’t necessarily think of,” Traw says, adding that several states are “coming of age in espresso,” including Texas, Iowa, Kansas, Nebraska and Virginia. And more specifically, Traw thinks that suburban Chicago, Phoenix and Dallas are “ripe for this market.”

On a micro level, heavy commuter areas are ideal for drive-thru coffee businesses. Brewed Awakenings is auspiciously located in a shopping complex’s parking lot at the crossroads of a major avenue and highway. The avenue leads to a high-end mall, while the highway links downtown Portland to Oregon’s Willamette Valley, a tourist-friendly wine region, which has played a large part in the company’s success.

When scouting for a location, “It’s all about traffic counts, visual exposure and means of access,” Arvidson says. Contact your local department of public works or the state department of transportation to get traffic flow charts and hone in on the region’s busiest areas. Then find a vacant spot on the morning-commute side of the street. And the more visible the business is, the better. Arvidson advises to choose a location that drivers can see 100 yards in advance “so they can process it. And once they see it, they need to be able to get to it.” So ensure that there’s an easy way for cars to reach your establishment, with plenty of room for them to pull in and wait in line.

Building codes, including everything from required distance from the road to sink size, can vary greatly from county to county. Talk to your local planning or zoning department before buying a drive-thru or setting up an outdoor kiosk or cart. “Before getting bank loans, you need to see if you can even open these [structures] in your town,” Arvidson says. Fort Collins, Colo., for example, doesn’t allow drive-thrus unless they’re part of a 1,000-plus-square-foot building. In some towns, drive-thrus cannot be fewer than 200 feet from the road, significantly lowering visibility and consumer convenience.

There are other permitting issues regarding structural elements. In Florida, for example, drive-thrus and kiosks needs hurricane bracing, while in Southern California they need to be earthquake-proof. In areas with heavy snowfall, the roofs and walls require the strength to withstand six-foot snow loads. Additionally, many areas require drive-thrus to have ADA-compliant restrooms with outside customer access.

Once you ensure that your area allows the type of structure you want to own and you’ve found an ideal location, the next step is contacting the property manager. Rent costs vary wildly by market—expect to pay anywhere from $500 to $1,500 a month. “One of the big advantages [of these kinds of structures] is that you can negotiate a pretty aggressive lease rate,” Arvidson says. “Do not pay as much as you’d pay to lease a shop.”

If lot owners balk at the rent you suggest, Arvidson says it may help to remind them that it’s x-thousand dollars a year they’re not already making. “The real advantage to the lot owner, if the hut is successful, is 600 more cars in the parking lot every day,” he says. “It could be enough to maintain healthy sales for all the shops in the strip mall.”

With an increase in store closings during an economic downturn, “There’s a lot more attraction from the landowners’ perspective to having a drive-thru or kiosk on their property,” says Taylor of City Brew Coffee. “It’s a revenue stream—we bring traffic to the stores on that property.” Also, the timing now may be advantageous: “In some cases, it’s easier to secure a lease than it once was.”

In a business that depends on attracting customers from the road, aesthetics aren’t just superficial—they can mean huge sales. Jason Costner and his mother, Sheila, bought an existing coffee drive-thru business called The Bean Scene in southwest Portland in March 2007. Sold by a woman nearing retirement, the drive-thru “was old and filthy,” Costner said. “The awnings were hanging off.”

When the Costners took over, they painted the structure a rich brown color, replaced all the windows, added a counter below the drive-thru window on which to set drinks and a tip jar, and decorated with flowering hanging plants. They also created a walk-up window next to the sidewalk and a patio seating area with tables and chairs. Additionally, the owners planned an entirely new menu serving all organic coffee and hired a new staff. “Customer service is huge—I think most people would prefer an average cup of coffee with a smile,” Jason Costner says. With the new look, menu and staff, sales have nearly tripled since the changing of hands, proving that visibility and a welcoming vibe can make or break a business.

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