Is a coffee shop profitable in Uganda?

Website design By BotEap.comWhat should be considered before investing in this sector?

Website design By BotEap.comIn addition to the infrastructure related challenges of investing in Uganda, such as frequent power outages that could significantly affect your business, unless you invest in backup solutions, there are some key PROS and CONS before investing in this sector.

Website design By BotEap.comPROS

Website design By BotEap.comAs I highlighted in the article summary, the opportunity to invest in a cafeteria business in Uganda is driven by 3 key factors and therefore PROS:

Website design By BotEap.com1) The growing middle class in Uganda.

Website design By BotEap.comThe middle class of any country is important to a type of “lifestyle” business like a coffee shop. In Uganda, this class is growing. In 2010, it was estimated at 32.6%, compared to 28.7% in 2006. Assuming constant growth, I estimate it will be 36% in 2013.

Website design By BotEap.comDemand for this business is expected to continue to grow. This is consistent with trends in other countries, such as Brazil, where the growth of the middle class resulted in coffee consumption increasing by more than 350% between 2004 and 2012.

Website design By BotEap.com2) Uganda is the third largest coffee producer in Africa.

Website design By BotEap.comApproximately 6% of the Ugandan population depends directly on coffee for a living and therefore not counting the indirect value chain, including exporters and processors.

Website design By BotEap.comI believe that due to our heavy dependence on coffee, where it is Uganda’s largest export, it should be possible to develop a culture of coffee consumption, as is the case in Brazil, the world’s leading producer and also the second largest consumer of coffee (after from USA).

Website design By BotEap.com3) Growth of Internet use

Website design By BotEap.comAn important part of the coffee shop culture is offering customers free internet via WiFi.

Website design By BotEap.comThis is now increasingly possible as Internet access and thus usage in Uganda has increased rapidly from just 2.5% in 2006 to 17% in 2012. The rise of telecom providers that Offering Internet data packages has helped make Internet access more affordable, which is why I believe this is a key factor in further developing this industry.

Website design By BotEap.comCONS

Website design By BotEap.com1. Public perception.

Website design By BotEap.comCoffee shops in Uganda have typically been associated as a “Muzungu” (white person) thing. This perception can easily be countered by offering test campaigns to tell coffee growers. It is also changing with Ugandan population dynamics. 78% of Uganda’s population is under 30 years of age. This generation has grown up watching television and movies (including Hollywood movies). They are also richer than their parents and many have traveled the world.

Website design By BotEap.comI think therefore there is enough demand from Ugandans themselves and not just from foreigners.

Website design By BotEap.com2. Seasonal business.

Website design By BotEap.comThis is a seasonal business, first with regard to the dry and rainy seasons of Uganda and secondly during the different hours of the day. To counteract this, the investor should consider loyalty programs that are heavily biased towards rewarding customers during times of inactivity, such as at lunch or in hot weather.

Website design By BotEap.com3. Competition

Website design By BotEap.comI hope that, in addition to the growing independent coffee shops, there is potentially the threat of global franchises such as Starbucks, Nero coffee, Costa coffee and the like entering the Ugandan market and thus leading to the demise of local or independent coffee shops.

Website design By BotEap.comThe investor’s choice is to consider early on being a local franchise partner for these brands or focus on high differentiation to maintain customer loyalty.

Website design By BotEap.comHow profitable is the sector?

Website design By BotEap.comFrom a model that I have developed, I estimate that the return on investment (ROI) for a coffee shop in Uganda is as follows:

• Initial capital of Shs. 81 million (A)
• Annual income of around Shs. 121.5 million (B)
• Net profit of around Shs. 26 million per year (C)
• Return on investment (ROI) of 3.1 years. (D = A / C)

Website design By BotEap.comThe basics to get it right before investing

Website design By BotEap.com1. Organizational skills. Margins in this sector can be quite tight, so you must have excellent organizational skills. To get started, you should consider formal barista training for your team. In addition, your accounting should also be done regularly.

Website design By BotEap.com2. Marketing. Like many consumer products in the food industry, correct marketing is critical to rewarding customers. The coffee industry generally follows the 80/20 rule, which is that 80% of your business will come from 20% of your customers. This means that most of your customers are expected to be loyal and regular. Therefore, you must invest in a customer loyalty program.

Website design By BotEap.comFinal word

Website design By BotEap.comCoffee culture is exploding in Uganda. We expect there to be an increase in the number of coffee shops, not counting the possibility of global franchises entering the market.

Website design By BotEap.comWith such a competitive market, it is important to outperform the competition. To establish a successful coffee shop, excellent management skills are essential.