Why do cafes fail?

Australia’s sophisticated coffee culture has benefited the cafe industry over many years. Indeed our coffee culture has driven the development of, and investment in, cafes and coffee shops. But why do some cafes fail and others flourish?

Strong consumer demand for high-quality and convenient food and drinks has supported cafe industry expansion.  In city and suburban Melbourne, we all expect to have at least one cafe within walking distance of our home.

Although spending on cafes and coffee shops is discretionary, most of us consider coffee an affordable luxury. Indeed many consumers consider coffee a dietary staple.

Therefore, consumers are often unwilling to forgo their daily coffee. This thinking provides a stable underlying revenue base for the cafe industry. Increasing attention to fair trade and organic coffee, and an emphasis on high-quality food, have also allowed many cafe owners to expand revenue over the last five years. 

Meanwhile, the COVID-19 trading restrictions have had a negative effect on industry revenue, particularly in CBD areas where consumer foot traffic has been greatly, perhaps permanently, reduced by lockdowns.

So why do cafes fail? Lockdowns are only part of the story. And a broader question is – Why does any business fail?

SWOT – what threatens a cafe’s survival?

It is estimated in the cafe industry in Australia that less than 5% of the sector is dominated by major players or ‘big business’.  So competition from a multinational cafe chain is rare.

Depending on products and points of difference – ambiance, staff, gourmet products for example – cafe owners need to identify and emphasise what it is that sets them apart from their competitors.

What drives cafe demand?

For cafe owners, the drivers of demand for their products and services largely rely on consumer discretionary incomes and lifestyle trends. 

Discretionary incomes are a major driver of demand therefore owning a cafe in an area where people can afford to visit their local cafe everyday is a must.  It is the daily visits by their regulars that sustain most cafes.

Location location location – do cafes fail in good locations?

So why do cafes fail? It follows that the regular or daily visits by consumers means the cafe needs to be in the right location.  What is the right location? Cafes will succeed where there is medium-high density living, other high density organisations nearby (schools, shopping centres, parks, high-rise residential living, community centres etc.) which attracts large numbers of people on a daily basis.

Lack of preparation prior to a cafe opening

For a new cafe, or the takeover and re-branding of an existing cafe, being ready to ‘pull the trigger’ on your opening day is paramount.

What does it mean to be ready?  You need your business plan, logo and branding strategy, branded decor, restaurant outfitted, outdoor area secure, online presence with social media accounts, supplier agreements signed, the list is extensive.

A significant area sometimes overlooked by cafe owners (who aren’t chefs) is the kitchen setup. If your cafe is serving meals, you need the right commercial equipment.

One item which is a game changer is a Merry Chef.  No, that’s not a reference to the human chef because anyone who’s worked in hospo knows that merry chefs are like St Kilda grand final wins – almost non-existent.

Merry Chefs, used widely in the hospitality industry, allow establishments to serve great food, fast. At $11k they are a must for the brisk service required by a cafe.

The five-year cafe makeover

Why do cafes fail (even those that have been successful)?  Often it is because they haven’t been revamped.  As a cafe owner, it’s imperative, as part of your business plan and budget, to factor in refreshing your cafe’s look, decor, branding, products or all of the above every five to ten  years.

Essential cafe marketing plan

Your cafe is like Coca Cola.  It’s name needs to be on a loop in your customers’ minds and you need to have an ongoing marketing plan to keep it there.

When you fill up your car at a service station, by the time you’ve walked from the bowser to the cash register, you’ve probably passed four Coca Cola logos.  They have a scattergun marketing plan which covers everything.

Your cafe marketing plan needs to be similar to remain profitable.

Local area marketing

Why do cafes fail when there’s a lot of local folks keen to patronise the cafe? Cafes fail when they don’t listen to their local market. 

Listen to your locals. Common themes will emerge. Of course there are occasional customer wishes which you can’t fulfil because they don’t fit your business model. But be prepared to promote your cafe locally and listen to feedback.

Tyranny of distance – and inaccessibility

Melbournes coffee culture is like most areas where consumers see coffee as a necessity – not a luxury.

You need to be close to where people can access your services and products. And you need adequate parking for cars, bicycles or other wheeled conveyances.

If people are driving even the shortest distance, they’ll drive on by if access to your cafe is difficult.

Once inside your cafe, the same applies. Make the ordering and paying process easy and accessible.  We’re often in a hurry and if your customers’ experiences are too long, they’ll go somewhere else.

What’s your long term plan?

The Cafe industry is projected to expand over the next five years. Consumers have an increasing demand for high-quality coffee and convenient healthy food products. Ethical consumerism will also be a major factor for cafe owners with what they stock, where they sourced it, and who was affected along the supply chain.

Cafe Industry revenue is forecast to increase at an annualised 5.5% over the next five years through 2024-25, to $10.7 billion. Trends in health consciousness, premium foods and ethical consumerism are projected to drive this revenue growth.