Bookstore Cafés, #2: What Start-Up Strategy Suits You?

Books and coffee have a long history of association. Long before Barnes & Noble linked up with Starbucks, the coffeehouses of 18th-century London served as England’s "penny universities" where Samuel Johnson, Alexander Pope, and John Dryden socialized, sipped coffee, and sold their works. Two hundred years later, many booksellers feel they need to add a jolt of java to enliven their store’s atmosphere and boost sales.

So, let’s assume you’ve weighed the pros and cons and decided to add a café or coffee bar to your bookstore. How do you get from an idea jotted on a latté napkin to your first cup sold? Should you start big or small? Do you do it on your own or partner with an existing business? In this second of three articles on bookstore cafés, BTW explores two directions for café start-up: a small owner-run espresso kiosk and a larger partnership café.

Whichever route you choose, you’ll need to make sure you’re dedicated to offering a unique, quality product. Don’t think you’ll increase your profit margin by offering a mediocre cup of coffee made with cheap equipment and served by an ill-trained bookstore cashier. "That doesn’t seem to work -- the small espresso machine in the back of the store with an employee sitting around reading all day," said David Bolduc of Boulder Bookstore in Colorado. "People have become more sophisticated when it comes to coffee. It’s not like the floor staff can just come over and make a cappuccino."

If customers want a quick cup of coffee, there are plenty of places they can get it: Starbucks, Peet’s, Caribou -- not to mention thousands of independent coffee bars. "It’s like the rest of the bookselling business," said Mitchell Kaplan, owner of Books & Books in Coral Gables, Florida. "It has to be distinctive to be competitive."

Plan A: The small, bookstore-owned coffee bar

If you’re a small store looking to offer coffee to your customers, you might want to consider setting up a small espresso cart or kiosk serving a few pastries, a selection of teas, and seating for a couple dozen customers. Stand-alone carts and small kiosks are a low-capital way to break into the coffee market. But be warned that they’re also a segment of the industry that’s starting to reach a saturation point. According to Fresh Cup, a specialty coffee trade magazine, the specialty coffee market is expected to grow steadily over the next 15 years, but growth of carts and kiosks is expected to remain flat.

Still, they’re a low-investment option. According to Fresh Cup’s June 2000 special issue, An A to Z Guide to Opening a Coffeehouse [an essential reference, which can be ordered at www.freshcup.com or (800) 868-5866] you can expect to pay between $14,000 and $20,000 to start up a small espresso cart, which could possibly gross about $600 per day in sales.

These start-up costs and income figures are rough estimates, of course, and the numbers assume you’re setting up an on-street cart without seating -- not exactly an atmosphere-enhancing addition to your store. For a traditional "in-line" coffee bar complete with tables, chairs, pastry display cases, a workspace that meets health codes, all necessary equipment, and hiring a contractor to renovate your bookstore space into coffee space, you can spend upwards of $150,000. However, most in-line coffee bars require between $40,000 and $80,000 in start-up investment.

The payoff is potentially lucrative. Specialty coffee (that is, espressos, cappuccinos, and the like) is one of the most profitable segments of the food industry. Food costs for espresso drinks are generally less than 25 percent of the final retail price. But don’t expect to sell only coffee. Just about every small bookstore café we talked to ended up offering some mix of teas, iced drinks, pastries, sandwiches, and even soups and dishes prepared on-site. "We discovered pretty quickly," said Howard Mandel, owner of Transitions Bookplace in Chicago, "that customers who arrived for an author event wanted more than just coffee and a piece of cake."

Small scale, owner-owned bookstore coffee bars can vary widely in terms of profitability. Mandel, who owns and operates an 800-square-foot coffee bar out of his 6,000 square-foot bookstore, reports that the café was primarily an added amenity for his customers that only gradually became profitable. "It took three or four years for it to turn a profit," he said.

For Philip Rafshoon, owner of Outwrite Bookstore & Coffeehouse in Atlanta, the results were more immediate. The small café in this gay and lesbian specialty bookstore was integrated into the store from the start (about eight and a half years ago), and it served two goals: to make the store more profitable and to help define the store as a gathering place in the community. "The coffeehouse was profitable from the get-go," said Rafshoon. "Today, it amounts to about 25 percent of our business, 30 percent of our space, and about 60 percent of our labor costs."

There’s a reason those labor costs are so high: Rafshoon insists that hiring skilled, dependable staff is the key to success. "If you can find and keep great staff, great," Rafshoon said. "If not, don’t waste your time and money."

John Teague, the general manager of Politics & Prose in Washington, D.C., found that his store’s 700-square-foot coffee bar (which accounts for less than 10 percent of the store’s total sales) lost money or broke even at best -- in large part because the cafe couldn’t attract and keep quality employees. "The right manager might have made all the difference for us," said Teague.

"It’s tough; you have to make it attractive while at the same time trying to hold costs down. Sure, you might get lucky and find some lunatic who’ll work 70 hours a week for $10 an hour. But I think you need to find someone with the background, turn them loose, give them a share of the profit. Let them do the business," Teague insists.
With that approach in mind, Politics & Prose is transitioning to a contract arrangement in which another business will own and operate the store’s café. Which leads us to café strategy number two…

Plan B: The partnership -- a larger, contract bookstore café

Mitchell Kaplan has seen both worlds: His Miami Beach bookstore has a small, bookstore-owned and managed coffee bar with pastries and about 20 seats ("not terribly profitable," he said). His larger, Coral Gables bookstore café is more of a restaurant, with 60 seats and a full lunch and dinner menu. The Coral Gables café is run through a contract management agreement with an established local caterer and former restaurateur. The bookstore takes a percentage of the café’s sales.

"You can own it, just let somebody else run it," said Kaplan.

That’s a sentiment echoed by most booksellers when it comes to larger bookstore cafés, though not all. Bernard Flynn, owner of Trident Booksellers and Café in Boston is of the opinion that contract arrangements don’t work, because the bookstore owner is distanced from café operations. Subcontracting requires that you sacrifice a good chunk of the profits a café stands to make. But if you plan to run things on your own, you’ll need to take a more hands-on approach. Flynn was comfortable with this: when he first started running a full café offering lunch and dinner, he gladly assumed roles as bookseller, chef, and restaurant cashier when the needs arose.

If you’re a bookseller 1) who wants the added benefits of a café, 2) is willing to sacrifice some direct café profit, and 3) isn’t willing to immerse yourself in the restaurant business, subcontracting or partnering with another business offers a viable alternative.

When Changing Hands Bookstore opened a location in Tempe, Arizona, in 1998, co-owner Gayle Shanks was forced to do so without a planned café. "That was nearly a disaster," said Shanks. One year later, 3,000 square feet of the 16,000 square-foot store was dedicated to the Wildflower Bread Company, a well-established local bakery and coffee company with several locations in Arizona. In that second year, with the adjacent café in place, bookstore sales jumped 40 percent -- a rise Shanks attributes almost exclusively to the presence of the bakery.

Though both the bookstore and bakery-cafe operate in a shared space within a suburban mall, they’re totally separate businesses. "The landlord wanted us to sublet, but we said no," said Shanks. Instead, the bookstore and cafe work side by side (they’re connected inside) to boost each others’ sales.

Much of that boost in sales comes from customers staying longer than planned: a parent with children who arrives on a weekday afternoon and stays for lunch, or a couple browsing during an evening out. "What used to be a quick trip to the bookstore," said Shanks, "has become a half-day project." She’s heard repeatedly from customers that they arrive to buy a book or a coffee, wander into the other space, realize they're hungry, or need to buy a birthday present -- and end up spending time and money in both businesses. "The bakery owner wishes he had a bookstore next to all of his other locations," said Shanks.

You’ll have some tough decisions to make when structuring such subcontracting or partnership arrangements. You’ll need to make sure the partner business has a solid reputation. Ensure your lease has a clause giving you power to choose what company you’ll partner with, in case things don’t work out. You’ll have to decide whether to essentially charge rent by taking a cut of the café’s sales (as at Books & Books in Florida) or to aim solely for the increased book sales a café will attract (as with Changing Hands).

Regardless of whether you choose Plan A or Plan B, or something altogether different, you’ll need to balance between 1) the level of involvement in day-to-day café operation that you’re willing to take on yourself and 2) how much of the café’s profit you’re willing to let go of -- in order to attract and keep motivated management.

Next time, we’ll talk to booksellers about improving existing bookstore cafés. -- Andrew Engelson

To read the third article in this series, click here.