Coffee Shop Business Overview
Coffee shops are retail establishments that serve hot and cold beverages and light food items. The typical coffee shop offers a variety of coffee drinks made from espresso and brewed coffee, including lattes, cappuccinos, americanos, and cold brew options. Most also serve non-coffee beverages like tea, hot chocolate, and smoothies. Besides drinks, these businesses commonly offer breakfast items, pastries, sandwiches, and snacks.
Coffee shops operate in many locations, including shopping centers, downtown areas, office buildings, college campuses, and standalone buildings. These businesses tend to have peak hours during the morning commute and lunch periods. Many coffee shops open early, often by 6:00 AM, to serve morning customers; some remain open in the evening. The layout typically includes a service counter with equipment for drink preparation, a food display area, and seating arrangements that accommodate different customer needs – from single customers working on laptops to small groups meeting for conversation.
The most common business models in coffee shops include:
- Independent Shop Model: A locally-owned coffee shop that operates from a single location, often emphasizing unique drinks and personalized service
- Franchise Model: Operating under an established brand name with standardized products, marketing, and operational procedures
- Mobile Coffee Shop Model: A portable coffee service operating from a truck, cart, or kiosk at various locations
- Hybrid Café Model: A coffee shop combined with another business concept like a bookstore or bakery
Related: Checklist to Start a Business
How Do Coffee Shops Make Money?
Coffee shops primarily generate income through beverage sales, with coffee-based drinks providing the highest profit margins. A single pound of coffee beans can produce about 30 cups of brewed coffee or 45 espresso shots, allowing for substantial markups on drink prices. The preparation and serving of specialty coffee drinks brings in more revenue than regular brewed coffee, as these drinks command higher prices while still maintaining good profit margins.
Additional revenue sources for coffee shops can include:
- Food Sales: Pastries, sandwiches, and snacks complement beverage offerings and provide supplemental income through both dine-in and takeout orders
- Retail Products: Packaged coffee beans, brewing equipment, and branded merchandise like mugs or t-shirts create additional sales opportunities
- Catering Services: Coffee service for offices, events, or meetings extends business beyond the physical store location
- Subscription Programs: Regular delivery of coffee beans or prepared drinks to customers on a recurring basis
- Space Rental: Renting out shop space during off-hours for meetings, events, or community gatherings brings in extra income
Industry Statistics
Coffee shops fall under NAICS code 722515, Coffee and Snack Shops, which includes establishments that prepare and serve specialty beverages and snacks for consumption either on-site or for takeout. Here are some statistics that show how this industry has performed.
Coffee Shop Industry Size & Growth: The coffee shop industry currently generates $71.3 billion in annual revenue. Over the past five years, the industry has grown by 5.0% annually. The industry is expected to expand by 5.4% through 2030, driven by increased consumer spending on specialty coffee drinks and a growing demand for convenient food options. (IBISWorld)
Number of Coffee Shops: There are 78,851 coffee shop businesses operating across the country. Starbucks Corporation holds the largest market share, followed by Krispy Kreme Doughnuts Inc. These two companies represent a significant portion of industry revenue, with Starbucks generating $17.7 billion and Krispy Kreme producing $1.7 billion in annual sales. (IBISWorld)
Coffee Shop Average Profit Margin: Profit margins typically average 4.9%, though larger chains tend to achieve higher profit margins due to bulk purchasing power and operational efficiencies. (IRS)
States with Most Coffee Shops: California and New York have the most coffee shop establishments, primarily due to their large populations and urban centers. These states feature dense business districts and residential areas that support high concentrations of coffee shops. Other states with significant coffee shops include Washington, Oregon, and Illinois. (U.S. Census Bureau)
Startup Stories
Also See: Ideas for Naming a Coffee Shop
Costs To Start a Coffee Shop
Starting a coffee shop could range from $60,000 to $275,000. The lower end represents a small café with basic equipment and minimal renovations, while the higher end includes premium equipment and extensive build-out.
Here are the main costs to consider when starting a coffee shop:
Equipment ($25,000 – $100,000): Commercial espresso machines, coffee brewers, grinders, refrigeration units, and ice makers form your core equipment. Quality espresso machines alone range from $8,000 to $30,000. Additional needs include water filtration systems, blenders, and food prep equipment.
Location Setup ($20,000 – $125,000): First and last month’s rent plus security deposit starts your lease. Renovations include plumbing, electrical work, counter space, and seating areas. Health department requirements often need specific sinks, drainage, and food-grade surfaces. Finding a previous food service space can reduce costs.
Initial Inventory ($5,000 – $25,000): Starting inventory includes coffee beans, syrups, milk, paper products, and retail items. Additional supplies like cups, lids, sleeves, and cleaning materials support daily operations. Equipment for storage and inventory management helps maintain fresh products.
Furniture and Fixtures ($10,000 – $25,000): Tables, chairs, counter seating, and point-of-sale systems create the café atmosphere. Menu boards, storage solutions, and display cases organize products and create efficient workflow.
These cost estimates are approximate, and actual expenses will vary based on your business model and scale of operations.
Resources
The Barista Guild
International Coffee Association
National Coffee Association
Roasters Guild
Specialty Coffee Association
Tea Association of the U.S.A.