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FROM THE GROUND UP
Today’s upscale coffee shops run the gamut from
simple tea and sandwich joints to gourmet coffee “boutiques,”
each seeking a unique identity that gives it an edge over its competitors.
Business Monthly speaks to café managers to find out just
what it takes to
create the ultimate blend.
By Réhab El-Bakry
The coffee shop. In New York, it’s
the place where Friends meet and Seinfeld banters; in Paris, it’s
a sidewalk café where couples flirt over café au lait;
and in Amsterdam, it’s a dimly lit den where hashish smoke
wafts in the air and coffee is the last thing on anyone’s mind.
Here in Egypt, the ahwa (coffee shop) was traditionally the realm
of men – a place where working class blokes gathered to chat
and smoke shisha. Coffee, if it was served at all, came in tiny
cups, but most men preferred tea.
In recent years, however, the spit-and-sawdust ahwa has been eclipsed
by a spate of trendy cafés that model themselves after the
cozy coffee shops of America and chic sidewalk cafés of Europe.
When these upscale coffee shops first began appearing in the 1990s,
few anticipated their success would be driven by youth.
“There was clearly a demand for this type of place where people
in their 20s could simply hang out,” says Yehia Ismail, co-owner
of Pottery Café in Heliopolis. “They weren’t [willing
or able to go to] restaurants every night of the week; nor were
they at sports clubs, because at a certain age people feel that
they’ve out-grown them; and they weren’t at bars, where
alcohol is served. Cafés emerged as the alternative place
where it’s acceptable for them to be.”
Almost 50 percent of the population is under the age of 30 and many
of these youth have been exposed to western culture through travel,
satellite TV and films. At the same time, a sizeable number of them
have experienced a surge in spending power. Add to this large chunks
of free time and it soon becomes clear why youth are the driving
force behind the growth of the café industry. “Cafés
have become an integral part of youth culture because, when you
think about it, there are very few places for young people to meet
with each other outside of schools, universities and sports clubs,”
explains Ismail.
Competition brewing
The rampant growth in the number of upscale
cafés has forced existing cafés, as well as new ones,
to seek an edge over the competition. “In today’s café
overload, if you don’t have an edge, you’re lost,”
asserts Ismail.
Surveying cafés in the Heliopolis district four years ago,
Ismail saw a potential opportunity. “In our case, we asked
ourselves what was missing among the cafés in Heliopolis
and realized that it was shisha.” While upscale cafés
offering shisha were ubiquitous in many Cairo districts at the time,
they were still relatively uncommon in Heliopolis.
From a business point of view, serving shisha made sense. The number
of shisha smokers continues to grow, spurred on by the waterpipe’s
acceptance in widening social circles. Finer preparation, a wider
range of flavors and changing mores have made shisha more appealing
to an upwardly mobile segment of society. And to women. Ironically,
shisha, once socially taboo, has been a huge lure for drawing women
to coffee shops, traditionally a man’s domain.
But a few dozen shisha pipes is hardly a game plan, admits Ismail.
He says the success of Pottery Café came from its “entire
package,” which puts an emphasis on quality, atmosphere and
reasonable prices. It also required commitment. “We had to
train our staff because if you have rude staff, clients won’t
come back and there’s no shortage of cafés where they
could go.
We also had to ensure that it’s a safe place, where girls could
spend time without being bothered by anyone else. Getting all this
requires time; it requires money to be invested in the place and
the staff, but it also requires that you work on a daily basis with
your team to identify your weaknesses and work to fix them.”
For many youth, the quintessential coffee shop is Central Perk,
the cozy café featured on the American TV comedy series Friends.
In creating a café that operates as an extension of a living
room, L’Aroma Café in Mohandiseen hoped to tap into
youth identity. “We didn’t want to try to be everything
to everyone and end up being absolutely nothing to no one,”
says Ahmed Gaafar, CFO of Uprising L’Aroma Holding Company
– which owns L’Aroma Café. “We developed the
feel of the café to be similar to a living room where you
could hang out and relax. We also decided not to serve meals, but
rather to serve light food to keep with the concept we were developing.”
Atmosphere aside, Gaafar and his two partners sought to distinguish
their café by offering what they reckon is the best coffee
in Cairo. It was a tough claim to make, and the partners knew they
would have to back it with a unique product. They did.
“We [devoted extra attention to] developing our coffees because
we were, after all, a café first and foremost,” says
Gaafar. Most cafés in Cairo use Illy, one of the world’s
largest coffee brands. L’Aroma found its own international
supplier and developed an exclusive line of coffees. “We went
through the whole process of finding a blend that would suit the
taste of Egyptian coffee drinkers,” explains Gaafar. “We
had our friends taste test all kinds of blends until we found one
that the majority agreed on.”
For Hisham El Gemei and his two partners, owners of Giordano’s
café chain, a good cup of jo was not enough to tap into the
over-caffeinated market. “When we surveyed the market, we realized
that while Egyptians enjoy a good cup of coffee, they’re addicted
to fruit juices and food,” he explains. “Coming up with
some [varieties of] fruit juice is no problem, but finding a type
of food that would distinguish you without turning you into a full-fledged
restaurant is another story.”
The three partners settled on the idea of offering crepes. Not just
any crepes… authentic Parisian-style crepes. While some might
have just thumbed through a recipe book, the trio were determined
to learn every last detail of crepe-making. In 2003, they visited
France, spending several weeks in Paris under the tutelage of master
crepe-makers. The idea was to learn how to make perfect crepes every
time.
“This not only meant learning how to make crepes, but also
learning how to train our chefs to make them properly,” says
El Gemei. The partners imported special equipment and sought a combination
of local and imported sources for authentic ingredients “to
make them as closely as possible to the ones you get in Europe.”
Motivated, skilled and trained in the fine art of crepe-making,
the partners returned to Egypt to open their first café.
Finding the right location was essential, as the café needed
a high-traffic frontage to attract customers and a breezy outdoor
patio to replicate the European café atmosphere. Heliopolis
offered the right clientele, a suitable location and sufficiently
high traffic, but if El Gemei and his partners thought it would
be a piece of cake to open there, they were dead wrong.
Perks and permits
Café owners that Business
Monthly spoke to said the biggest challenge to opening and running
a café is the permit process. “When we first came up
with the idea of starting our own café, we had no idea how
complicated that matter would be,” admits Ismail. He explains
that acquiring the license and permits to open a café requires
hundreds of visits to dozens of government agencies, and an infinite
amount of patience.
Ismail confesses that his biggest mistake when opening the Pottery
Café was that he didn’t fully investigate the byzantine
licensing process before leasing the space. Most café owners
find themselves in a similar situation because the permit process
cannot begin until a lease is signed and the owners complete their
commercial registration and taxation record. Only then can they
submit these documents to district authorities to receive the so-called
“red receipt,” a paper that proves they have completed
the two steps and are eligible for licensing.
Café owners can choose from one of two types of operating
licenses – one issued by the Ministry of Tourism and the other
issued by governorate and local district authorities. According
to Kamal El-Mallakh, owner of Harvest Café (previously a
branch of the Harris Café chain) in Mohandiseen, obtaining
the former involves less paperwork, but the latter is cheaper. Or
at least it would seem.
“The permit from the ministry is more expensive as you pay
10 percent taxes as opposed to 5 percent if the permit is granted
through the district and the governorate,” he says. The tax
is a moot point. The real stumbling block is the ministry’s
strict parking requirement. “The ministry determines that each
café must have a specific number of parking spots in order
to ensure they don’t clog up the streets. In reality, this
makes it virtually impossible to get a permit through the ministry
because the whole point of the café is to be in a high traffic
area. That’s why the majority of cafés are licensed
through the district and the governorate in which they are located.”
Permit express-o
Just as there are two types of licenses, there are two paths to
obtaining permits: the circuitous by-the-book route or the express
lane. As café owners soon discover, going by the book is
a dead end. “Each approval from each government agency has
a fixed fee,” explains El-Mallakh. “The problem is that
the employees of these bodies are unwilling to so much as look at
your papers if you don’t pay extra.”
According to El-Mallakh, the cost of each permit usually depends
on what the official handling the permit application deems the café
owner can afford to pay. Often the difference between the official
fee and the actual fee is a “gift” of cash or in-kind.
A Cairo district official in charge of issuing final approval to
café permits told Business Monthly on the condition of anonymity
that vague permit regulations give district officials a lot of discretionary
power. “There are two ways of getting things done,” explains
the official, who is currently suspended for allegedly accepting
bribes. “One is by the book, which means that we have the power
to investigate and re-investigate a given place before we grant
a final permit... and we can keep doing this indefinitely. The other
is to pay the ‘express fees.’”
While the official admits that demanding “express fees”
sounds like a euphemism for bribes, it’s simply the way things
are done. And it’s not as arbitrary as people think. “We
consider how much the business costs in terms of decoration, plus
licensing, plus the number of employees – then we calculate
the ‘express fees’ accordingly,” he explains. “Most
of these [café owners] were paying peanuts for permits so
they could afford to pay ‘express fees’ to us.”
The official says café owners bitterly complain, but in reality
even if they didn’t have to pay these fees they wouldn’t
use any of the money they saved to pay higher salaries to their
employees. “These owners pretend to be ethical and [insinuate]
that we’re the ones who don’t have any ethics, but if
they were really people of principle, then they wouldn’t pay
us either,” he says.
Although El-Mallakh was initially reluctant to go the “express”
route, after four months of bureaucratic nightmares he was exhausted.
“Getting every piece of paper was a struggle,” he recalls.
“I heard all kinds of excuses as to why my papers were stalled.
For example, the Egyptian Environmental Affairs Agency couldn’t
come for a field visit to the location because the car used by the
official in charge wasn’t working. When I offered to send a
car with a driver, the woman accused me of trying to bribe her.
So instead I paid to fix the agency’s car. That’s just
one example.”
One by one, El-Mallakh secured the necessary permits, but just as
he set his eye on the final permit he hit a brick wall. The official
in charge of issuing the permit, presumably to pressure the café
owner into paying an express fee, used loopholes in the district’s
bylaws to place more obstacles in the way. “The official explained
that apart from the standard processes that apply to all districts,
each governorate and district has its own set of processes that
can be applied whenever district employees see fit.”
In this case, the official cited a little-known and seldom enforced
district bylaw that states cafés must be at least 75 meters
apart if located on the same side of the street. While Harris Café
was alone on its side of the street, another café was located
nearby on the opposite side of the road. The official had interpreted
the bylaw to mean cafés must be clear of all other cafes
by 75 meters in any direction.
Unable to settle the matter with the official, El-Mallakh appealed
to the district’s administrative development office. An official
there was sympathetic, but candid. “He advised me that while
my argument was completely logical and while he had the power to
punish the individuals who were trying to get me to pay extra for
my license, that in the long run doing so wouldn’t be in my
best interest. He said officials can hold grudges and using loopholes
in the system they could make my life a constant nightmare and shut
down my café regularly just to spite me.”
Frustrated, but unwilling to chance “spot inspections”
and random closures, El-Mallakh grudgingly paid the district official
to overlook the 75-meter transgression. The final permit cost £E
12.43, plus another £E 93,000 in express fees.
It’s incidents like this that prompt many café owners
to turn to lawyers to help them navigate the permit process. While
legal aid can help smooth the way, it still requires that bribes
be paid. One café owner told Business Monthly that his lawyer
advised him that it’s better to pay off officials than to make
a stand based on principle. “To put it bluntly, we were told
that if we refused, we might as well pack up the café because
we’d never be allowed to continue to exist.”
Yet even playing ball with the permit officials is no guarantee
your café won’t be shut down on a whim. El Gemei recalls
several incidents where cafés were shut down because someone
filed a complaint against another café in the district. “What
they would typically do is simply come and shut us down and, for
some reason, take away our chairs. They would always return them,
but for the life of me I’ve never figured out why they take
them in the first place.”
Facing several months of tedious bureaucracy, most café owners
open for business then go about completing the permit process. After
all, they’ve leased their space and the landlord isn’t
going to give them a grace period until they get their papers in
order.
El Gemei says that while his cafés now have all necessary
permits, he opened them before completing the permit process. “It’s
not clear if this is legal or illegal. It’s simply the way
things are done,” he says. “But until you get your final
permit, you have no real right to be in business. So, you do business
while being fully aware that you can be shut down on a whim simply
because someone in the district is having a bad day.”
It’s easy to blame the bureaucracy, but some café owners
admit they must shoulder part of the blame because they know the
game they are playing. The smarter ones know how to make the system
work for them. “The problem is that people go in knowing that
getting the permits will be very difficult but still hoping for
the best,” says Gaafar. “We, on the other hand, decided
to do it the other way around.” Instead of finding a location
then working to acquire licenses and permits, Gaafar and his two
partners researched the market to find already licensed locations
for sale.
When a location licensed to serve food or drinks is leased out or
sold, the commercial license and associated permits can be transferred
to the new owner, explains Gaafar. The drawback to this approach,
he admits, is that buyers have to act quickly – a licensed
establishment in a high-traffic neighborhood is not going to stay
on the market for very long. “Places with already existing
licenses are not very common, so you have to be ready to make a
decision right away and have the money to take on another location,”
he says.
Bean there done that
Assuming your permits are in order, the success of your café
depends largely on the strength of your business strategy. Long-term
planning is the key, insists Gaafar. “The biggest problem is
that many café owners get into this particular business without
doing sufficient research into the market and without clearly defining
the identity of their venture,” he says. “People see cafés
as a way to invest a bit of extra capital they’ve saved up.
The problem is that most don’t realize how difficult it is
to actually manage this type of business.”
According to Gaafar, most potential café owners wrongly assume
that once a café is established it will virtually run itself.
They manage their café as a business on the side, a mistake
that results in mismanagement, lost potential revenue and poor development
of the café and its products. L’Aroma’s owners
embarked on their venture as a full-time job, allowing them to devote
more time to the business development model and staff training.
“We’re after more than just running a café,”
says Gaafar. “We want to turn this into a café chain
similar to the ones that exist in other parts of the world. This
means we constantly have to be available to support the staff and
pay attention to our customers. More importantly, we [always] have
to be on the look out for potential expansion opportunities.”
One of the biggest expenses of any upscale café is its espresso
bar, a collection of pricey machines usually imported from Italy.
“You’re talking about several thousand dollars that you
put upfront before you even earn a single pound,” says El Gemei.
“But the machines are essentially an investment that you make
early on and you make returns on in the medium and long term.”
With this investment comes the day-to-day challenges of running
a café. One of the most delicate aspects of café management
is striking a balance between high-quality products and affordable
prices. “We made the mistake of creating the menu without actually
investigating what these items would cost,” admits El Gemei.
Giordano’s soon discovered that high-quality products don’t
come cheap. Fine chocolate and sweet caramel filling for the crepes
proved to be ridiculously expensive. Whenever possible, El Gemei
substituted high-end local ingredients to help reduce costs –
costs that would otherwise be passed on to the customer. “We
also learned quickly that we have to investigate places that sell
things bulk, because it can make a huge difference in terms of our
cost and the price we charge the customers,” he says.
In fact, café owners have learned a few tricks to cut costs
without reducing quality. Instead of buying milk from the supermarket,
one café owner said he goes direct to the distributor, cutting
out the middleman. He also comparison shops for the best deal on
non-essential items. By changing the brand of paper towels the café
uses, he was able to shave £E 2,000 off monthly expenses.
But some costs are unavoidable, argues Gaafar. If a customer finds
a second-rate paper towel in the bathroom they might not be terribly
distressed, but a few bitter beans in the blend and a coffee lover
will pack up and take their business elsewhere. Coffee is one essential
where no expense can be spared. And as Egypt does not produce its
own coffee, café owners are at the mercy of international
coffee prices and capricious customs officials.
“Not only is coffee expensive because you’re paying for
it in dollars and making your profit in Egyptian pounds, but also
because you have to deal with clearing it through customs on a regular
basis,” explains Gaafar. He says coffee shipments are regularly
held up for weeks or even months in customs, which puts cafés
at risk of running out of their most essential ingredient. Sometimes
the delays are imposed by the customs officials themselves; other
times it’s simply a matter of the labs that test imported foodstuffs
being unable to handle the volume.
The perfect blend
Supply chain issues aside, pricing also plays an important role
in the success of any café. Again, café owners must
strike a balance. Set prices too high and you’ll discourage
regular clientele; too low and you’ll encourage loiterers.
Ismail says the key is to “keep your prices low enough to ensure
that your clients don’t find it too expensive to drop by every
night, yet not so low that anyone can get in because then you’ll
attract the wrong kind of clients.”
The definition of right and wrong clients depends on the café,
but regardless of the sex, economic or social class of the target
group, the important thing is to lure paying customers. One way
is to impose a minimum charge, a concept that some customers appreciate
because it creates a sense of exclusivity while others – even
those well able to afford it – find it outright offensive.
Ismail admits he is not a big fan of minimum charges, but says it
would be impossible to run a café without them. “We
were initially against the idea, but then we found that groups of
seven or eight [teens] would come in and spend three or four hours
and order nothing more than a cup of tea and a bottle of water,”
he says. “In essence, they were occupying space in the café
and we were not generating revenue of any kind.”
As with prices, an effective minimum charge is one set to a price
that discourages loafers but not the regulars. After all, notes
Ismail, regulars are the mainstay of any café. This is especially
true as most Egyptian café owners, unable to afford advertising,
rely on their regulars to attract additional clientele. “Word-of-mouth
is better [than ads] because we obviously know our regulars and
usually they recommend the place to their friends. Since birds of
a feather flock together, their friends are likely to be the type
of clients we want in our café,” he says.
But just as quickly as they appear, customers can disappear. Egyptians
are a fickle bunch, asserts Ismail, noting that café owners
must take extra care to avoid being the flavor of the week. Gaining
customers is easy; retaining them is a challenge.
El-Mallakh agrees, explaining that Egyptians like to try out new
places and there’s always another café opening. It’s
tough to sell them on the idea of sticking to one place, but those
who eventually do become regulars are very loyal to the establishment.
“I own a café, but I still go every afternoon to the
same café I used to have coffee at before my entrepreneurial
days,” he says. “Achieving this kind of loyalty requires
you to understand your clients, what they would enjoy and what they
would not. You also have to keep the standards you set on the first
day your clients visited you. If you waiver, then you’ll more
than likely lose your clients.”
Despite the challenges of opening a café and trying to stand
out amid a widening pool of competitors, café owners interviewed
by Business Monthly said they saw the potential for profits and
expansion. Some owners have taken the hard-earned experience of
the pitfalls involved in opening and operating a café and
turned it to their benefit in opening additional branches. Ismail,
who at one point thought the Pottery Café would never see
the light of day, is happy to report that the café made its
initial investment back within its first eight months. While he
says the stress involved in opening the café was at times
suffocating, he would do it all over again for the satisfaction
of seeing a concept become a reality.
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THE WORLD’S FAVORITE BEVERAGE
Sometime around AD 900, according to legend, a humble Ethiopian
goatherder was the first to discover the effects of coffee.
One day he noticed his herd became exceptionally exuberant
after eating red berries while out to pasture. He tried a
few himself with similar results. It wasn’t long before
the practice of eating coffee beans wrapped in animal fat
spread throughout the highlands of Ethiopia, where the coffee
plant grew naturally.
The coffee plant was transplanted to Arabia around the year
AD 1000, where tradition tells of coffee first being brewed
and drunk by the inhabitants of the town of Mocha, which lent
its name to the plant and drink. Although coffee as a beverage
dates from that period, it was almost 500 years before the
first coffee shop, Kiva Han, opened in Constantinople (modern
Istanbul), Turkey in 1475.
The coffee tree is a tropical shrub that lives to 70 years,
producing profitable harvests of its coveted “cherries”
after its fifth year. An estimated 15 billion coffee trees
are cultivated worldwide on 100,000 square kilometers of land.
Although there are over 60 species of coffee trees, only coffea
arabica (which represents 75 percent of production) and coffea
canephora (robusta) are of commercial importance. Originally
from Ethiopia and Congo respectively, the two varieties are
now grown in tropical regions around the world.
The most popular coffee drinks can be classified as Turkish
coffee, espresso and cappuccino. Derived from the Arabica
bean, Turkish coffee is made from a fine grind to which cardamon
is sometimes added for flavor. Espresso is a strong coffee
made by forcing hot water through Robusta beans at very high
pressure in an espresso machine, while cappuccino adds frothy
steamed milk and a dash of powdered chocolate.
Gourmet blends such as Jamaica Blue Mountain and Hawaiian
Kona fetch princely sums, but the rarest and most bizarre
blend is Kopi Luwak, produced using ripe coffee beans that
have passed undigested through the intestinal tract of a luwak,
a palm civet that lives among the coffee plantations of Indonesia.
The full-flavored beans are re-harvested and brewed for a
gourmet blend that fetches $75 a cup.
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Required permits
• Commercial registration
• Taxation record
• Fire department clearance
• Sewage clearance from the General Authority for Water &
Wastewater
• Permit from the Egyptian Environmental Affairs Agency (EEAA)
• Ministry of Health clearance
• Permit from the General Authority for Electricity
• Permit from the Ministry of Insurance & Social Affairs
• Clearance from Telecom Egypt
• Permit from the General Authority for Roads & Building
Safety
• Final approval from the governorate and district
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EMPIRE OF THE BEAN
Just 20 years since expanding beyond its humble Seattle origins,
Starbucks has rightly been described as a “coffee empire.”
The world’s leading retailer, roaster and brand of specialty
coffees boasts over 9,400 locations worldwide, including 2,730
company-operated and licensed stores in 34 markets outside
the US. With long-term plans set on 30,000 retail outlets
worldwide – 15,000 in overseas markets – Starbucks
has joined McDonalds and KFC as a symbol of American entrepreneurial
expansion abroad.
Starbucks entered the Middle East in 1999 with a single outlet
in Kuwait. Since then, the company has opened outlets in Bahrain,
Lebanon, Oman, Turkey, Qatar, Saudia Arabia, United Arab Emirates
and Jordan; yet none in Egypt. The Starbucks franchise’s
expansion into Egypt is “still in the exploration stage”
and there “are no plans to open [in Egypt] in the near
future,” Martin Coles, president of Starbucks Coffee
International told Business Monthly earlier this year.
Since then, Coles has been busy, reportedly negotiating to
acquire local coffee-house franchise, Cilantro. Talks are
said to have failed when investor Hesham El-Suweidi reportedly
bid out Starbucks and several other interested parties.
The failure to clinch the deal could be a setback for the
American giant. According to Coles, a major obstacle to entering
any new market is finding “a partner with the right business
and retail experience, as well as cultural fit for Starbucks.”
Cilantro, one of Egypt’s best-branded coffee chains with
nine outlets in key locations in Cairo and Alexandria, seemed
an ideal candidate.
Starbucks’ hesitation in entering the Egyptian market
may be in part due to the popular perception that the company’s
CEO, Howard Shultz, is involved in fundraising for Israel.
Several Arab groups have boycotted Starbucks outlets in the
Middle East. The coffee giant opened six outlets in Tel Aviv
in 2001, but pulled out in 2003 citing “business concerns”
For its part, Starbucks makes every effort to disassociate
itself from any type of political involvement. Carole Pucik,
part of Starbucks’ Brand and Reputation Management Division,
underscored this sentiment. “Starbucks doesn’t get
involved in international or local politics on principle,”
she emphasized. “As a multinational company with business
partners around the world, Starbucks is a proponent of peace.”
Richard Susalka
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