Looking for a retail space for your coffee shop, or other business, is quite a process. How do you decide if a place has potential? How do you narrow down your selection? I’ve broken down the top ten criteria for choosing a retail space to help in your search, and give you an idea of important considerations even before you begin.
Choosing Retail Space
As you’re looking at locations, analyze them according to criteria that is important to you. Know your target standard established by your business plan. Always understand your business and target market, and bring back decisions to what they both really need. Here are the top ten criteria you’ll find important as you look at locations for your business.
Top Ten Criteria for Choosing Retail Space
1. Size– in square footage. Coffee shops range form 600-2000 square feet, and what is best for you depends on what your business and customers need.
- Expansion– is there room to expand if you choose to later on? What about storage, employee workspace, a private room? Note the need for extra space either now or in the future.
2. Rent– Don’t automatically discount a place with high rent. Sometimes it’s justified because of the increase in customers that lead to higher profits. You get what you pay for, just make sure you do your research and know the variables.
- Triple Net– know these charges so you can compare based on total rent.
- Occupancy rate– know how much of your sales go to pay rent by dividing the yearly rent into the yearly revenue. You want to be between 12-13%, and not more than 15%. The lower rent to sales, the more success you’ll have in affording the location.
- Market price– research the going market rate and what people are paying, so you don’t overpay.
3. Term– You don’t want to get stuck with a very long lease in case something happens, but you don’t want to go for a very short lease and then find out you can’t renew it (or pay time and costs to renew). A good bet is a shorter lease of 3-5 years with a renewal option and a guaranteed rate for rent increases over a set period of time. However, a longer lease gives you more leverage with things like Tenant Allowance, and helps offset costs of investment.
4. Atmosphere– You don’t want to spend too much money completely revamping an inappropriate space. Does it match your plan in terms of:
- Features– drive thru? parking? strip mall vs. stand alone? industrial vs. homey? walking or driving traffic? sunny or dim? spacious or compact?
- Brand Image– you want the atmosphere consistent to the image you want to maintain.
5. Area– Consider these variables according to your business plan and how it aligns with your needs:
- Demographics– who is around you? what do they need? Compare these to your target market. Know income level, population density, ethnic make up, age, growth, crime rate, etc.
- Neighbors– who is around you and how will they affect your business? Do they serve your target market or support you? Gain insight on the landlords, management, or upcoming issues that can affect you (tenants moving/incoming) by asking those around you.
- Customer traffic– when is it heaviest? Know peak times/days, commuting hours, half-time, weekends, and are your hours aligned with these demands?
- Local Labor Market– are there potential employees in this area?
- Proximity to Suppliers– are you close to your suppliers?
- Safety– how safe is the area?
6. Visibility– How far are you from the main street? How visible is your store front/signage?
- Traffic Counts– look up vehicle/pedestrian traffic counts from your city department of engineering and transportation.
- Manual counts– stake out your location and count customers over the course of a day and week to note volume and times of your general traffic flow.
- Corners– studies show corners do better, especially for coffee shops
7. Convenience– How many obstacles do customer have to go through before they reach your store?
- Ease of access & parking– from the main streets.
- Target market– think of your customer needs. For example, be on the right side for business execs on their way to work. For college students, be convenient to pedestrians, and have a bike rack.
- Traffic flow– visit the city/county planning department and review traffic flow maps that show how many cars travel on which streets at what times.
8. Competition– you actually want some competition around. If there are no other coffee shops, the area probably can’t support it. Just know who your competitors are, and create profiles for them. Know what the demand is, and how you can meet it better than anyone else.
9. Physical Condition– know the status on the condition of your location and how much work you’re prepared to do on it.
- Current condition– dirt floor? vanilla shell? partial/fully built out? How is the spot to be delivered? What do you need in terms of electrical, plumbing, mechanical?
- Hidden/Built out costs– the costs of renovation, restrooms, upgrades, etc. to turn the current condition into opening day ready.
- History– of use, ownership, problems, etc.
- Tenant Allowance– funds given by the landlord to build/improve the space which stays behind when you leave. At least $20 sq/ft is good.
- As-is or not– Are they going to do anything to the space before you move in?
- Maintenance– How much maintenance will be required? Know what issues you’re going to have due to age or other factors. Consider HVAC and other utilities.
10. Legal Condition– know the status of laws and regulations that may affect your location, and what you would have to deal with compared to other locations you’re considering.
- Signage laws– know signage possibilities/restrictions if this is important to you (determined by the city).
- Licensing/Zoning– through your local planning agency.
- Taxes– know income and sales tax rates, but also property taxes. Could you pay less by locating your across a nearby state line? Some cities offer tax incentives, and some areas are more expensive than others.
- Government Economic Incentives– some areas qualify for incentive programs, such as those in development or revitalization.
Analyze your potential retail locations according to these ten criteria. Compare them to each other, and to your target criteria. I assembled them into one spreadsheet to easily compare these variables, and have also made that available to you.
Location Criteria Worksheet
Do delete/add/amend the criteria to fit your needs.
To quantifiably score your potential sites, use the score column with a consistent scoring method. For example, score 3/5 for your target being met, 5/5 for exceeding your goal and 1/5 for falling short of your goal. Add up the ratings at the bottom.
Consider your top 4-5 sites, and submit an offer to all of them through your broker. Make sure you check out this post on the process of looking for locations and working with a broker. Good luck and let me know if this is helpful to you!
- The Complete Idiots Guide to Running and Starting a Coffee Bar
- Espresso! Starting & Running Your Own Speciality Coffee Business
- Start & Run A Coffee Bar -love this one-
- SBA.Gov- Tips for Choosing Your Business Location
- Aurora SBDC Seminars: “Location, Location, Location” & “Look Before You Lease”
Note: As a fellow aspiring entrepreneur that simply wants to share my journey with you, know this is information I’ve gathered from various books on starting a coffee shop, business websites, and courses that are helping me to start a coffee shop. I only hope to share some of these resources to help you get started and inspired, however this is by no means extensive. All resources are for informational and educational purposes only, and not to be business consulting or legal advice– so do contact a licensed consultant, accountant, or attorney with respect to any particular issue or advice.