Why Café Businesses Fail

Café and coffee shop dreams are all well and good, but the reality is that it’s not all cold brews and frappuccinos. The humble café is a staple of British culture, and it’s why the industry has thrived under challenging economic conditions.

According to one industry analysis, the UK coffee shop market grew to £9.7 billion in 2023. Despite the industry’s success, that’s no guarantee of success for individual coffee shops. Like any business, the odds are against you.

Let’s discuss why coffee shops fail in the UK to prep you for the challenges ahead and give you the best possible chance of success moving forward.

What is the average café/coffee shop failure rate in the UK? 

The average coffee shop is likelier to fail than it is to succeed. Obviously, you’ve got the issue of chains like Starbucks and Costa Coffee, but poor management tends to be one of the leading reasons why cafes fail. After all, there are few groups more discerning than coffee lovers.

According to the most recent stats, 60% of independent cafes will fail within the first year, which is 10% above the standard UK business failure rate. In short, it’s an incredibly competitive market, making proper business planning crucial.

The main reasons café businesses fail 

Cafes can fail for all manner of reasons. No two stories are the same. It could be down to you, the market, or just that your brand wasn’t compelling enough to survive.

Here are the main reasons why coffee shops in the UK fail to gain traction today: 

• Poor Management – All businesses have one thing in common. The main reason they fail is due to poor management. Whether it’s poor hiring, poor cash flow management, or poor branding, the biggest reason businesses fail is the person running it.
• Lack of Differentiation – If there’s nothing special about your café, you’re competing on price. Compete on price and you’ll always lose to the big chains that can take advantage of economies of scale.
• Poor Location – Location is everything. If your café is tucked out of the way, people won’t find you in the first place. Likewise, if there are no businesses nearby or no parking, you’ll struggle to bring people in.
• Bad Coffee – Coffee is an art form. Remember, the people who don’t care about quality can grab a jar of Nescafe and make their own coffee at home for a fraction of the price. You must have a solid understanding of and passion for coffee to succeed in this game.
• Lack of Capital – Running out of money is another reason why new coffee shops don’t survive. So many entrepreneurs underestimate how much it actually costs to open one, and how long it takes to start turning a profit.
  

All of these problems are set against the backdrop of rising costs and lower consumer spending, as the UK economy goes through a cost-of-living crisis. That’s why it’s never been more difficult to succeed than today.

What to consider before investing in a café business to ensure success 

Independent café businesses rely on something that can differentiate themselves. Ultimately, your biggest threat is the big chains that can always undercut you on price. Discover what sets you apart, whether it’s coffee from a certain part of the world, food options, sustainability, live music, or something else. 

With your concept in mind, you’ll have to think about your location. Most café businesses will rely on foot traffic from shoppers and nearby offices. Don’t expect people to just come across you at random. 

Finally, there’s the issue of money. Your startup costs for an independent coffee shop business can be as little as £20,000 or as much as £100,000. That’s before we start discussing your ongoing costs and how many years it takes to build up a reliable customer base and turn a profit. 

Even with the right concept and location, if you don’t have the capital to survive for at least a few years, you’re already dead in the water before you get started. 

There’s no guarantee of success, but get these three things in place, and you’re already well on the way to increasing your odds of becoming the next big high street success story.

Avoiding café business failure after investing in one 

Investing in a coffee shop venture is the beginning of all the hard work, but if you succeed, it’s all worth it in the end. Although there are an endless number of problems that could derail your plans, focus on the big picture. 

We’ve identified the five most prominent reasons why café businesses fail, so here’s how to tackle them in turn: 

• Improved Management – Build a managerial structure that encourages honest, open reflection on how each aspect of your café is being run, from operational to financial. Trim the fat and build a streamlined system with regular reviews in place to identify threats.
• Be a Better Brand – Differentiation is what makes a brand in the coffee shop business. Figure out what your target audience wants, and then the unique selling point that separates you from the big chains.
• Market Research – Finding the right location requires conducting in-depth market research initially. It’s not just about identifying high-traffic areas but also your local competitors, both chains and other independent outlets. Create a shortlist and then gradually settle on the right one via a process of elimination.
• Employ a Coffee Expert – Not a master of the French press? Hire someone who is. Quality in coffee is what enables you to avoid playing the unwinnable game of competing on price.
• Get Your Finances in Place – Seek funding options that will see you through both your startup and building phases. Accurate financial projections are the core of this because they tell you how much you need and roughly how long it will take for you to start breaking even.
  

Loving coffee is no guarantee of a profitable café. It takes business sense and planning to steer your ship into the seas of profitability. At Cogogo, we help you take the first steps with our database of café businesses for sale. Search our database for the latest listings or contact us to learn more now.