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.