In response to widespread reports that many coffee houses are struggling to survive the grave financial challenges caused by a combination of soaring business rates, energy, staff and produce costs, Wbg, a leading independent specialist full-service accountancy firm, has advised operators to review these costs and consider their value proposition as a matter of urgency.
Despite the UK cafe industry being worth around £6.1 billion, current economic challenges mean that many operators now find themselves financial firefighting, due in part to a suboptimal value proposition.
Nathan Davis, a director in Wbg’s Business Advisory Services department, with direct experience working in the hospitality sector himself, acknowledges that the current economic climate makes it difficult for independents to thrive in a sector where operators are small businesses with high staff costs, slim returns and little investment.
“Coffee houses really need to manage their costs and have a comprehensive understanding of their systems and processes and make them as streamlined as possible, because everybody’s being squeezed financially at the moment and treats like coffee and eating out tend to be the first thing that consumers will cut out to save money,” he said.
“It’s about understanding how much each cup of coffee, sandwich, or cake costs to produce, how much costs like rent, utilities and staffing contribute to the cost of making that – a general rule of thumb is around 60% of the price of each item – and therefore what your profit margin is. Once you understand that, then it’s about maximising the number of customers buying each item once these costs are covered.
“Understanding these production costs and then getting as many people through the door as possible go hand in hand because if you’re only making a very small profit margin on each item you sell, then you’re always going to struggle, no matter how busy you are.”
Davis points out that, outwith the hospitality sector, businesses can typically set a profit margin to stick to so pricing can naturally increase as costs do, but coffee houses are restricted by what customers are willing to pay.
“That’s why understanding costs is so much more important for businesses operating in the hospitality sector than in any other sector, because you’ve always got that ceiling limiting how much you can charge a customer,” he said.
“So, it’s about understanding that there is a ceiling, then working out how many items a day cover your fixed costs and aiming to selling more than that. That’s when you start looking at your value proposition and look at how to attract more customers.”
Davis said that, in contrast to pubs and bars, where customers will typically have more than one refreshment, coffee houses have a comparably limited revenue stream, which necessitates a higher turnover of customers.
“To survive and thrive, coffee houses need to understand their particular market niche and then maximise that to attract as many customers through the door as possible,” he advised.
“Understanding why customers come to you specifically is vital and it will differ depending on each outlet’s locality, whether city centre or village coffee shop. Operators need to understand this ‘why’ so they can differentiate themselves from the local competition and therefore attract more customers who value this.
“Once operators know their niche and their overheads they need to make sure every single part of their business is working towards their value proposition – from how staff interact with customers to what’s on the menu – so that every penny they invest, whether on staff, utilities or produce, hits that ‘why’ and maximises the revenue that comes from that.”
ENDS
For further information please contact Nathan Davis on 0131 287 7708.
Issued on behalf of Wbg by Liquorice Media tel 0141 332 4935 www.liquorice-media.com
Date: 23 Apr26