In a high-volume, high-margin business, there are opportunities for online versus brick-and-mortar business. Consider a Tim Hortons franchise as an example of the latter.
What is the cost of opening a Tim Hortons franchise?
(figures are in USD)
- $340,000 to $511,097 for equipment cost
- $2,400 to $38,000 for cost of real estate
- Franchise fee of $35,000
- $47,000 to $85,400 pre-opening expenses
The franchise package for a standard restaurant in which the franchisee leases the premises to Tim Hortons requires $159,500 to $296,900 (USD) of unencumbered capital in the form of cash or liquid assets, with the remainder eligible for financing from loans. There may also be royalties and advertising fees involved. Add legal fees, business registration, and license fees, although these amounts will be small compared to Tim Hortons fees.
Depending on the size of the restaurant, the number of employees can range from 25-30 to operate the restaurant 24/7. These must be contracted and managed on an ongoing basis. Tim Hortons does not allow ownership in the absence of a franchise; the owner must participate in the operation and management of the restaurant.
A cup of coffee can be produced for $0.05 to $0.10 per cup. Sell it for $1.00 a cup. Even adding another $0.20 per cup for expenses like labor, that still leaves a very profitable gross profit margin of 70%. Advertisements of 60% gross profit margin by public coffee companies is a realistic goal for a Tim Hortons franchise. The net profit margin is probably in the 20% to 30% range depending on various factors.
McDonald’s average net profit is around 10%, depending on the statistics cited. The food business does not yield margins as high as in the coffee sales business. A mom and pop store would be better off selling just coffee with no food to dilute the profit margin.
A Tim Hortons franchise business is relatively low risk, so startup capital is safe, but you do need that capital to get started. The good news is that the sales will start to ring from the beginning. The bad news is that so will the expenses. Compare this to a high margin online venture such as an ad revenue website.
If the coffee business isn’t your “cup of tea,” there are other options, but not many brick-and-mortar businesses will produce better profit margins. There are many franchise business opportunities in the online world, as well as physical operations. Do your research to find the ones that meet your interest, experience, and suitability.
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