There are over 35,600 coffee shops located in the United States alone, with a market share of $45.4 billion, per Daily Coffee News. Restaurants have seen steady growth year-over-year at two percent in recent years. According to Statista, there are over 660,700 restaurants in America. With this recent explosion in popularity, opening a restaurant or a coffee shop seems like a solid business investment. However, you must know the difference between the two if you want to get into the foodservice business.
The most significant difference between restaurants and coffee shops is in the type of services they offer. Restaurants are usually licensed, primarily focusing on food. Coffee shops do not have to be licensed, and their primary focus is on serving beverages. There is also a significant discrepancy in the number of licenses and permits you have to obtain when opening a restaurant versus opening a coffee shop.
In this article, we are going to take a look at the different types of restaurants and coffee shops and examine the similarities and differences between the two.
Obtaining the licenses or permits to own a restaurant is significantly harder than the licenses or permits required to own a coffee shop, according to Toast. Opening a restaurant is a rather arduous task that requires lots of paperwork. If your goal is to open a restaurant, you are going to need the following licenses and permits:
- Business license
- Employee Identification Number
- Certificate of Occupancy
- Foodservice license
- Sign permit
- Music license
- Resale permit
- Building health permit
- Employee health permit
- Seller’s permit
- Liquor license
- Dumpster placement permit
- Live entertainment license
Coffee shops, on the other hand, require significantly fewer licenses and permits. According to the website Starting Your Business, the licenses and permits which are required to start a coffee shop include:
- Sales tax permit
- Employee Identification Number
- Occupancy permit
As I’m sure you can see, there is much more paperwork involved in starting a restaurant, as opposed to starting a coffee shop. Starting a restaurant requires lots of time and patience, whereas starting a coffee shop is not nearly as difficult.
First off, we will break down the different types of restaurants into two categories. The two types of restaurants are full-service restaurants and fast-food restaurants. The primary differences between the two are that full-service restaurants generally provide higher quality food and better service than fast-food restaurants. However, both types of restaurants must have a license for them to be able to serve food.
Let’s take a closer look at the service aspect of these types of restaurants, shall we? In a full-service restaurant, you are usually created by a host or hostess and then seated by a server. The server will give you a menu and then take your order whenever you are ready. In fast-food restaurants, most of the time, you will have to walk up to a counter to place your order. You will then have to take your order to your table if you plan on dining in. In a full-service restaurant, the server will periodically come to your table to see if you need anything. You don’t get that type of service at a fast-food restaurant.
Another significant difference between full-service restaurants and fast-food restaurants is in the quality of food you will be served at these establishments. While both types of restaurants may offer appetizers, main courses, and desserts, the quality of food at a full-service restaurant will typically be of a much higher quality than the food you will get at a fast-food restaurant.
Prices are also a differentiating factor between the two types of restaurants. Of course, this is most often associated with the level of service and the higher quality of food you will get at a full-service restaurant. However, more than anything, you’re paying for the experience and level of service that you received from a full-service restaurant.
There are several different types of coffee shops that you can open. The website Talk About Coffee has listed seven different types of establishments that serve coffee. They are listed below.
Cafes (Middle Ground)
Of all of the different types of coffee establishments, cafes are usually the most upscale. Along with serving coffee beverages, cafes are also known for having lunch and dinner menus. Because cafes handle and serve food, they are basically known as the middle ground between restaurants and coffee shops. According to Lightspeed, here are the licenses and certifications that cafe owners are required to possess:
- Business license.
- Certificate of occupancy.
- Sign permit.
- Foodservice license.
- Employer Identification Number (EIN)
- Food handler’s permit.
- Building health permit.
Rather than focusing on selling coffee beans or exotic coffee drinks, coffee bars typically focus on serving freshly brewed coffee. There are usually not many places to sit in a coffee bar, although there may be a table or two. This makes bus terminals in train stations a perfect location in which to set up your coffee bar.
A perfect example of a coffee house can be seen in the popular 1990’s sitcom “Friends.” Adorned by comfy couches and armchairs, coffee houses often host such events as open mic night and intimate acoustic concerts. Coffee houses also usually have music and books which are available for you to purchase. Most of the coffee franchises you see are examples of coffee houses.
Retail Coffee Shops
Retail coffee shops specialize in selling you the equipment and beans you will need to brew your coffee in the comfort of your own home. These shops also sell coffee-themed gifts and coffee-making machines such as French presses or espresso makers. You can also purchase items such as coffee grinders at retail coffee shops as well.
Drive-Thru Coffee Shops
Drive-thru coffee shops specialize in catering to the on-the-go crowd. In the right location, drive-thru coffee shops can be quite profitable due to the surprisingly low amount of overhead associated with owning one of these shops. These shops are one of the few options that provide you the ability to either be an independent shop or part of a franchise.
Coffee Carts and Trucks
Because of their flexibility to change locations, along with their relatively low startup cost, coffee carts and trucks have become quite popular recently. If you are committed to making sure that your car or truck he’s consistently positioned in the right location, your coffee business can be quite profitable. The main focus of coffee carts and trucks is to serve freshly brewed coffee, normally accompanied by pre-packaged pastries.
One of the main perks of getting coffee from a roaster/retailer is that the coffee is usually brewed on-site from green coffee beans. This type of coffee shop also sells their beans, along with roasters, grinders, and presses for you to make fresh coffee at home. Roasters/retailers are usually quite profitable, as they have little to no overhead costs. There is also eight healthy mark up associated with roasting your beans, packaging them, and then selling them.
Check out our article on roasters HERE.
A recent study conducted by Fabled Medium indicates that approximately 74% of independent coffee shops fail within the first five years of opening. While this failure rate may seem staggering, the percentage of failing restaurants is even more astonishing. According to CNBC, 60% of restaurants fail within their first year of operation. Unfortunately, this number only gets worse. An unbelievable 80% of restaurants end up failing before their fifth anniversary.
In this article, we have taken a look at the main differences between restaurants and coffee shops. We have covered the two types of restaurants, which are full-service restaurants and fast-food restaurants. We have also covered seven different types of coffee shops. The most significant difference between coffee shops and restaurants is that the primary focus of a restaurant is to serve food, and the primary focus of a coffee shop is to serve beverages such as coffee, cappuccinos, and espressos. Failure rates of coffee shops and restaurants seem to be quite close, with restaurants feeling slightly more often than coffee shops.
The most painstaking difference between these two is the amount of paperwork involved in starting a restaurant and the number of permits and licenses required. Coffee shops require very few permits or licenses. If your goal is to quickly open a business that is profitable and rewarding, you may want to consider opening a coffee shop. However, if you have the time and patience required to open a restaurant, it can also be a rewarding experience.
What is the biggest expense associated with opening a coffee shop?
While many expenses come with opening a coffee shop, your equipment is generally the most expensive pair of your startup costs. A high-quality, industrial-grade espresso machine can cost upwards of $20,000, while automatic drip coffee makers can cost as much as $1,500. Depending on the amount of space you need, you can pay anywhere from $1,000 to $2,000 for refrigeration units.
Do I need to be licensed to own a coffee shop?
While restaurants require licenses to serve food, most coffee shops do not require a license. However, if you are going to serve food at your coffee shop, you are going to need a license to do so. If you plan to open a coffee shop that only serves beverages, you will only need a business license.
Looking to learn more about how to start your very own coffee shop? Download our Free eBook here as well as receive our Free newsletter with great tips on how to start your very own coffee shop!
Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.