Author Topic: Coffee Roasting Side Hustle  (Read 4540 times)

Beard N Bones

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Coffee Roasting Side Hustle
« on: March 13, 2018, 11:22:03 AM »
I love my coffee.  I love drinking coffee.  I love the smell of coffee.  I love the taste of coffee.  I enjoy roasting coffee and brewing coffee.  Thus far it has been just for personal/family consumption.
Recently, I've learned that a very good chef will be opening a restaurant up in the area by Nov 2018.  He has had some of my roasted coffee and really enjoys it - and in fact, he came by one day when he knew I was roasting coffee to see what it was all about.  Looks like he is seriously interested in getting high quality coffee for his restaurant.  Nobody within 275km (170miles) roasts their own beans commercially.  So in trying to figure out the business side of roasting coffee for this chef, I crunched some numbers to see how much this caffeine habit costs my wife and I.  This is what I found:

Cost of green beans:  $6.60/lb
Cost to roast (propane/NG/electricity): 10%  ($6.60 X 1.10 = $7.26)
Moisture/weight loss in roasting: 15%
Cost of roasted beans: ($7.26 / 0.85 = $8.54)  $8.54/lb
26 grams (0.0573 lb) per French Press (2 large cups of coffee). 
1 pound of coffee produces 17 French Presses (1lb/0.0573 = 17.4)
Each French Press gives 2 large cups of coffee. (17 French Press X 2cups = 34 cups of coffee).
34 cups of coffee made per pound of coffee.
$8.54 lb/34 cups = $0.2512
Each cup of (my favorite Guatemalan Antigua) coffee has a cost of $0.25/cup! 

A few additional notes on this:
- I am Canadian and the numbers I am using relate to the Canadian Dollar. 
- Currently I am using a home roaster, the Behmor 1600.  I have no idea how much electricity this sucker uses to roast the beans.
- I am most comfortable roasting 3/4 of a pound with this roaster.  To roast enough coffee beans to supply this chef's restaurant, I would have to spend way too much time in front of the roaster - which isn't worth it.
-  I am considering a proposal to this chef:  if he buys me a small (3lb max batch sizes - max 15lb roasted per hour), that would be sufficient payment for supplying him as many beans as he would like at cost for two (2) years.  The cost of the roaster, shipping included is approximately $5600USD ($7300CAD) + taxes + duty. 
-  I calculated that this would be the equivalent of him using $15/lb off-the-shelf coffee over a 3 year period.

Thoughts?  Feedback?
« Last Edit: March 14, 2018, 10:13:07 AM by Beard N Bones »

bwall

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Re: Coffee Roasting Side Hustle
« Reply #1 on: March 13, 2018, 11:52:30 AM »
Have you ever tried roasting coffee in a skillet on the stove? Cast-iron skillet costs $40 and you're done in 20 minutes. Batch size would be about 3 lbs.

After three years, you will be guaranteed to earn $5560 USD!

Beard N Bones

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Re: Coffee Roasting Side Hustle
« Reply #2 on: March 13, 2018, 12:03:21 PM »
Have you ever tried roasting coffee in a skillet on the stove? Cast-iron skillet costs $40 and you're done in 20 minutes. Batch size would be about 3 lbs.

After three years, you will be guaranteed to earn $5560 USD!

I've been roasting since 2008.  I've never used a skillet on the stove.  I have used a cookie sheet in the oven however.
I've also used a FreshRoast SR500, and am currently using a Behmor 1600.

My biggest problem in using the stove, oven, or a small home-roaster (which I highly recommend the Behmor 1600 for), are two-fold: 1.  the challenge it is to have consistent roasts and 2. the amount of time it would take to roast enough coffee for this restaurant.  (I could roast about 2 lbs of coffee in an hour with my Behmor.  A small commercial roaster can do 12-15lbs in an hour.)
« Last Edit: March 13, 2018, 12:05:22 PM by Beard N Bones »

SC93

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Re: Coffee Roasting Side Hustle
« Reply #3 on: March 13, 2018, 12:27:33 PM »
Don't get excited and jump ahead of yourself. I don't like this long term deal since you have never done anything like this before. Do this the RIGHT way. First, charge what you need to charge in order to make a good profit. If your price is too high, that means this business is not for you. Second, if you want/need the $5600 machine YOU need to figure out how to get it. Do NOT make this part of the deal.

But here is another option..... bring this guy in as a SILENT <<<<< that means he needs to shut the hell up after he buys the machine.... partner. He buys the machine, you make the coffee, he tells others about you because now he owns part of the 'business' and he makes money from his own restaurant AND he makes a small % of any other place in town that sells the coffee. AND he makes a small % from his own restaurant every time the coffee company sells to his restaurant. DO NOT make his percentage over 7%. In the long run you can not make it if he gets over 7% PROFIT. If you choose you can make it so after he is paid back in full that either.... his % drops a little or you can buy his % from him.

This is your thing to play with.... make up your own rules and have fun with it. Write it all down how YOU want it to end up as and don't let it stress you one bit. If need be, work it backwards to make sure it all fits in to place.
« Last Edit: March 13, 2018, 10:31:54 PM by SC93 »

Smokystache

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Re: Coffee Roasting Side Hustle
« Reply #4 on: March 13, 2018, 08:11:02 PM »
IMHO, you are narrowing your options too quickly. Right now, it sounds like you've set it up as:
a) need to have a $5000 roaster, or
b) can't get into this business

What about some other options?
1) Sounds like you've got your current roasting technique down to a science. Why not buy 1,2,3 more of those models and have them running simultaneously until you've built up enough profit to invest in a larger commercial roaster? I found one of your current models on ebay (and it ships to Canada) for $528. Even if you buy two, that's about $4000 less than your current option, but you've tripled your capacity.
https://www.ebay.com/itm/Behmor-1600-Plus-Drum-Coffee-Roaster/152938119407?hash=item239bd280ef:g:ARoAAOSwDqlaonVJ

2) Take at least a month and look on your local versions of craigslist and ebay for other options. It looks like there are a wide range of prices/sizes of coffee roasters out there. What could you do with $1000? $2000?

3) If you're the only person roasting in that radius, then there are other customers waiting for fresh, local coffee. Other restaurants, non-chain coffee shops, up-scale stores that want prepackaged coffee on the shelves (higher-end gift shops, etc.), people who create local gift baskets/boxes, subscription services, local people who really value fresh coffee, etc.

I love the math and looking very specifically at costs, (and I understand this was just an example to see how much your own habit costs), but calculate the costs to create a lb of coffee that you'd package and sell to the restaurant. Determine what your time is worth (and then add some more profit in) and see if the restaurant will pay that price. Personally, I would avoid taking on any partners or funding and just consider bootstrapping this. It would be well worth an investment of $500 and then add machines as you get more regular, recurring customers. The worst case scenario is that you buy one or two extra machines, find that there is no demand or you don't like being in the commercial roasting business, but then you sell your extra machines for 80-90% of what you bought them and you're out $100-$200 and some time. Best case scenario is that you are the first to market for awesome coffee in your local area and you can turn your hobby into a sweet money-making gig.

Best of luck.

Toad

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Re: Coffee Roasting Side Hustle
« Reply #5 on: March 13, 2018, 11:21:11 PM »
One other item you might want to look into before going down this route is if there are any health regulations you need to abide by to sell food items.  I would suspect coffee beans would be covered under those regulations if they exist in your area.

I do something similar to you, I make my own chocolate from the beans, and I have kicked around the idea of turning it into a side business for a while.  The largest hoop for me is that I would need to rent out commercial kitchen space somewhere to do it since you can only sell a certain amount before you become subject to health inspections and regulations in my area.  This pretty much kills the idea of doing it as a side business for me since I would want to be able to dedicate a decent chunk of time to it if I were renting out space specifically for it.

The next largest hoop would be the start up costs related to equipment --> I don't have a proper roaster yet so I (somewhat successfully) control my roast profiles using my oven and an infrared thermometer...definitely not a scale-able way of doing it though.  I would also need a winnower (dedicated machine to remove shells and shell fragments from the nibs), and something to package the items produced.  So I feel your pain about equipment startup costs, but I would go the route as suggested and just buy minimal smaller units at the start and if/once things got going, resell those and buy larger more expensive ones.

mrmoolaman

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Re: Coffee Roasting Side Hustle
« Reply #6 on: March 14, 2018, 02:12:36 AM »
Interesting idea! Where in Canada are you?

Just a note about your math...if it loses 15% mass, then to calculate your new cost per pound you should really be dividing by 0.85 instead of multiplying by 1.15. I know it barely makes a difference at this level, but is way more obvious if you were losing 40% :)

Malkynn

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Re: Coffee Roasting Side Hustle
« Reply #7 on: March 14, 2018, 06:41:31 AM »
I also came in to comment about health regulations. They usually make it prohibitively expensive to run a food-based small business.

Beard N Bones

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Re: Coffee Roasting Side Hustle
« Reply #8 on: March 14, 2018, 08:57:27 AM »
Interesting idea! Where in Canada are you?

Just a note about your math...if it loses 15% mass, then to calculate your new cost per pound you should really be dividing by 0.85 instead of multiplying by 1.15. I know it barely makes a difference at this level, but is way more obvious if you were losing 40% :)

Saskatchewan.

Thank you for catching my error in my calculations.  I will certainly go back and fix the numbers...

GrumpyGoat

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Re: Coffee Roasting Side Hustle
« Reply #9 on: March 14, 2018, 09:11:19 AM »
Some quick thoughts:

Not sure where you are sourcing them, but you are paying too much for green beans.

Electricity and Propane are not 10%, I was once calculating this value but have since stopped as it is not meaningful on a per lb basis (at least in the U.S.)

You need to include packaging and labels. I assume about $1 per 1lb bag.

Loss of 15% in weight might be accurate for a medium roast, but not a dark roast...that should be about 18%. I simply assume 20% across the board for simple numbers. Another way of looking at it, when I roast 1200 grams of green beans, I end up with just over 2lbs of roasted beans that I can sell.

I personally doubt the chef/restaurant owner is willing to pay an equivalent to a retail price of $15 per lb. Their food vendors will be offering coffee for much less than that.

I posted on the other thread that you have under Ask a Mustachian and anyone that wants to talk details can find me at grumpygoatcoffee.com.


nottheturkey

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Re: Coffee Roasting Side Hustle
« Reply #10 on: April 08, 2018, 10:42:27 PM »
I've been home roasting for somewhere around 12 years. I've always had an urge to start a business around coffee, but haven't found something that wasn't completely saturated. Lots of competition, so I think you'd have to be very careful about basing it on one customer. Locking him into multiple years to at least break even sounds like a good start.

Are there others in the area that might want to "rent" time on your roaster if you purchased a larger one?

Toad

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Re: Coffee Roasting Side Hustle
« Reply #11 on: April 09, 2018, 11:49:45 AM »
Right now might actually be an ideal time to start a roasting business.  Advertise your coffee as low acrylamide coffee (obviously make sure you end up with that after roasting).

Beard N Bones

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Re: Coffee Roasting Side Hustle
« Reply #12 on: April 09, 2018, 01:49:25 PM »
I've been home roasting for somewhere around 12 years. I've always had an urge to start a business around coffee, but haven't found something that wasn't completely saturated. Lots of competition, so I think you'd have to be very careful about basing it on one customer. Locking him into multiple years to at least break even sounds like a good start.

Are there others in the area that might want to "rent" time on your roaster if you purchased a larger one?

@nottheturkey  There is nothing like roasting your own beans eh?!  It elevates what coffee can/should taste like.  I have found that it is an inexpensive luxury - one that I'm willing to pay for.  The real issue though, is whether or not I am willing to put out $5000-$10,000 to get a roaster that I am comfortable using commercially.  Where I live, the issue isn't market saturation.  There isn't freshly roasted coffee made within 275km (170mi).  My issues right now are:
1.  Opportunity cost.
2.  How much time I'm willing to put into this side hustle at the moment.  (Planning on building my own home within the next 3 years.   And, I have a young family.)

Right now might actually be an ideal time to start a roasting business.  Advertise your coffee as low acrylamide coffee (obviously make sure you end up with that after roasting).

...low acrylamide coffee advertising.  @Toad that is very funny.  You made me laugh at a time where there is lots of grief and mourning around me.  Thank you.

And a public thank you to GrumpyGoat.  The information he has provided has been super helpful. 

Lis

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Re: Coffee Roasting Side Hustle
« Reply #13 on: April 16, 2018, 01:49:04 PM »
When I was listening to Side Hustle School regularly, he featured a guy who did this. Apparently there was another guy - didn't listen to the second one.

Kroaler

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Re: Coffee Roasting Side Hustle
« Reply #14 on: June 05, 2018, 11:31:51 AM »
Odd that I find this. 

There is a coffee shop / friend in town who has discussed with me the idea of beginning a roasting operation.    His current store does 200K sales  (Coffee profits are insane BTW....) and is currently in process of opening a second location.

Even with capital investment, the roasting operation looks profitable in less than 1 year if just used to supply the 2 stores.


If you sell excess at retail pricing and also wholesale to local businesses or whatever it gets better....




Following for information.... This friend has approached me about being a partner in this new operation due to my working background, havent given an answer yet. 

overdrive23

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Re: Coffee Roasting Side Hustle
« Reply #15 on: July 02, 2018, 11:42:52 AM »
Jumping in here to add my two cents:

I run an eCommerce coffee company and I use a roaster, buy beans from them and private label my own. I still have 50% margins and he makes a bunch I'm sure.

It's hard to find roaster that will private label; or the ones that do are too big. Might be worth offering that to the world to help get your roasts out there!

-B

MarciaB

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Re: Coffee Roasting Side Hustle
« Reply #16 on: July 15, 2018, 11:53:15 AM »
My first thoughts - Debbie Downer Alert! - is that your chef friend doesn't/won't have the capital to buy you a roaster in the first place. Restaurants are notoriously undercapitalized, and spending money on a coffee roaster...he may promise you that, but end up not having the scratch as his opening deadline nears.

And statistically speaking (I don't know anything particular about him/location/style of course) is that he won't be in business in 2 years. What would happen to the roaster in that case? Would you have to buy back a prorated portion of it?

sieben

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Re: Coffee Roasting Side Hustle
« Reply #17 on: July 26, 2018, 08:33:09 PM »
My first thoughts - Debbie Downer Alert! - is that your chef friend doesn't/won't have the capital to buy you a roaster in the first place. Restaurants are notoriously undercapitalized, and spending money on a coffee roaster...he may promise you that, but end up not having the scratch as his opening deadline nears.

And statistically speaking (I don't know anything particular about him/location/style of course) is that he won't be in business in 2 years. What would happen to the roaster in that case? Would you have to buy back a prorated portion of it?

This is a pretty good point, if you're 275km from a commercial roaster in SK I'm assuming you're that far away from any of the major centres. I grew up in rural SK and still spend a lot of my time there, I've seen so many small town restaurants start up and go under in very short-order.

Personally I would be more comfortable trying to find a way to try this idea out without investing too much right off the bat. Wishing you all the best though! Sounds like you've found something you care about that might make some money, fantastic! If you end up giving it a go send me a message so that I'm every in your neck of the woods I can drop by the restaurant and give your coffee a try ;)

Beard N Bones

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Re: Coffee Roasting Side Hustle
« Reply #18 on: July 27, 2018, 02:47:07 PM »

My first thoughts - Debbie Downer Alert! - is that your chef friend doesn't/won't have the capital to buy you a roaster in the first place. Restaurants are notoriously undercapitalized, and spending money on a coffee roaster...he may promise you that, but end up not having the scratch as his opening deadline nears.
 
I agree with you and have come to this realization for a little while now.  If I'm going to roast on a larger scale, I'll have to weight the time vs money to determine what I'm most comfortable with.  My friend is in no position to be footing a bill over a few years for a roaster - I'd guess his costs/owe-ings are going to be close to a million.


This is a pretty good point, if you're 275km from a commercial roaster in SK I'm assuming you're that far away from any of the major centres. I grew up in rural SK and still spend a lot of my time there, I've seen so many small town restaurants start up and go under in very short-order.

Personally I would be more comfortable trying to find a way to try this idea out without investing too much right off the bat. Wishing you all the best though! Sounds like you've found something you care about that might make some money, fantastic! If you end up giving it a go send me a message so that I'm every in your neck of the woods I can drop by the restaurant and give your coffee a try ;)
Yep, you are right sieben - very rural.
I'm confident that this restaurant will be around for a long time because of the cost involved in getting it build and the people that are backing/supporting its creation.
I'd be happy to supply you a fantastic cup of coffee whether or not the restaurant is open or not sieben!  I'd be happy to make you a fantastic cup of coffee and send you away with more if you enjoyed it.  I'm in NE Sk - feel free to drop a line if you are traveling in that direction!

robartsd

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Re: Coffee Roasting Side Hustle
« Reply #19 on: July 27, 2018, 04:18:59 PM »
Energy requirements:
https://coffeeproject.com/behmor-6-voltage
1550W power rating, .44 kWh to cook 1 lb (your 10% is high unless your energy costs $1.50/kWh).

At 1550W you cannot put two of these on the same 20A circuit (you might be able to do 2 @ 70% power each). To scale with these machines (assuming health regulations allow using this model at all) you'd need an appropriate place with a circuit for each one you want to run simultaneously.

The chef's restaurant will have a commercial kitchen. You might explore an arrangement where you roast in the restaurant kitchen once a week at a time the restaurant is not busy or closed. Or simply be a coffee consultant and help the chef set up roasting for himself for an hourly fee.

Hargrove

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Re: Coffee Roasting Side Hustle
« Reply #20 on: July 29, 2018, 01:04:56 AM »

My first thoughts - Debbie Downer Alert! - is that your chef friend doesn't/won't have the capital to buy you a roaster in the first place. Restaurants are notoriously undercapitalized, and spending money on a coffee roaster...he may promise you that, but end up not having the scratch as his opening deadline nears.
 
I agree with you and have come to this realization for a little while now.  If I'm going to roast on a larger scale, I'll have to weight the time vs money to determine what I'm most comfortable with.  My friend is in no position to be footing a bill over a few years for a roaster - I'd guess his costs/owe-ings are going to be close to a million.

Oh no.

I don't know much about coffee specifically, but saying "the restaurateur is spending a huge pile of money, so his business must be viable!" is like saying "my crazy cousin bought a ton of Stock X, so I should put all my money in it too! Actually, come to think of it, he spent every last dime he had on that stock, so he doesn't have a used-car's worth of money leftover in anything else at all, so it must be a really, really, really good stock!"

How many $4 beers (or $2 coffees) do you think someone has to sell to cover running a business, and a payroll of 10, while simultaneously paying the loan for a 250k restaurant and appeasing investors who want to see it in the black within a few years? 1MM in an extremely rural area??? And he already can't afford a coffee roaster??

I can't speak for Canada, but in the US, restaurants are working a model that is breaking down, and very few outside the industry realize it. Whatever you do with coffee, don't make it dependent on restaurant longevity.
« Last Edit: July 29, 2018, 01:24:19 AM by Hargrove »

tralfamadorian

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Re: Coffee Roasting Side Hustle
« Reply #21 on: July 29, 2018, 08:48:37 AM »
... in the US, restaurants are working a model that is breaking down, and very few outside the industry realize it...

Could you expand on that @Hargrove ?

Malkynn

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Re: Coffee Roasting Side Hustle
« Reply #22 on: July 29, 2018, 09:07:56 AM »
... in the US, restaurants are working a model that is breaking down, and very few outside the industry realize it...

Could you expand on that @Hargrove ?

I know you werenít asking me, but the average restaurant profit margin in the US is 3-5% and itís an insanely high overhead business. That means that any given month can plunge you deep into the red and just a few bad months can bankrupt you.

High investment, high fixed costs, low margins, and over saturated of competition make for an incredibly dangerous business model. It means the slightest little inefficiency can move you from black to red in a heartbeat.

I work in a 25-30% profit margin industry with high overhead and over saturation is making our business risk quite high. I canít even fathom skating along on 3% margins with that level of overhead. Itís vomit inducing to think about.

tralfamadorian

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Re: Coffee Roasting Side Hustle
« Reply #23 on: July 29, 2018, 09:30:15 AM »
... in the US, restaurants are working a model that is breaking down, and very few outside the industry realize it...

Could you expand on that @Hargrove ?

I know you werenít asking me, but the average restaurant profit margin in the US is 3-5% and itís an insanely high overhead business. That means that any given month can plunge you deep into the red and just a few bad months can bankrupt you.

High investment, high fixed costs, low margins, and over saturated of competition make for an incredibly dangerous business model. It means the slightest little inefficiency can move you from black to red in a heartbeat.

I work in a 25-30% profit margin industry with high overhead and over saturation is making our business risk quite high. I canít even fathom skating along on 3% margins with that level of overhead. Itís vomit inducing to think about.

Yes, I understand that the margins in the restaurant business are very thin. Is that a change from the past? Did it used to be easier to make a profit? Hargrove said that the model was breaking down- I was curious as to what is not working and what is happening to cause that.

Malkynn

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Re: Coffee Roasting Side Hustle
« Reply #24 on: July 29, 2018, 09:47:32 AM »
Yes, I understand that the margins in the restaurant business are very thin. Is that a change from the past? Did it used to be easier to make a profit? Hargrove said that the model was breaking down- I was curious as to what is not working and what is happening to cause that.

Iím not sure about the US, but oversaturation is a huge problem here, as well as corporate restaurants getting into higher end, trendier, more diverse restaurants.

Chains used to be very specific: pizza, fast food, and generic, boring family box restaurants. Now every type of independent restaurant needs to compete with a corporate brand, even specialized ethnic restaurants.

Thin margins are fine if thereís little competition, but increased corporate competition makes thin margins untenable.

PP may have been referring to something else specifically, but pressure from corporate competitors is a huge factor in my industry and was a growing concern back when I worked in restaurants 16 years ago back before there were sooooooo many chains.

Hargrove

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Re: Coffee Roasting Side Hustle
« Reply #25 on: July 29, 2018, 09:52:25 AM »
... in the US, restaurants are working a model that is breaking down, and very few outside the industry realize it...

Could you expand on that @Hargrove ?

Sure. Malkynn offered the gist - general advice for someone opening a business from me is to not open a restaurant or a brewery. Margins are not just bad in restaurants, though, they're worse than they used to be.

I work with a lot of restaurateurs. There is a very large subset who decide to start a business because they got compliments on some food they made, or they want to be their own bosses. Three hundred cooking shows can't be wrong! But that's not far from becoming a musician because Lady Gaga got rich doing it. Before you pay for Julliard, you should know there are a lot of others sacrificed on the trip. A large number of restaurateurs have no business history at all, and evaluate price as vaguely as a young person getting his masters in basket weaving. "It's a big number, but I guess that's what I spend to get where I'm going." I feel for the ones in this spot, but I rarely see them in time to offer any tips, and the advice is usually not wanted anyway. The number in that position is high enough that a lot of local investors steer clear (the kind of investors a green restaurateur needs, who want to invest in the community and who will require business plans and such). You take a double whammy on the restaurant bet and the real estate bet - if your restaurant fails and you bought the spot, you might take a loss on that, too (if you're smart and bail instead of bleeding out on the empty-property costs). Then the 30k you spent making it into a kitchen and paying for permits gets taken out of your hide by the prospective buyer, again, because he has to demolish the kitchen, unless he's another restaurateur.

Restaurant margins are absolutely horrendous, and are increasingly subsidized by ever-more bizarrely priced drinks. For most, their sales volume is very closely linked to wages, which are long flat, contributing to food margin being even more razor thin. Most restaurants try to make it up on $3.50 for a Coke, or by having a bar. More importantly, as time went on, real estate went up and up and up, and health insurance for your employees, if you offer it, skyrocketed. The Dole billionaire started by buying diners on savings he got from working at diners in the course of a year. Decades ago, working stiffs would go to the local Burgers & Drinks for a few smokes, some beers, a burger, a break before going home, and it would cost them an hour of their pay, so a lot of them did it. Consider how, today, just about anyone saving money mercilessly mocks the eating-out routine, because many could easily blow a day's work with the same stint.

Fast forward as food prices strain hard to keep attractive to the average wage earner, and you're trying to sell a lot of $4 beers to pay for your quarter-million-dollar reno. Subtract happy-hour surfers to whom you're giving away food, subtract tables of 4 sharing two apps and waters, subtract costs for extremely high turnover in servers, and don't forget a 16 hour workday for most restaurant owners (who often did not expect that). Worse, the restaurant down the road is desperate to get as many barflies as it can, so it's doing a four-hour-long happy hour for $3 beers. Customers show up on St. Patty's Day having slammed 3 nips of Fireball from the local package store ($3), have one Guinness at happy hour price ($4) to say they participated, take up a bar seat for an hour, then go home.

I'm not talking about outliers and really successful, well-marketed places, and 5-star celebrity chef type joints, which all exist. I'm talking everyday spots. Even the successful ones disappear very often, if you think about it, and that's after attracting the lion's share of people willing to pay a lot more for better food, which is a limited demographic. Alternative strategies appear - Five Guys sells ok burgers to Ed Sheeran for $9, Chipotle is a staffed buffet with a fixed menu and no servers. Like patrons at breweries, restaurant customers are shockingly fickle, too, and their patronage is often directly tied to the service they get from people you can't afford to pay well anymore (or offer health insurance), and who quit frequently without notice. In their defense, not many want to work for Gordon Ramsay for more than a day for 6-12 an hour, and who can blame them? Finally, despite ALL of these good reasons to steer clear, the business is actually overheating, just like college tuition. Constantly, new spots open up as quickly as the last one closed.

Friends don't let friends open restaurants.
« Last Edit: July 29, 2018, 10:06:05 AM by Hargrove »

tralfamadorian

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Re: Coffee Roasting Side Hustle
« Reply #26 on: July 29, 2018, 12:42:00 PM »
Thank you @Malkynn and @Hargrove ! The changes in the industry are really fascinating.

ender

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Re: Coffee Roasting Side Hustle
« Reply #27 on: July 29, 2018, 02:01:30 PM »
Sure. Malkynn offered the gist - general advice for someone opening a business from me is to not open a restaurant or a brewery. Margins are not just bad in restaurants, though, they're worse than they used to be.

I work with a lot of restaurateurs. There is a very large subset who decide to start a business because they got compliments on some food they made, or they want to be their own bosses. Three hundred cooking shows can't be wrong! But that's not far from becoming a musician because Lady Gaga got rich doing it. Before you pay for Julliard, you should know there are a lot of others sacrificed on the trip. A large number of restaurateurs have no business history at all, and evaluate price as vaguely as a young person getting his masters in basket weaving. "It's a big number, but I guess that's what I spend to get where I'm going." I feel for the ones in this spot, but I rarely see them in time to offer any tips, and the advice is usually not wanted anyway. The number in that position is high enough that a lot of local investors steer clear (the kind of investors a green restaurateur needs, who want to invest in the community and who will require business plans and such). You take a double whammy on the restaurant bet and the real estate bet - if your restaurant fails and you bought the spot, you might take a loss on that, too (if you're smart and bail instead of bleeding out on the empty-property costs). Then the 30k you spent making it into a kitchen and paying for permits gets taken out of your hide by the prospective buyer, again, because he has to demolish the kitchen, unless he's another restaurateur.

Restaurant margins are absolutely horrendous, and are increasingly subsidized by ever-more bizarrely priced drinks. For most, their sales volume is very closely linked to wages, which are long flat, contributing to food margin being even more razor thin. Most restaurants try to make it up on $3.50 for a Coke, or by having a bar. More importantly, as time went on, real estate went up and up and up, and health insurance for your employees, if you offer it, skyrocketed. The Dole billionaire started by buying diners on savings he got from working at diners in the course of a year. Decades ago, working stiffs would go to the local Burgers & Drinks for a few smokes, some beers, a burger, a break before going home, and it would cost them an hour of their pay, so a lot of them did it. Consider how, today, just about anyone saving money mercilessly mocks the eating-out routine, because many could easily blow a day's work with the same stint.

Fast forward as food prices strain hard to keep attractive to the average wage earner, and you're trying to sell a lot of $4 beers to pay for your quarter-million-dollar reno. Subtract happy-hour surfers to whom you're giving away food, subtract tables of 4 sharing two apps and waters, subtract costs for extremely high turnover in servers, and don't forget a 16 hour workday for most restaurant owners (who often did not expect that). Worse, the restaurant down the road is desperate to get as many barflies as it can, so it's doing a four-hour-long happy hour for $3 beers. Customers show up on St. Patty's Day having slammed 3 nips of Fireball from the local package store ($3), have one Guinness at happy hour price ($4) to say they participated, take up a bar seat for an hour, then go home.

I'm not talking about outliers and really successful, well-marketed places, and 5-star celebrity chef type joints, which all exist. I'm talking everyday spots. Even the successful ones disappear very often, if you think about it, and that's after attracting the lion's share of people willing to pay a lot more for better food, which is a limited demographic. Alternative strategies appear - Five Guys sells ok burgers to Ed Sheeran for $9, Chipotle is a staffed buffet with a fixed menu and no servers. Like patrons at breweries, restaurant customers are shockingly fickle, too, and their patronage is often directly tied to the service they get from people you can't afford to pay well anymore (or offer health insurance), and who quit frequently without notice. In their defense, not many want to work for Gordon Ramsay for more than a day for 6-12 an hour, and who can blame them? Finally, despite ALL of these good reasons to steer clear, the business is actually overheating, just like college tuition. Constantly, new spots open up as quickly as the last one closed.

Friends don't let friends open restaurants.

I've always wondered how small businesses, particularly restaurants, manage to cashflow themselves. The facilities costs (rent/mortgage, renovations, utilities) have to be massive for most places, too. Though given how many don't make it... well... I guess most cannot.

One factor you didn't mention is that in a lot of cases, the owners end up working insane hours to avoid having to pay as much in staff costs, too. Which while it might be desirable to someone wanting to really "make it" for a business, isn't likely to be appealing to anyone here.

Malkynn

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Re: Coffee Roasting Side Hustle
« Reply #28 on: July 29, 2018, 02:16:28 PM »

I've always wondered how small businesses, particularly restaurants, manage to cashflow themselves. The facilities costs (rent/mortgage, renovations, utilities) have to be massive for most places, too. Though given how many don't make it... well... I guess most cannot.

One factor you didn't mention is that in a lot of cases, the owners end up working insane hours to avoid having to pay as much in staff costs, too. Which while it might be desirable to someone wanting to really "make it" for a business, isn't likely to be appealing to anyone here.

He did mention the 16 hour days that owners usually have to put in.

In my business, I make nearly double what the owner does and she works nearly double the hours I do. It can be brutal being an owner, you usually have to be your best employee.

Hargrove

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Re: Coffee Roasting Side Hustle
« Reply #29 on: July 29, 2018, 02:24:27 PM »
And only some of the long hours are "voluntary" (saving on staff costs). The rest is "Bob just didn't show for his shift today - are we staying open?" Small business owners almost immediately learn, as Malkynn said, they have to be the best employee, because no one has as much on the line to care about. Small business owners who manage in absentia quickly lose money.

As for cashflow, when costs constantly rise and revenue doesn't match, something has to give. Many small stores and restaurants are subsidized by an owner who already owns the property and/or is an enthusiastic hobbyist who doesn't know or doesn't care that he's in the red. Family stress is insanely high, too, because of the time commitment.

And yes, every restaurant you see close in under 3-5 years probably never got into the black.

overdrive23

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Re: Coffee Roasting Side Hustle
« Reply #30 on: July 30, 2018, 12:34:04 PM »
So, long story short:

Sell online for a high price? :)

#ResidualIncome

I'm doing something like that; but giving back 10%. I'm also partnering up with other well-established companies that are already connected with my ideal clientele.

Running a brick and mortar store is romantic but; I've seen it fail many times first hand and do not wish to stare down the barrel myself.

ninja

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Re: Coffee Roasting Side Hustle
« Reply #31 on: August 08, 2018, 10:29:07 AM »
I had a very successful side-hustle coffee business which I sold for more than everything I put into it when I was relocated for my military service. I used a modified gas grill with a drum on a motor and roasted in 20 lb batches with GREAT results. I had a local cult following. Over the course of two Farmer's Market seasons - which was the only place I sold - the business paid for itself and paid off a couple of my credit cards.

Now that I'm retired from the Army I'm getting started again - with a similar set up except I'm only roasting 10 lb batches - the 20 were a bit much to manage. The cost of my roasting set-up was about 1500 for the set-up grill (look on ebay, you'll find it or PM me) 300 or so for a deshaffer and then a bunch of other stuff for a total set-up to be at a larger town's Farmer's Market. Total investment about 4500 (exact numbers at home) - that's every little thing down to display space, fees, creamer, a classy-looking pour-over station...everything. We could have set up for probably around 3000 if we went bare-bones - but we're trying to come out of the gate looking awesome. My first Saturday at the market is this week - so I really don't have a good estimate how much I'll be selling or what period of time it will take to make back my investment. Since the season only runs through Halloween I'm pretty limited on this year.

My set-up is a little bit more red-neck then the fancy roasters you are looking at - and a bit more hands-on. But my results are the same (maybe better since I can have more control) - I come up with a product that rivals anything on the store-shelves hands-down.

With any luck I'll be leaving my government contracting job next May when my wife finishes up her associates in business and going full time in the coffee gig enjoying FI.

Captain Cactus

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Re: Coffee Roasting Side Hustle
« Reply #32 on: September 08, 2018, 02:34:29 PM »
Where does on actually buy the raw green coffee beans at wholesale volumes? 

Wife and I are exploring side hustle ideas, like the possibilities with coffee.  Thank you!

ambimammular

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Re: Coffee Roasting Side Hustle
« Reply #33 on: October 18, 2018, 09:44:26 AM »
@ninja

What is your cost per lb? And how much do you sell it for?