Hospitality is a notoriously volatile sector. In recent years, it has proved particularly vulnerable to the cumulative impact of high interest rates, high energy costs, staff shortages and reduced consumer spending due to the cost-of-living crisis.This perfect storm culminated in a staggering 3,347 dining establishments declaring insolvency within the two-year period leading up to March 2023.
Yet, the UK’s café culture remains strong: daily coffee consumption in the UK has reached a staggering 98 million cups, while 80% of people who visit coffee shops do so at least once a week.
What, then, are the success rates of cafés and coffee shops in the UK? And how can café entrepreneurs increase their chances of success?
The current state of play: success and failure rates for UK cafés and coffee shops
Cafes, along with the wider hospitality industry, have had a torrid time over the past few years – first, labour shortagesexacerbated by the UK’s exit from the European Union, then the nationwide Covid-19 shutdowns, and then massive inflation, affecting energy and food costs. Onerous repayment terms on Coronavirus Business Interruption Loan Scheme (CBILS) have further compounded the financial strain on these establishments.
It is no surprise, then, that insolvencies across the UK hospitality sector continue to trend upwards, representing 14% of all business failures across the UK economy, according to government data.
In the first quarter of 2023, 846 hospitality businesses filed for insolvency, according to Insolvency Service data, up 41% on the same quarter in 2022.
In the year to July 2023, hospitality lost one in 18 sites, with an average of six eateries affected every day during the first three months of the year.
However, this bleak narrative also has another side.
Graeme Smith, Managing Director at the global consulting firm AlixPartners, says: “It is clearly a very difficult time for some hospitality businesses right now, as these latest numbers illustrate. But part of the story here is the remarkable resilience and robustness of large swathes of the market in the face of a challenging, high-inflation environment.
“Despite the current cost-of-doing-business crisis, which has served to squeeze profitability, suppress investment and, in the worst scenarios, challenge viability, a number of segments of hospitality and leisure are holding up extremely well. And this, in a market that was already challenged and in recovery mode after the events of the past three years.”
Preparing for success
Decide on your strategy – high-volume, low-quality, or low -volume, high-quality
To be part of these resilient and robust “swathes of the market”, café and coffee shop owners need to decide on their differentiation strategy – either high-volume, low-quality or low-volume, high-quality – to remain popular in a saturated market.
High-volume, low-quality offerings may be a great strategy for small kiosks in commuter hubs or on bustling high streets, while low-volume, high-quality may be a better strategic fit for a trendy spot in the leafy Kensington suburbs.
Stay abreast of the hottest industry trends
Industry analysis by IBISWorld notes a surge in demand for artisan coffee, as well as an increased focus on sustainably-focused independent outlets.
By some estimates, the global speciality coffee market is anticipated to double by 2030, with the growth fuelled by an experimental Gen Z, as well as increased awareness of sustainable and ethical practices.
Why not also hop on the bubble tea trend and capitalise on a global market expected to grow at a CAGR of 6%, or cater to the health-minded customers with anti-inflammatory matcha and turmeric teas?
Staying abreast of the hottest industry trends is crucial to remaining competitive and catering to the evolving preferences of consumers.
Negotiate lower rent
A study in 2019, which surveyed a sample of UK coffee shop and café owners, found that the top 3 barriers to success in the industry were high rents for premises, high local government business rates and high business taxes.
Negotiating lower rents, or choosing low-rent premises, is an easy way to immediately boost your profit margins.
Location, location, location
When it comes to the cafe industry, the age-old adage “location, location, location” remains as relevant as ever. A strategically chosen location can make or break a cafe’s prospects.
London, for example, remains a key coffee hub, with high incomes and a youthful, tourist-heavy population.
However, beyond the capital, other vibrant urban centres or tourist hotspots can also prove lucrative. To find out more, read our blog on the best places to buy or establish a café business in the UK.
Buy a financially-proven café
Acquiring an existing establishment with a proven financial track record is an obvious way to immediately boost your chances of success.
However, due diligence is paramount when exploring this route. Thoroughly assessing the cafe’s financials, lease terms, equipment condition, and customer loyalty is crucial to ensuring a smooth transition and a solid foundation for future growth.
