Are you considering opening your own coffee shop? SME South Africa’s guide outlines everything you need to know as a new coffee shop owner – from industry trends to the legalities.
Industry Overview
South Africa has seen a rise of the coffee culture, with big international brands like Starbucks competing locally with independent South African coffee franchises like The Daily Coffee Café, Vida e Caffee, Mugg & Bean and Bootleggers, to name a few.
Other local coffee shop brands that have made a name for themselves, according to lifestyle magazine EatOut’s coffee snob list, are The Bean Green Coffee Company, 4th Avenue Coffee Roasters and Department of Coffee in Khayelitsha, Cape Town. The list also includes Grind Coffee Company, which is credited with creating the most ‘instagrammable’ coffee concept in the world – the Coffee In a Cone, which is cappuccino and espresso served in a chocolate coated ice-cream cone.
Coffee production globally is estimated to have reached a record 174.5 million 60kg bags in the 2018/2019 season, which represents an increase of 15.6 million 60kg bags compared to the 2017/2018 season, according to Bizcommunity.com.
The South African coffee market achieved a compound annual growth rate of 2.0% from 571,000 60kg bags in 2014/15 to 606,000 60kg bags in 2017/18.
Key trends
Beyond coffee, the majority of coffee shop entrepreneurs offer a variety of products such as teas and smoothies, as well as food stuffs like muffins and sandwiches. Other trends are the hosting of events such as coffee tastings, book clubs and weekly game nights, and according to the 2019 South African Coffee Industry Landscape Report by Insight Survey, another key trend within the market, especially among premium coffee industry players, is the use of coffee culture to drive socio-economic change and positively influence local communities. Vintage Coffee based in Centurion, for example, offers customers the opportunity to vote for the non-profit organisation (NPO) programme they would like to see receive the proceeds when they purchase an item at the shop.
Getting Started
SME South Africa speaks to Tumi Khobane, general manager of Monate Coffee, which was co-founded by Moss Mashishi and mother, Tidi Khobane in 2017, and Siki’s Koffee Kafe founder, Sikelela Dibela, launched in 2016. Both businesses were bootstrapped.
Setup Costs
Khobane
The startup costs for a coffee business are largely dependent on one’s positioning strategy – where you want to lie in the value chain. From roasting to distributing to owning a cafe – each space speaks to a different costing structure.
Understand your input costs and work from there. Although a starting point, it is not the only thing that needs to be considered. It is fundamental to determine the feasibility/financial viability and sustainability of the business.
More advice
To estimate your startup costs, Santam suggests the following:
Arrange your business expenses into once-off costs and continuous monthly expenses. Prioritise what is absolutely necessary – like electricity and rent – versus nice-to-have like business cards.
Your initial costs can include the following:
• Phone(s)
• Security (gates, burglar bars, cameras)
• Equipment
• Furniture
• Start-up inventory (stock)
• Shop fittings/signage
• Rent
• Loan repayments
• Electricity and water
• Phone connection and monthly bill
• Cellphone(s)
• Internet connection
• Salaries and wages
• Website hosting
WebstaurantStore offers a comprehensive list of equipment you will need for your coffee shop:
– Consumables – including coffee, espresso, tea, hot chocolate, water, milk, sugar (packets), sweetener, napkins, paper cups and lids (for take aways), straws and stirrers, plastic cups and lids (for smoothies), ice for smoothies or ice coffees or sodas.
– Tools (for sit down customers) which can include tea cups, cappuccino cups and americano cups, saucers for cups, sugar pourers, creamers, cutlery, serving trays, a coffee machine, a coffee grinder, Espresso machine, Espresso grinder, Espresso tampers, frothing pitchers, coffee brewer, frappe and smoothie blenders, hot water urn, Point-of-Sale software and/ or Snapscan, cooking equipment like an oven or microwave if you serve light breakfast or lunch, measuring cups and spoons, coffee and beverage labeling, menus, aprons, waste bins and/ or recycle bins, coffee filters, coffee equipment cleaners and coffee pot cleaners, Espresso equipment cleaners, milk frother / steam wand cleaners, cutting boards and knives for sandwiches and salads, display case for baked goods, sink.
– Furniture such as two-seater tables or big tables for customers (depending on your decor design) to have their coffee at, work stations, countertops, shelves, refrigerator, décor and signage for the store.
Laws & Regulations
In terms of the Businesses Act (1991), any business that sells or supplies any foodstuff in the form of meals for consumption on or off business premises, or any perishable foodstuff, is required to hold a business license. Therefore, any person who wishes to start a new restaurant, even if it is a take-away restaurant, will need to apply for a business license under the Businesses Act.
More on licensing and permits for the food and beverage service industry.
Regulations also require a food business to possess a certificate of acceptability. For a certificate of acceptability, you will generally be required to provide information regarding the nature and type of food being handled on the premises, the nature of the handling (e.g. preparation, packing, processing etc), and certain other information.
Location
Dibela
I transformed a garage into a coffee shop, we have a court yard where customers can be seated at tables and chairs. At first it was strange for the customers to see a coffee shop that is not inside a mall. We also have WiFi now to attract customers. My business is on a (commercial) property in an area zoned for business.
Khobane
Location is important. People enjoy convenience, comfort and safety. Unfortunately, even when you may think you have covered [all the] bases, the location may still not work. This is where you will really have to challenge yourself to find ways to either give people no choice but to find and follow you, or become more innovative and dynamic in the way you choose to use your space.
More advice
“First look at the geographic area and look at how many coffee shops are there in that area,” advises Sihle Magubane, founder of Sihle’s Brew Roasting Coffee, a range of coffee beans sourced from Ethiopia, Kenya and Tanzania. The brand was so successful that he went on to open his own coffee shop, Sihle’s Brew Barista Love, located in Johannesburg in 2012. The coffee brand is also sold by various Food Lover’s Market retailers.
He continues, “If there are no coffee shops, don’t put your coffee shop there. You’re not going to make it. You must have competition, it’s healthy. Look at the people around, how many people are likely to buy your product and the age average. That will give you an idea of whether it’s viable to start the business”.
Opportunities Available
Dibela
– We have a variety [of products] on the menu because a lot of our customers don’t come for the coffee. We sell muffins, brownies, sandwiches and smoothies. We have WiFi as well.
– We sell our own blends of packaged coffee.
– Events – I work in collaboration with other entrepreneurs. For example, I hosted a ghetto session with a friend for a community-based poetry event – this was to connect people to one another.
– Merchandise items such as tote bags, carrier bags and t-shirts.
Khobane
– Coffee products. Our product range includes seven different options, two of which are flavoured (Amarula Cream and Macadamia Nut), as well as a choice of decaf that provides a perfect substitute for those who prefer not to, or can’t, indulge in caffeine.
– Events – we provide coffee for both private and public occasions, as well as intimate and large set ups.
– Tasting Room – an experiential space [and experience], which looks to take our consumers on an educational and sensory journey. [As part of the experience Eighteen13 Boutique Wine Shop offers an array of South African wines and Monate Coffee serves blends for every preference, proudly sourced from our continent.
– Gifting for corporate or personal use.
Industry Challenges
Dibela
– Access to finance or funding and access to markets (having sufficient customers).
More advice
The coffee industry is highly competitive and it’s not enough to only exist – to compete you must bring something different to the table and find innovative ways to stand out.
Sales & Marketing
Dibela
– On the first day (of starting my business) I gave away 80 free cups of coffee just to give customers a taste. Only three people come back after that first day. I had to do a lot of word-of-mouth marketing. I also had to learn how to narrate my story and to share my vision.
Khobane
– Our brand is experiential and we strive to communicate not just through words, but through actual lived experience. Thus, we spend a great amount of our time direct marketing – engaging and interacting with prospective clients/customers.
More advice
Social media is a great way to market a coffee brand, says Dayne Levinrad, owner of The Grind Coffee Company and the brains behind the most ‘instagrammable’ coffee concept in the world – the Coffee In a Cone, available at their coffee shop located in Melrose Arch and various coffee shops in the Gauteng, Western Cape and Kwa-Zulu Natal provinces.
“We were very fortunate with social media and analytical reporting, we can see who our demographic is. Our product is a very sexy product, people want to pose and take selfies with it, so we were clear where our target and demographic needed to be. In this day and age with social media, you don’t have to guess anymore. It’s very targeted”.
Industry Support
Khobane
– You don’t necessarily have to have specific training to start a coffee business. An understanding of business would help though. Although there are coffee-related courses. Business can be learned without necessarily engaging within formal certified training. As long as you keep an open mind and make understanding and consistent learning a part of your everyday, there is a great deal that can be achieved.
Dibela
– I learned [from my experience] in the industry and didn’t go to business school. I did a lot of research on my own time. I also asked mentors for help – you have to be outspoken. I also read up on the history of coffee and everything coffee-related. We have conversations about coffee with our customers, educating them on the history of coffee for example.
More organisations
– The Speciality Coffee Association (SCA) – offers coffee professionals and enthusiasts the opportunity to share their wealth of coffee knowledge and experience with one another. SCA also offers a Coffee Diploma System, of which there are four different modules in different disciplines on offer at Ciro Coffee Academy.
– Coffee Importers and Roasters Organisation (Ciro) – offers expert services in sourcing, roasting, blending, packaging, training, equipment, technical support, national and international distribution and market trend analysis. They are also behind Ciro Coffee Academy which offers courses and certifications in barista skills, brewing and roasting.
– Speciality Coffee Association of Southern Africa (SCASA) – the licensed body of the World Barista Championship in SA, hosts events like South African Barista competitions, the Cup Tasters Competition and Latte Art Competition.
– African Fine Coffees Association – a regional non profit, non political, member-driven association representing coffee sectors in 12 member countries, including South Africa.
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