When 53-year-old David Smith retired from his full-time job restoring cars two years ago, he started looking around for an investment opportunity in British Columbia's Okanagan Valley, a community he felt was going to grow rapidly in the next few years. That opportunity soon presented itself in the form of a small building—once home to various second-hand shops and a tire maker—in Penticton, a town of 45,000.
Smith quickly realized he'd be better off not just buying the place (asking price: about $500,000) and renting it out, but starting a business there, too. "We thought it would make the perfect spot for a coffee shop," says Smith, who partnered with his 26-year-old daughter, Meika. Penticton is a bit of a coffee-shop hub, with several cafés in town, including three Starbucks. But Smith and Meika thought they could make a go of it.
For two years, Smith studied coffee shops across the province, especially in Vancouver, to figure out what drove traffic. The most important indicator of success wasn't location, Smith discovered, but the store's appearance and the friendliness of its staff.
Smith and Co. Beverage Purveyors, which opened for business in May 2005, takes those lessons to heart. The shop is a bustling, 2,500-square foot, squeaky-clean store, with a 900-square-foot patio, a projector for movie nights and a steady stream of regulars that give the café a friendly, co-op feel. "The most important thing is that when you walk in," says Smith, "somebody acknowledges that you're there."
Originally, Smith and his daughter figured they could get the place up and running for about $10,000. They kept to their tight budget by purchasing second-hand coolers and display cases, and leasing a refrigerator. But after one of the coolers broke down and they lost $300 worth of inventory, they decided to go first-hand—a decision that set them back $50,000.
Another major frustration was jumping through regulatory hoops, Smith says. The health department was clear on what it expected of the store, but the city kept changing its mind about which zoning bylaws Smith had to follow, which permits he needed and how the building had to be changed. "It was never-ending with them," he says.
How to lure customers to their independent shop was a bigger challenge. At most cafés, the real margins are on the coffee, not the food (a $1.50 cuppa costs just pennies to brew). But it's good food that brings people in the door. To differentiate their brand from, say, Starbucks, Smith and Company puts a heavy emphasis on healthy snacks, organic products and fair-trade coffee. The menu includes samosas, quiches, homemade granola bars and a daily soup special. Margins are about half those on coffee, but Smith says it's worth it—in a heavily saturated coffee-shop market, these are the kinds of decisions that can sway a customer from a big chain to an indie outfit.
Opening at 6:30 a.m. helps, too. "Those early hours don't generate a lot of revenue," Mr. Smith says, "but they do generate a lot of loyalty." Most nights the shop shuts down at 5:30 or so, except for Wednesdays, when they stay open late for movie night. A local distributor gives the café first crack at many films in the area—last week, they showed the documentary What The Bleep Do We Know? About 50 people showed up, packing the viewing room.
Smith and Company is steadily building a customer base. But with growth comes uncertainty. In a tourist town like Penticton, foot traffic varies wildly from day to day, so it can be difficult to predict how much inventory (and staff) they'll need.
But Smith knows this is all just part of owning your own business. "Unless you're walking into a turnkey operation," he says, "you really have no idea how many things can go wrong."
