starting a coffeehouse on the cheap - pt 2

In my previous posting, I covered how to build out your coffeehouse cheaply, using creative construction, materials from Craigslist (and other similar sources), and avoiding major renovations.

In this segment, we will cover how to get equipment for cheap.

First - getting NEW equipment for cheap.   Usually the best place to get brand new equipment for very cheap prices is expos, equipment fairs, barista competitions etc.  I once picked up a brand new $12,000 espresso machine for $6000.  I was at a coffee expo, and Rancillio there with a booth.   They were demonstrating their new machine to people, so it was plugged in and operating.  Now, once a new machine has been used, it can no longer be sold as 'new'.  Likewise, the dealer doesnt like to use the same machine for every expo, because the machine gets dirty, it is difficult to find space to store, maintain etc.  Instead, they usually unbox a new machine for every event.  Thus, they are left with a "used" machine that has been used for less than a week...  They just want someone to come and pick it up so they dont have to deal with it.  

 Near the end of the expo, I stopped by the Rancillio booth, and offered to drop by after the expo was done and take the machine off their hands for $4000.  We went back and fourth a couple times, and I eventually agreed to $6000.   Voila - a new machine for half price.

Any time there is some kind of demonstration, expo etc - where new equipment is being used for a very short amount of time, you can bet the company will be willing to sell it to you for a steep discount - just to get it off their hands so they dont have to deal with it.   Bring a truck and a wad of cash (cash talks loudest). 

Second - used restaurant equipment:  Let me start by outlining the broad structure of the restaurant equipment market.  As you probably deduce, restaurant equipment is designed to last  a long time with heavy wear.   At the same time, there are a surprisingly large number of restaurants and other food establishments that fail early on in their lifespan - one study suggests a 60% mortality rate within 3 years of launching.   Thus, you have equipment that have only been used for a couple years of their six to ten year lifespan, resulting in a large amount of used restaurant equipment floating around the market.

There are many used restaurant equipment purveyors that buy the stuff from shuttered restaurants, clean it up, fix it up and resell  it for maybe 50% of the brand new stuff - just do a google search for 'used restaurant equipment' in your area, and I'm sure you'll come up a half dozen companies that do this.

Likewise, you can always find used equipment on Craigslist and Ebay - just keep your eyes open and pounce when one comes up.  For craigslist - the best ones to go for are the ones with no pictures.  These people usually have no idea what their equipment is worth, and the statistics say that a Craigslist ad without a picture has 30-40% fewer respondents - fewer respondents translates to fewer people calling about the equipment, which in turn strengthens your negotiating hand.   For a reasonably good piece of equipment (in good shape), I'd expect to pay about 1/3rd the new price when buying used off Craigslist and Ebay.

Now, how to get restaurant equipment for REALLY cheap:   restaurant equipment auctions.  Whenever a food establishment goes out of business (or creditors repossess the shop), the owner will call an auction house to auction off the contents of the place.  This is where the used equipment dealers go to get their equipment for resale.  You can get some phenomenally good prices.

I usually check Craigslist (business section) for auction listings, or just do a google search for restaurant equipment auctions to see what comes up.  These things are going on all the time, so they are not difficult to 

find. 

Auctions are a bit more tricky, because the equipment is usually sold as-is, where-is... and you have to provide the full amount you bid there and then.  It feels a bit wild-wild west.    Unless you are a restaurant equipment specialist, it is difficult to ascertain whether a piece of equipment is good or ready to break (you can usually turn it on to check if it actually works).   However, the way you deal with this is to just bid low enough on it, that if something does turn out to be broken, you can get it fixed and still end up with a good deal.  Likewise, you must remove the equipment from the store yourself, and then transport it back to your place.  Just a word to the wise here - the other bidders often do sneaky things to throw other you off ... make it seem like the equipment is broken etc.  For example, one auction I went to, someone went around before me and turned the thermostats up on all the refrigeration units (and freezer units), so when I came by to check them out, they were blowing warm air (usually a sign the compressor is bad).  When I noticed the thermostat and turned them back down, the refrigeration unit worked just fine.    I also saw one bidder turn on a meat slicer to check that it worked, then surreptitiously cut the cord and pocket the plug, so no one else could check to see if it works (rewiring the plug is a simple procedure).  This way, when the bidding started, he was the only one who knew it actually worked - the rest of the crowd only knew that the cord was cut...

Some newbies are intimidated by auctions, because you are surrounded by used equipment dealers who do this sort of thing for a living.  They know the actual value of everything, and what things cost to fix, the bidding procedure, strategy etc etc.   However, you have a huge leg-up on these folks.... simply put...price.  They are buying equipment to resell - so they HAVE to buy it very cheaply.  You are buying equipment to use, so you can easily bid above them, and still get an amazing price.

If you want to try your hand at an auction, here are the steps you need to take:

1. figure out the equipment you need.

2. Look up the equipment online - both new and used prices of various brands.  Get a good idea what normal prices are for this kind of equipment. 

3. At auctions, I usually expect to pay 10-20% of new price for the equipment (depending on the item - the more popular items like sandwich making stations, slicers and stand-up refrigerators may be closer to 25%, whereas large convection ovens can be snagged for 5-10%).   This will give you a rough idea of what you should expect to bid up to.

4. You can usually pick up your equipment for a day or two after the auction, so you dont need to rent a u-haul truck to go to the auction.  You can grab that later (when you have a better idea of the size of the truck you are going to need).  Also, bring a bag of cash.  You can usually use cash, check or credit card for the purchases, but most places will give a 2-3% discount for cash.  I went to one auction and got $4000 worth of equipment, then paid in cash.  The guy knocked 3% off the price, thus saving me $120. 

5. Auctions are best used if you are getting a bunch of equipment.  If you are getting just one item - it may not be worth it (unless that item is expensive).  Once you factor in your time, truck rental (gas), hiring a couple guys to help you move it, possible fixing etc - it may not be that much cheaper than buying from a used restaurant company.  So, if you are going to go to one of these things - plan on buying a bunch of stuff.  I like to buy back up equipment for my vital pieces (under counter dish washer, ice machine, refrigerator, espresso machine etc) so if they go badly wrong, I can just yank them out and put the other piece in. 

As an aside - the WORST time to buy equipment is when you absolutely need it.  When you need it NOW, you will pay the most money for it.  Grab some back up equipment for your shop and stick it in the basement or a garage, so you have it there for when an emergency strikes.

Here is how the auction works:  usually the auction starts around 10am, but the shop is open for inspection a couple hours before-hand.   You get there around 9am, and sign in.  The auctioneer will take your information and then give you a card number.  This is your bidding card - keep it handy.  Next, walk around noting all the equipment, and what they look like.  Try and turn everything on to check that it works (and watch out for tricksters).   Make a list of the things you want to bid on, and write next to it what your max bid will be.  This is important, because in the excitement of bidding, you can easily lose your head and bid way above what you should.  If you have your max bid in front of you, you are less likely to over bid.  I always look for dirty equipment - you can usually get the best deals from dirty equipment.  Most people intuitively believe that dirty equipment is worth less - just because it is dirty.    This is crazy.   When a restaurant is going out of business, employees and owners spend less and less time on general cleaning, upkeep and maintenance, so things tend not to get cleaned.    So, focus on the dirty equipment to get the best deals.

When the bidding starts, the auctioneer and his buddies (spotters) herd everyone over to the first piece of equipment.  They start the bidding out at some arbitrary price and the auctioneer starts his fast-talking patter (250 250..do I hear 270 270 270... etc)  If you will take that price, you wave a hand, cock an eyebrow or some positive motion, and one of the spotters will point at you and yell "got" or somesuch to signal the auctioneer to move to the next price up.  If the price is too high, and no one is bidding, the auctioneer will actually step the price down. 

There will be two types of people there:  people like you (restaurant/cafe owners looking for cheap equipment) and dealers.  Dont worry about the dealers - you can always outbid them.  You need to be mindful of the other restaurant owners.  See if you can befriend them.  If there are only a couple of you, see if you can come to some side deals - find out what they want and tell them what you want - then cut a deal instead of bidding against each other.  For example, if there is a sandwich making station, a refrigerator, an under counter dishwasher and an ice machine there that two of you want, you could offer NOT to bid on the sandwich station and refrigerator, if they pledge not to bid on the dishwasher and ice machine.   Obviously the auctioneer wont like this, but he cannot stop you from talking with the other people there.

There was one auction I went to that had two 'bakers tables'  at auction- these tables are 4' x 8' with chopping block surfaces.  Very valuable tables for bakers... and very expensive.  A good quality table will sell for several thousand dollars.    I wanted one, and one other guy was bidding against me.  I didnt know if he wanted one or both of the tables, so in the middle of bidding, I quickly asked him - "you want one or two?".  He lifted one finger at me and I immediately dropped out of the bidding.  I managed to get the second table for less than he paid for the first.

If you are going to bid - dont bid in at the beginning.  Wait.  let the others bid up and drop out.  Once everyone else had dropped out, THEN you can drop in.  This tends to keep the prices lower.

Strategy:  You are allowed to bid in at any price you want.  So, if the last bid was for $350, and the auctioneer is calling for $375, you can yell "$355" and the auctioneer will accept that.  However, I would not recommend that.  Going up small increments tends to encourage other bidders to stay in the race.  If they put in the bid at $350, and your bid is just $5.00 more, they will be LOATHE to lose the bid due to just $5.00... they will likely be goaded into increasing the bid.

Most people stop bidding at certain monetary thresholds - usually x00 numbers or x50 numbers (such as $200 or $250, $550, $700).  They have set a mental threshold beyond which they will not bid.  So, if an item is at $300, and two guys are still in, chances are good that one will stay in to at least 350.  SO, if you just bump the bid directly to 350, that will tend to drop one from the running right off.  Furthermore, such a large increase shows the other bidder your intention to win the bid... and at that point, he will have to bump up his bid at least $60 to be considered - a much larger obstacle than just the $5.00 previously mentioned.   So, dont be afraid to play around with bidding increases.  Think strategically.

I recently went to an equipment auction in New Bedford, MA.  A  Big Y store (a big grocery store chain) had closed, and all the equipment in the store was up for auction. 

It was an interesting experience.  I ended up getting a truck full of coolers, tables, shelves, etc for a mere $4000.  Had I purchased this equipment new, I would have paid close to $20,000.  It was an all-day event (and I had to make two trips, because my truck was too small), but it was worth it.   Enormous savings.   

Thanks for reading!  Let me know if you have any issues or questions you'd like me to address!

Duncan

Coffeehouse Guy

On a final note: as you may know, I'm in the process of writing a series of guides to show people how to move from a corporate job to owning a coffeehouse.  Unfortunately, they are not going to be ready for a little while.  However, If you are REALLY serious about starting your own coffeehouse, and you cant wait for my guides to come out, I also offer a 2-day, one-on-one intensive boot camp on starting a coffeehouse.  You come up to New Haven for these two days, and we spend two intensive days going through all the intricacies of starting, owning and operating a successful coffeehouse.  If you are interested, send me an email and we'll get it set up: coffeehouseguy1@gmail.com

starting a coffeehouse on the cheap - pt 1

I received a request from one of our readers to do a segment on how to start a coffeehouse on a budget. - Here's to you Omondi!  If you have any requests for specific issues you'd like me to address - please feel free to send it my way: coffeehouseguy1@gmail.com

Many people have an impression that they must spend a packet of money to start a coffeehouse.  I've seen figures bandied about of $90,000 to $500,000 to get a coffeehouse up and running.  These same people feel compelled to go out and buy a bunch of brand new, shiny equipment from their local restaurant equipment dealer, all the top of the line furniture,  the 'perfect' plates and high-end espresso cups.... not to mention hiring expensive architects, designers and contractors to make the place 'perfect'.

I beg to differ. 

When setting up a shop, the two most important things are quality, prompt, courteous (and fun!) service, with EXCELLENT food and drink that people dont have to wait long for.    These are the two main things that will get your customers coming back again and again.   Everything else is of secondary importance.   Thus, when setting out to create your coffeehouse, you must focus on those two things.   All the other stuff - designed space, beautiful equipment,  perfect couches and the marble countertops??? Not as important.  Naturally you need something functional -  you need a usable space, just not an expensive usable space.

Creating a usable space cheaply -

There are three main sources of expenses when starting a coffeehouse: build out,  equipment and operational expenses.  I'll start by writing about the first of these three (build out) in this blog posting, and cover the other two in subsequent postings.

First - Build out!  The build out is any kind of construction you need to do to the space before you can open up for business.   Any time you start construction, it will get expensive pretty quickly.  Plumbers, electricians, carpenters, materials etc etc...  big money.    SO, the best way to avoid these expenses is to absolutely minimize the amount you will need them.   You can do this by finding a space that used to have some kind of food establishment before.    Ideally, you could find a restaurant, cafe, deli etc that you could buy from the current owner and then take over the lease (and change the business over to what you want).  (NOTE - I will write another section later about how to go about finding / buying a food-business that you can use to convert to your coffeehouse.  The short version of this is to find a run-down business in a good area with excellent foot traffic - that you can get for cheap.   Ideally the owner is older and looking to retire)  If a food business has been in that space in the past, all the plumbing, electrical, floors, ceiling etc will mostly be in place.  You will likely only need to do some minor adjustments to the space to make it work for you. 

I like to negotiate with the landlords to get them to throw in some $$ to cover some of the cost of renovations.  You wont always be successful, but it is worth a try.  I can usually convince the landlord to give me six months of free rent in lieu of a construction budget...

Once you have the space - plan on doing the *minimum* work on the space you can.  Focus on the aesthetics - make it  look nice.  Erecting walls, painting, trim, lighting decoration etc - this is cheap and easy to do, and can transform the look of the place.  That is what you should focus on.  Avoid as much plumbing/electrical/floors/ceiling etc as possible - that stuff gets expensive pretty fast.  

For now, focus on just using residential grade counters, cabinets, sinks, etc.   I like perusing Craigslist for used counters/ cabinet / shelving etc - you can get a steal of a deal there.  Here is an example!

$300 for a granite countertop with integrated undermount sink???  What an awesome deal!! 

Sometimes, you can actually get some of this stuff for FREE!  I found these cabinets for free online - all you'd need to do is replace the hinges and the pulls, then paint them, and voila - new cabinets!

So, you could get a bunch of stuff from Craigslist, and then fix them up a bit, give them a coat of paint and then cobble them together for your service area.   Right now you are NOT looking for perfect.  You are looking for usable.  Later on, when you have a strong, thriving business, you can replace the second hand stuff with upgraded materials etc.  THen you will have the money to make those upgrades.  For now, this will get you up and running. 

Who will do the work?  I like to do my own general contracting because it is less expensive and gives me more hands-on control of the process.   It is a bit more time consuming, but you might consider giving it a shot.  It is particularly good because you will learn alot about the different trades, and how to assess the quality of different professionals.    I suggest reading this book called "Be Your Own House Contractor" It gives good suggestions and insight into the process of finding subcontractors, negotiating with them, estimating costs, where to get materials etc etc.   I also like using Angies List to find good plumbers / electricians/ painters/ etc.  In addition, I 've had success finding professionals by talking with some local architects that have had experience with these subs in the past. 

The important thing to remember when figuring out what you are going to do with the space is that you can always go back and redo it if you need to.  Start out by doing it as cheaply as possible.. a year later once the business is thriving, you can always go back and get those marble counters.  For now, do it cheap... but with style.

This brings up the next point - style.  Just because you are keeping your expenses to a minimum, it does not mean the place has to look slap-dash thrown together.  Use creativity to create a wonderfully warm and happy space (which is consistent with the Niche market you are aiming at - more on that later).  I enjoy reading about cheap design / decorating ideas for the home - often times you can borrow them for your shop.  Makes a huge difference in the place, for relatively little money.  Here were some places I've gotten ideas:

HGTV - 10 inexpensive Decorating Ideas

CountryLiving - budget decorating

There  is also a cheap book on Amazon ($3.99) called "Cheap Home Makeover: Interior Decorating on a Budget".  I must admit I have not yet read it, but it was referred to me by a friend.  The next time I need to do some decoration, I'm going to read this book first.

In addition, you can find a bunch of cool stuff at Goodwill and other thrift shops to find cool decorations and decorative pieces that you can adjust to meet your needs. 

So, to summarize this section on starting a coffeehouse on the cheap :  First, find a place that just needs a cosmetic makeover - with as little serious construction as possible.  You can erect walls (fix walls), counters, paint and decorate pretty cheaply, but do as little electric/plumbing/floors etc as possible.  Second, try to get the landlord to cover some of the cost with either a direct cash injection or free rent.  Third, find USED materials on Craigslist (cabinets, countertops etc) and then paint them, change the hardware for cheap etc, and cobble together the service area.  Fourth, decorate cheaply - there are many websites and other resources that can teach you how to do this - buy decorations from Thriftshops, paint and repurpose.

In short, at this stage, you are just trying to get the place open for business for the lowest possible price.  You can use this to prove that your coffeehouse concept will fly - once it starts making money, you can replace things at your leisure with commercial grade stuff.   

In my next section, I'll go into finding cheap equipment for your coffeehouse...

Let me know if there are any topics you'd like me to write about!  I'd love to hear from you!!

best

Duncan

On a final note: as you may know, I'm in the process of writing a series of guides to show people how to move from a corporate job to owning a coffeehouse.  Unfortunately, they are not going to be ready for a little while.  However, If you are REALLY serious about starting your own coffeehouse, and you cant wait for my guides to come out, I also offer a 2-day, one-on-one intensive boot camp on starting a coffeehouse.  You come up to New Haven for these two days, and we spend two intensive days going through all the intricacies of starting, owning and operating a successful coffeehouse.  If you are interested, send me an email and we'll get it set up: coffeehouseguy1@gmail.com