Coffee shops in Australia generate annual revenue of about $5.2 billion, and that is set to increase slightly, to $5.6 billion in 2028, according to an industry report.

The 1.5 per cent increase predicted over the next five years represents revenue across 13,375 businesses. Together these coffee shops are employing 70,427 people with a wages bill estimated in 2022 to be $1.3 billion.

Currently profit margins stand at 2.9 per cent.

So what do these key statistics tell us about the coffee shop and cafe sector?

Improved efficiencies have reduced purchase costs however wages costs have risen as a share of revenue because of staffing shortages, particularly the lack of foreign labour. As a result, industry profit margins have been constrained, points out report author Tim Calabria.

This is a labour-intensive industry and coffee shops find themselves paying higher wages, despite the increasing reliance on technology such as QR codes and growing demand for takeaway coffees.

The cost of coffee beans is an important driver in this sector, sensitive to world prices and the state of the Australian dollar.

How will coffee shops’ revenue grow?

A taste for premium product has helped the industry over the past few years. Looking ahead, this is projected to continue through to 2028. New coffee houses will enter the market and neighbourhood locations will increase to suit the hybrid working trend.

Tim Calabria suggests increased competition will continue between large coffee chains and boutique businesses. He cites price, convenience and location as increasingly important to success.

Four key success factors for coffee shops

There are four elements that contribute to success, and the capacity of franchised brands to deliver these factors is a clear advantage.

• Business expertise
• Access to multiskilled and flexible workforce
• Effective quality control
• Proximity to key markets

Source: Coffee shops in Australia, August 2022, IBISWorld.