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Coffee Houses

Coffee Houses

Market characteristics

• One of the highest opening and closure rates in the economy. Coffee houses that survive over time are based on a regular clientele and are well run.


• The sector is based on a tendency on the part of populations with similar characteristics (age, geographical location, groups of friends and more) to congregate at specific coffee houses.


• Israelis are coffee consumers: coffee consumption in Israel stands at 4.5 kg per capita per annum, similar to Italy, France and the U.S.A.


• As an entertainment spot, coffee houses are built around a specific ambiance, with an attempt to generate uniqueness.


• The sector is fraught with seasonality: coffee houses that also use a courtyard or garden expand the scope of their activity in the spring and summer. In wintertime there is a preference for sitting inside closed and protected coffee houses.


• There is a significant trend of chains entering the sector and, in addition, shops with a coffee house on the premises, such as bookshops, are developing.

Customers:
Includes the population that devotes time and money to entertainment, in accordance with several segmentations:

• Age and preferred form of entertainment  


• Regular customers versus random/occasional customers


• Geographical area – the more unique the coffee house is, the less important this parameter is. This also holds true if the coffee house possesses a characteristic that attracts a regular clientele.

Competition
Competition in the sector is severe. The competitors can be divided into two main groups:

• Direct competitors – coffee houses addressing the same target public and/or located in the same geographical area


• Indirect competitors – other businesses that meet the need of entertainment including food and drink

Suppliers
Equipment suppliers: kitchen equipment, catering area equipment, dishes
Food and drinks suppliers: there is a wide range of food and drinks suppliers in Israel. When choosing a supplier, in addition to prices, it is important to check credibility and the quality of the goods. Some suppliers are prepared to participate in financing the establishment of the coffee house and the initial inventory, in return for exclusivity.

Marketing methods
A number of marketing and advertising methods that are customary in the sector are presented below:

• Advertising – advertisements in newspaper entertainment sections and distributing flyers in areas where people congregate


• An illuminated sign outside the coffee house


• Public relations – engaging a PR man


• Creating a reputation and a regular customer public


• Belonging to a well-known chain, as a franchise holder or an operating contractor

Factors affecting success
Location, service and quality, the design of the site, competition and dynamism in the sector, increasing the range of food and drink and increasing the hours of operation.

Entry barriers in the sector

• Investing in renovation and design


• Professional knowledge of coffee house management, food and drinks


• Investing in equipment and in the initial inventory


• The process of obtaining a business licence from the local authority

Investment required
Building, renovating and designing the site, while meeting the infrastructure and building conditions required for obtaining a business licence. Occupying a site where a coffee house operated in the past could lower the renovation and design costs and the cost of meeting the conditions for a business licence.

An average investment of around NIS 225,000 – NIS 450,000 is needed for opening a coffee house. The gross profit in the sector is estimated at around 75% - 80%.

Customary payment terms
Supplier credit: varied, according to the buying power and negotiations between the two parties
Customer credit: payment on a cash basis or by credit card

Risk level
The sector has a higher than average risk level – the number of new business opening is high, but so is the number of business that close or fail.

Licenses and certification
A business licence from the local authority, the police and the Health Ministry is required, after meeting the criteria for receiving it.

Insurance
Building and content insurance, third party insurance, employer’s liability insurance, inventory insurance, insurance against food poisoning and loss of income insurance.
In addition to the aforesaid, consulting with an insurance agent regarding required insurance is advisable.

Rural Hospitality – Bed and Breakfasts

Market characteristics of Rural Hospitality – Bed and Breakfasts

Most of the rural hospitality rooms are concentrated in moshavim and kibbutzim. The preferred region in Israel for the development of bed and breakfasts is northern Israel, and there is no small amount of development in the Western Negev region, Eshkol, the Arava, Eilot and more.
A strong degree of seasonality – the sector operates on average around 80 days a year, mainly in summertime and festivals.
The price level is low relative to hotels – the pricing basis is around 60% of the rates at tourist class hotels in the area.
Based mainly on domestic tourism – 80% - 85% of all occupancies are by Israelis. In addition, there is customer loyalty to the site, depending of course on service and satisfaction!

Customers of Bed and Breakfasts

The market is currently based on domestic tourism. The main target audience is those interested in unique hospitality and/or hospitality at a relatively low cost. Specific market segment can be identified, and includes:
Families – generally families where the parents are aged 30 – 40 with young children
Over fifties and young couples – without children constitute a potential off-season market segment
People seeking unique styles of hospitality – hospitality with a religious ambiance or hospitality in Arab or Druse villages.
Incoming tourism – a market segment still in its infancy

Competitors in Rural Hospitality – Bed and Breakfasts

Direct competitors – include rooms in the same geographical area, price level or similar service. Towns adjacent to urban areas will be in moderate competition with low-grade hotels and boarding houses, and will nevertheless maximize the city’s entertainment options.
Indirect competitors – effective before making a reservation and deciding what type of holiday/entertainment to select. This of course includes all accommodation alternatives located in the designated geographical area, from youth hostels to luxury hotels.

Equipment required
The required equipment can be divided into permanent equipment and current/depletable equipment.
Building or mobile home or a combination – industrialised construction, various types of cottages or cabins and more.
Permanent equipment: furniture, sanitation accessories and so forth
Current equipment: towels, sheets and so forth. This equipment wears out and must be replaced occasionally.
Depletable equipment: soap, toilet paper and so forth


Marketing methods
Joint activity by means of regional tourism societies, the Internet, travel agencies and holiday companies, outdoor signage, advertisements in the regular press and in publications geared at travellers, producing promotional products, public relations.

Factors affecting success
Location – holidaymakers prefer staying in a region where holiday activity is offered.
Service – creating a special rural ambiance and a personal attitude towards customers contributes to loyalty.
Level of rooms – a high level in terms of design, furnishing and additional accessories such as air-conditioning, Jacuzzi, intimate meals and so forth.

Entry barriers in the sector
The initial investment is relatively high. The Ministry of Tourism has regulations on establishing a building for rural hospitality, and operates an assistance network for entrepreneurs who meet defined criteria. A threshold requirement is the ability to obtain a building permit.

Investment required
The Ministry of Tourism helps with a grant of 25% of the recognised investment in hospitality units, for setting up 2 – 8 hospitality units in a moshav/town/city or 15 – 50 units on a kibbutz, for those who meet the defined criteria.

Turnover and profitability in the sector
The daily turnover per room depends on the season, region and direct expenditures, which stand at 40% of the revenues if breakfast is served, or 25% - 35% of the revenues if breakfast is not served.

Licences and certification
Certification from the local urban/regional planning committee (a business licence from the local authority is contingent on obtaining permission from the Health Ministry, which must be renewed annually), the consent of the Israel Lands Administration for irregular land use for purposes of rural hospitality, certification and licensing from the Ministry of Tourism.

Insurance
Building and content insurance, third party insurance, employer’s liability insurance, inventory insurance and loss of profit insurance.
In addition to the aforesaid, consulting with an insurance agent regarding the insurance required is advisable.

Chemists

Data pertaining to the Chemists sector
Chemists sell medicines prepared at the chemists according to a doctor’s prescription and prepared medicines. In addition, chemists sell medical devices, cosmetics, hygiene-related accessories and so forth.
In recent years a number of significant changes have occurred in the chemists sector:
• A cross between a chemists and a department store has been created (the drugstore)
• The trend of buying medicines without a prescription has increased (OTC – Over The Counter)
• Finding a characteristic area of specialisation (medicinal herbs, homeopathy, mixing drugs on the premises and so forth)
• Opening chains (the “Pharm” chains) or operating more than one chemists, in order to obtain preferential purchasing and payment terms
• Opening chemists inside supermarkets
• The health funds have reduced prices and even strengthened their relationships with some of the private chemists

Sub-division of the sector
The primary purpose of the chemists is to dispense medicines. However, and in addition, there are specific areas of specialisation, and this is widespread primarily at the large chains specialising in the following market segments: prescription medicines, OTC medicines (non-prescription), para-medical products (contraceptives, bandages), medicinal herbs, homeopathy, mixing drugs on the premises, cosmetics and food and natural products.

Market characteristics
• The market is relatively stable and varies according to urban development.
• There is an upward trend in the consumption of non-prescription medicines and in the willingness to consume supplementary products that aren’t medicines.
• Brands – attributes importance to the non-medical product brands

Customers
The target market includes the entire population of the country, segmented by the following criteria:
1. Members of health funds that have contractual arrangements with the chemists (those that have entered into an agreement with the health fund) for the purchase of prescription medicines
2. Random customers purchasing OTC products or other products that do not require a prescription.

Competition
Competition in the sector has increased in recent years, mainly because of the annulment of the law that required a minimal distance of 500 meters between chemists. Medicine prices are set by the Health Ministry. Inter alia, there is competition over service, the degree to which the medicine is in stock, the time it takes to supply a medicine that is out of stock, the range of auxiliary products that the chemists offers and the discounts offered on these products.
The Health Ministry is considering permitting the sale of non-prescription medicines as over the counter products at commercial shops.

Suppliers
They can be divided into two main groups:
• Suppliers of the equipment for setting up the chemists: equipment for the sales counter, shelves, a refrigerator for storage, a cash register, a computer, various types of precision scales, dedicated tools, etc.
• Goods suppliers: medicines and other products sold at the chemists. The large manufacturers in Israel (Teva, Abik and CTS) market their products directly to chemists. In addition to them, general suppliers and medicine importers operate in the market and must obtain approval from the Health Ministry. Competition makes it possible to enjoy quick delivery, exchange and returning products, bonuses, special offers and gifts, advertising products and supplying stands by the supplier, the use of sales promoters and free samples by the companies.

Marketing methods
Chemists are not permitted to advertising themselves. The large chemists, which also operate as department stores, operate indirectly to advertise all the products and devices sold at the chemists, apart from medicines. Another method is having the supplier advertise the product, and raising awareness among the physician public.

Entry barriers in the sector
• The long process of obtaining a licence from the Health Ministry
• The high cost of the initial investment
• Recruiting suitable manpower (a head pharmacist) with high employment costs

Manpower
There are four ranks of persons employed at chemists: apprentice, pharmacist’s assistant, certified pharmacist and head pharmacist. All are subject to regulations, examinations and approval by the regional pharmacist and the Health Ministry. A certified pharmacist must be on the premises during working hours. Professional liability and a business licence require a head pharmacist.

Investment required

Renovating and adapting the building NIS 50,000 – NIS 70,000
Equipment (furnishings and equipment for the chemists) NIS 45,000 – NIS 60,000
Inventory NIS 60,000 – NIS 80,000
Total NIS 155,000 – NIS 210,000
The cost pertains to a 60 square meter chemists

Licences and certification
• A business licence from the local authority. In addition, a detailed plan of the intended location must be submitted.
• Approval by the district pharmacist at the Health Ministry
• Approval from the police

Insurance
Building insurance for the chemists, inventory insurance and professional liability insurance.

Kiosks and Cafeterias

Market characteristics
The sector includes businesses known as kiosks, cafeterias and convenience stores. These shops sell additional consumer goods (nuts and seeds, cigarettes and lighters, soft drinks, alcoholic beverages, newspapers, sweets, snacks and ice lollies, sandwiches, etc). These are products consumed on a daily basis, mostly convenience products that do not require selection or price comparisons, and the outlay for purchasing them is relatively low.

These shops are unique in their large concentration of consumer goods with a high degree of availability, which is manifested inter alia in their convenient location, long opening hours and fast service.

The products sold at these shops have a relatively high level of seasonality. In summertime sales of soft drinks and ice lollies are dominant and in wintertime sales of nuts and seeds, chocolate and alcoholic beverages. Compared to supermarkets, the prices offered at kiosks are significantly higher. The gap is particularly salient in the prices of soft drinks, where the price discrepancy reaches 40% - 210%.

Customers:
These shops serve the general public, but the principal target public is smokers. The premise is that customers purchasing cigarettes may make additional and unplanned purchases. Cigarette sales can reach one third to one half the sales turnover of a typical shop. Customers are divided into two main groups: regular customers and occasional customers.

Suppliers
The wide range of products requires contractual arrangements with a large number of suppliers. A minority of the shops, which roast their own seeds and nuts, also operate as suppliers to other shops. Suppliers offer 30 days credit on average. Many suppliers finance outdoor signage, stands, display shelves and refrigerators for their products in order to win the heart of the business owner and to attract the shoppers’ attention.

Marketing methods
The principal marketing methods are reputation (mainly in the case of nuts and seeds), prominent signage and attractive displays. It is customary to place the ice cream freezers, newspapers and nut and seed stands (at nut and seed shops) in the shop front and not in a shop window. Due to the importance of the availability factor, the opening hours should be as long as possible, including nighttimes. Opening on Friday night and Saturday, mainly in entertainment areas, will contribute to increasing sales.

Factors affecting success
Level of inventory and selection, competitive prices, freshness of the nuts and seeds, quality of service, clean appearance and maintaining hygiene and long opening hours.

Entry barriers in the sector
Fixed costs, preparing the shop and initial stock. The professional barrier is low.

Manpower
Due to the long hours shift work is necessary for operating the business. Only in areas with regular and short working hours (such as various educational institutions and government offices) is it possible to operate the business without additional employees.

Manpower in the sector is generally not professional, although it is advisable for the shop manager and salespeople to possess prior experience. Most of the shops are small; hence one or two salespeople are sufficient. Shops that roast their own nuts and seeds require an additional employee to operate the roasting machines.

Initial investment
The cost of opening a cafeteria/kiosk/convenience store depends on the shop’s size, design and location, the equipment level and the stock level. The principal components of the initial investment are: renovating and adapting the shop, initial stock and equipment. The cost of equipment and goods in order for the kiosk to appear full stands at NIS 70,000 – NIS 80,000. Obtaining the right to sell Toto/Lotto tickets requires a fixed monthly purchase of around NIS 30,000 plus putting up a bank guarantee of at least NIS 50,000.

Customary payment terms
Suppliers – the terms vary, from cash (cigarettes) to EOM + 30.
Sales are mainly in cash; large purchases (at convenience stores) are made by credit card.

Profitability in the Kiosks and Cafeterias sector
The profit percentage by product as a percentage of the sales price, at kiosks and cafeterias

Product Gross profit percentage range
Cigarettes (local and imported) 8% - 12%
Sweets 30% - 40%
Soft drinks 50% - 70%
Cold soft drinks (from the refrigerator) 100%
Sandwiches 60% - 75%
Newspapers 15% - 25%
Ice lollies 33% - 40%
Nuts and seeds 50% - 100%

Risk level in Kiosks and Cafeterias
The risk level in this sector is moderate, there are no cheques to be returned for insufficient funds, but there is also no customer loyalty. This point could change the turnover from profit to loss within a very short time.

Licenses required for opening a business in the sector
A business licence from the local authority and a licence from the Health Ministry. In religious areas a kashruth certificate is essential, but obtaining such a certificate involves giving up the option of operating on Saturdays and festivals.

Insurance
Building and content insurance, inventory insurance, employer’s liability insurance, third party insurance and loss of profit insurance. It is advisable to consult with insurance agents for full and specific coverage.

Optometrists

Sub-division of the sector
There is a distinction between optometrists and opticians:
• Optometrists are authorised to perform eye tests, prepare glasses and sell all optical products, and to fit contact lenses.
• Opticians are permitted to prepare glasses in accordance with a prepared prescription and to sell sunglasses.
Optometrists and opticians are forbidden from diagnosing diseases and from dispensing medicines.

Market characteristics
Shops with an emphasis on sales and clinics with an emphasis on testing and fitting operate in the market. Products sold at optometrists’ shops include glasses and contact lenses, sunglasses, frames and solutions. The services provided are eye tests, fitting glasses and contact lenses, follow-up care and repairs.
Over the years various chains active in the framework of chain stores and franchise holders have been built. This has made the over-the-counter sale of reading glasses and glasses for mild near or far-sightedness (without astigmatism and/or special angles) and simple sunglasses possible.

Customers
The potential target market is all members of the population with visual problems, regardless of their socio-economic status, gender or other parameter. There is currently one optometrist per every ~2000 households in Israel. However, there are a number of unique groups in the population:
Children up to the age of six and elders above the age of 60 – optometrists are permitted to perform eye tests only on the basis of a referral to/from a physician, the Transport Ministry and for IDF soldiers – for whom glasses are issued at a discount (the payment is made by the IDF, in accordance with a Ministry of Defence tender).

Market segmentation
Segmentation by age, gender and income will affect the quality of the lenses and frames purchased, as will geographical distribution, usage characteristics – medical need, sunglasses and fashion.

Competition
• Private shops – owned by opticians and/or optometrists
• Dedicated marketing chains – these chains are based on aggressive advertising, low prices, a large selection and fast service.
• Points of sale – a franchise for operating a point of sale at large shopping centres based primarily on brands and off-the-shelf products.
• Other – shops and pharmacies offering ready-made reading glasses, without an eye test.

Suppliers
Frames for glasses: frames are generally imported
Optical lenses: there are two factories in Israel (Optiplas and Sagam) that manufacture lenses in accordance with know-how agreements. In addition, there are a number of small manufacturers and imported lenses in varying amounts. Contact lenses: there are three factories in Israel, which also engage in importation and marketing – Soflex, Hanita and Precision. In addition, there is independent importation.

Marketing methods
According to law, optometrists are forbidden from advertising their professional services, apart from shop signage. Nevertheless, there are no restrictions on advertising products. There are a number of marketing methods that are characteristic of the sector: shop window design, displaying a variety of frames around the shop’s walls, distributing cases for glasses, offering eye tests gratis for purchasers of glasses or contact lenses and offering a second pair at a discount (sometimes gratis).

Factors affecting success
Location, reputation, areas of specialization, prices and competitors

Entry barriers in the sector
The professional entry barrier is the training required and a licence from the Health Ministry after passing the professional examinations. The economic barrier is the high investment required for sophisticated optometric equipment, machines for fitting lenses and furnishing and designing the shop and the shop window.

Manpower
Optometrist – mandatory. In most cases he will be the business owner. Optician – a salaried optician can be engaged for preparing the glasses. Some businesses prefer outsourcing such work to an independent optician.

Investment required
The minimal investment for basic equipping may reach NIS 135,000. A typical investment in good quality equipment and modern shop design will cost around NIS 270,000.

Customary profit percentages

Product Profit percentage from sales
Optical lenses 75%
Frames 60%
Frame + lenses 68%
Contact lenses 85%
Solutions 35%
Sunglasses 55%

Customary payment terms
Payment terms for suppliers are generally EOM + 60. Customers generally pay by credit card.

Risk level
The entry threshold is high and the risk stems primarily from the difficulty in realizing equipment and inventory in the event of a cessation of activity or a business failure.

Licences and certification
A professional licence to practice as an optician is required from the Health Ministry, as well as a licence from the Ministry of Labour and Social Affairs. There is no need for a business licence.

Insurance
Business insurance (content and inventory) and third party insurance, professional liability insurance, employer’s liability insurance, and loss of income insurance.
In addition to the aforesaid, consulting with an insurance agent regarding required insurance is advisable.