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Franchise Real Estate Small Business

How Much Money do Drive-Through Coffee Franchises Make?

America’s appetite for coffee is huge. And while it seems like Starbucks is everywhere, there are still an enormous number of competitors out there. The fact that Starbucks sometimes builds locations practically on top of each other is testament that they can’t count on people to go out of their way to get a coffee.

Someone offering good quality coffee in a good location is still going to pull in revenue as many people aren’t going to drive an extra mile or make a U-turn just so they can get a Starbucks.

This would include a traditional fast food company like McDonald’s, or someone offering a convenient drive-through coffee kiosk.

Which Companies are Offering Drive-Through Coffee Franchises?

Starbucks does not franchise their stores although they do have some agreements with companies to operate Starbucks’ in other venues like airports and stadiums. The most popular drive-through franchise coffee companies include: Scooters, The Human Bean, PJ’s, and Biggby.

Dunkin Donuts is another great franchise option, however, it’s known first and foremost for its doughnuts and has vastly different real estate and capital requirements from the coffee franchises mentioned above.

How Much Does it Cost to Get Started?

We spoke with a Scooters operator that had recently developed 2 stores in a mid-sized market. Your biggest cost is real estate. You need to find a lot that is typically around half an acre and has a lot of traffic. It needs to be on the “going to work” side of the road. He spent between $250,000 and $450,000 for each lot. In some higher cost markets like Coastal California, for instance, the real estate could be much more expensive.

On top of that, the cost to build the drive-through building, including site costs like engineering and paving, was between $500,000 and $600,000.

Finally each store required $250,000 to $300,000 in equipment and other costs. This included a $40,000 franchise fee on the first store.

So the total cost if you own your real estate is around $1,000,000 to $1,300,000. Keep in mind you can often finance a large portion of this, so in this example, the owner only had to invest about $300,000 per store and the rest was financed with a bank loan.

What if You do a Ground Lease Instead of Buying the Land?

Many store owners just do a ground lease instead of buying the land. Even though you can finance a land purchase, you typically need 20%-25% down. So even a $500,000 lot might require over $100,000 in extra liquid capital.

And many owners of shopping center pad sites and other high traffic locations would prefer to lease land rather than sell it. Many would refuse to sell.

However, you don’t own the land, and if your site is a good one and your lease is only for 10 or 15 years, you can count on a large ground rent increase once the term is up.

You are generally better off owning the land if you can pull it off.

How Much Net Profit Does One Store Throw Off?

The net profits of a well-run, well-located drive-through coffee franchise is around 25%. So a store doing $1 million in revenue, should produce around $250,000 in net income for the owner.

Keep in mind that unlike fast food restaurants where the cost of food might be 30% or more of each sale, coffee itself is a very high margin item to sell. The high gross margin helps cover the labor cost and real estate cost, while leaving an acceptable profit for the owner.

Also, most store owners that are successful will quickly open 1 or 2 more stores. Once you have opened one store, opening a second or third store is much less complicated. If you have a great manager, it also provides an opportunity to keep them around long-term by making them the general manager of multiple stores.

 

 

 

By Mr. Moneyface

I blog about alternative investments and unusual ways to invest your money. See this list: 150 Types of Investments!