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Building an Espresso-centric (2nd or 3rd wave?) cafe in Singapore

April 24th, 2012 · No Comments

The cafe industry is Singapore is definitely catching on over the last few years ever since I started in the industry in 2005 with Sara Lee/DE. The growth spurs the sprouting of independent cafes in Singapore which provide the new generation of entrepreneurs eager to jump into the Food and Beverage Industry. Question is, is this something which is viable in the local market in Singapore.

In the course of conducting coffee appreciation courses and barista courses, I’ve often been told that the participants are eager to live their passion and operate their own cafes. And I’ve been asked, what would it take.

A few considerations for those who are thinking of embarking on this industry are as follows:

1. Market Demands – Primary is still food. Coffee is secondary.
In Singapore lately, the growth of food and beverage industry has grown tremendously, spurred mainly by the fact that Singaporeans love to eat and drink. Ever increasing number of restaurants, themed bars and bistros are now opening every other day to feed the frenzy appetite of Singaporeans who are always looking new places for food and drinks. This has created innovative ideas and concepts, either home grown or imported brands from overseas. There is no lack of places or choices to satisfy one’s craving. However, this also means any new concepts created by young entrepreneurs needs to establish itself quickly with a unique offering and identity. A lot of experimentation takes place for the home grown ones. For a cafe, which would like to focus on coffee only or related beverages, will soon find themselves struggling. Food is still key. Although one can create a nice ambience, the food is still the main staple which is required to help a cafe stay afloat in this business in Singapore. Its no wonder that most cafes that has thrived after 2-3 years here serves an eclectic mix of food comprising of sometimes local asian dishes and western meals, sandwiches and salads. Often than not, the coffee is secondary. Not to forget the competition from local coffee which Singaporeans are more familiar, the dark local robusta drink will always take priority because it hurts their pocket less. For the price of a cappuccino or cafe latte, the locals would rather spend that money on a bowl of noodles or plate of chicken rice, etc because the value for money is obviously perceived to better in the latter.

2. Rental
There is a market for espresso-centric cafes. However, these are located mainly in the central business districts and or where there is sufficient concentration of Europeans and Australian/New Zealand expatriates population. These pockets of expats often has landlords capitalising on this fact and raising the rental of such location so high, you end up working for the landlord. I often see cases where it is no different from the Medieval ages when one is a serf, tilling the land and end up being taxed by the King or landowners so much so that you keep a meagre portion just for yourself to keep your family alive enough to work the land for the next harvest. The current rental rates in CBD areas are looking at $20s and $30s psf. With this, lets do some math here.

Assuming we take a 1000 sqft of space. And it costs $20 psf. The monthly rent is $20,000. Divide this by an average of $4 per 8 oz of cafe latte and you will have to sell at least 5,000 cups per month or an average of 250 cups of coffee per day over a 5 day workweek in a business district as Sat and Sundays and public holidays are often empty in the business district. In Australia e,g, this would be achieved in 2 hours in the morning for most cafes there. Here, it would probably take a day, for many cafes, if possible at all.

So, as in point one, the operations would have to push food sales especially during lunch. And taking into consideration of only a small space and seats (up to 20 pax) available and the high cost of food here (since most things are imported) plus the ever increasing cost of labour, and the amortised cost of capital expenses, the cafe has to gross at least $70 -$80,000 per month or $4000 per day, to make rent and pay for itself before some decent profit can be achieved.

Assuming we achieved a turnover of at least 60 pax, that gross would mean the average spend of each person would be around $66 per day. Realistically, majority of the commoners and working executives would not spend $60 for lunch. The average spend at most for working executives is $10. This means the cafe would have to serve at least 7 times more tickets, or 400 tickets with an average of $10 per day. To serve this amount in a 2 hour lunch period in CBD would mean more hands on deck…and of course, more labour costs, or if you do it yourself to minimise labour costs, get ready to be really worked.

Still game for it…? One more….

3. Labour
In Singapore, we rely pretty much on foreign labour as locals view F&B profession as a less preferred alternative as it is more viewed as a servanthood. Everyone would like to be a boss and preferably work in a cushy, air-conditioned environment. Food and Beverage also do not pay well (since more has to be shared with the landlord), and the industry do not require you to have too high an education. You can easily enter the industry with basic english and math, or simple attitude to be willing to serve others and clean tables. Hence most locals would shun the work or do it because its a necessary ‘evil’ and most do not have the passion for it. Hence, foreign labour like the filipinos and Chinese or Indian nationals are very much deployed for this industry since our currency is strong and their living costs are lower back home. But before you think hiring a whole lot of foriegners, our local authorities also regulate and limit how many foreigners one can apply for to work in your cafe by instituting that you need to have so many number of locals before you can hire one foreigner. To exacerbate the struggle to have sufficient manpower, the F&B industry also experience a high turn over of staff because it does not pay well enough and the hours are long. Hence, there is always a constant challenge to recruit, train and retain staff. A low turn-over would normally be achieved by owners who spends more time performing HR roles, and counseling and motivation, rather than building the business. Its something that one has to grasp quickly in terms of management of morale and apply leadership skills in an environment where your competition is stiff, and always on the lookout to poach your staff if they are good. Be prepared. And generally, that’s true. There is a common saying in the industry: “people problems are the most difficult to handle in business”.

4. Capital
Get ready for some load of cash to burned. Its not uncommon that if you are new startup with your own brand, a landlord would require of you at least 3 months of rent deposit plus 1st month of rent (hence totaling $80,000). Your renovations could also average about $80-100K for a 1000 sqft of space. Before you make the first dollar, you already have lost $180,000. So in the very least, you would like to give yourself 3 months (ideal situation) to run your business on the worse case you don’t make a dollar. So be prepared to burn through $180,000 more plus the rental deposits. Set aside at least $500,000 to give yourself a chance to prove your concept work and compete in the espresso-centric cafe market.

Armed with the above information, I wish you well in building your espresso cafe business in Singapore.

All constructive comments are welcomed!

Tags: Expressing Espresso

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