g’day,
property crash incoming? our first video from our new studio just dropped, check it out:
in australia, cafe culture is part of our national fabric:
avo toast, flat whites. bill granger.
critically: we are the country that told starbucks to get farked.
but let's pour one out for the cafe owners, because i think we’ll all agree: running a hospitality business seems tougher than doing hypersonic missiles or foundational models.
over the years, i've spent enough on ham and cheese croissants to put the owner of bourke street bakery's kids through college.
and the last few weeks i’ve been doing my cafe homework for a video. so im doing something different, and sharing my early findings in the newsletter.
just like i did with tradies, i scored the cafe owner career like i would a startup pitch deck.
unit economics, market, moat, lifestyle, risk, pathways - the whole thing, out of 10.
are cafe owners actually rich?
unit economics: 3/10
cafes are ok on the margin side, but get killed by labour.
coffee is high margin, but it’s a low-ticket item.
that means coffee looks good on paper, but you have to make a metric fucktonne of them to cover costs (which puts pressure on your rent, cafe location, etc).
food margin varies, but it’s generally pretty bad (20-40%). for a $22 avo toast, $7 on ingredients, $6 on labour, $3 on rent, $3 on power, insurance, payments, compliance. leaving about $3 in margin.
bakery-cafes do much better because $8.50 croissants are high margin (flour, butter, water) and the labour to make them is concentrated in the early morning.
alcohol is the best for margin, but cafes don’t often run at hours that make this viable (plus being open 6am–12am is a slog)
labour is the real punish, and the elephant in the room.
when your margin is 7% and the minimum wage keeps climbing, the system creates a set of choices most cafe owners won’t talk about publicly.
cash in hand. international students on 48-hour visa limits working beyond them - off the books, paid cash, at rates as low as $10-14 an hour.
i’m not judging cafe owners: we are all complicit, benefitting from these economics. in their situation, if you aren’t playing this game, your competitor down-the-road is.
but it would be a scary gray area to live in.
market: 6/10
the australian cafe market is worth nearly $16 billion and growing 5% a year. our population growth is feeding the demand side, and making the supply-side possible through this underpaid labour hack.
the macro trend is that convenience is on the rise: the western world has decided that cooking is optional. people eat out several times a week.
this is a good backdrop to be in. but with healthier market, comes more competition.
and of the 28,000 cafes in australia, a bunch struggle and die (avg. lifespan 4 years), and a bunch are doing well enough to be good earners.
moat: 4/10
competition is high, because the barriers are low.
the moats are few and fragile: location, brand and quality.
location is basically who has the best lease in a given geographic area.
brand is ability to dominate the reputation around ‘where is good’ in that area. aesthetics, cafe name and decor all factor in here.
and brand will only get you so far: it goes hand-in-hand with food and beverage quality.
this quality is fragile because it really is a talent issue. a really good chef or loyal barista can make or break a business. and they could leave.
so the biggest moat a cafe has is the owner:
a) the creative vision of the owner on location and brand
b) their ability to manage a flexible talent pipeline that drives quality. that comes down to management skill.
that very fact makes cafe businesses hard to scale. it explains the core competency of larger hospo businesses like merivale or bourke st bakery.
and why we don’t see huge chains in australia
95% of australian cafes are independents: italian and greek immigrants gave us 50 years of espresso culture before starbucks even arrived - by the time they showed up, we already knew what good coffee tasted like.
lifestyle: 2/10
if you’re an owner-manager, you're probably up at 4:30am. you're on your feet for 8-10 hours. earlier if you run a more profitable bakery-cafe.
you're managing staff, talking to customers, dealing with suppliers, and somewhere in there you're also doing your books and your BAS.
you don't get weekends. saturday and sunday are your busiest days.
while your mates are at the beach, you're making eggs benedict for 200 people.
risk & fragility: 3/10
the biggest risks have been covered: good staff leaving, or employment laws changing.
the first one is a time-hole, finding and managing replacement staff.
the latter is an existential risk, and would be tough on your nervous system.
pathways & ceiling: 5/10
it seems the typical pathway into being a cafe owner is clear:
work in hospo for a few years, save or borrow $150k for a fit-out, open your cafe. or seachange from your office job you hate.
if you're good (and lucky), you're profitable within a year or two, making back $60-80k plus a salary.
for most owners? that's the ceiling. you're stuck as a single-site operator, working in the business every day, unable to step away because you are the business.
this is the same trap tradies hit at the sole trader level.
the ones who break through transition from running a cafe to building a hospitality brand. scaling talent system, with enough profit to drive expansion.
multi-site operators get savings on cost of goods, and margins jump.
the best owners have the skill and vision to make that transition.
the final score: 23/60
(for comparison, tradies scored around 42).
cafe owners are entrepreneurs in disguise. they take risk. they create jobs. they build community spaces australians are genuinely obsessed with. that's builder energy.
so thank god for cafe owners. thank you for your service.
are they rich? no. but they're tougher than most founders i know.
charlie
ps: this is early research for a video. what have i missed? do you know cafe owners who beg to differ? if you think my scores are off - i want to hear it. reply to this email. feedback greatly appreciated, as always.
