6 tips to start cafe business: Olipo Cafe & Bakery’s founder highlights challenges in his field

Rohit Kumar, 33, took a gamble three years ago. He decided to open Olipo Cafe & Bakery despite having no experience in hospitality, kitchen management or customer service. His only exposure came from helping his younger brother manage the finances of an old cafe that eventually shut down.

Kumar now runs two cafes in Delhi: the inaugural one in north-west Delhi’s Khanpur that generates Rs.72 lakh in annual revenue, and another in Malviya Nagar, opened in 2024. Kumar, a former gym trainer, was drawn to cafes because he assumed these could generate easy money, with low capital requirement and quick returns. However, he soon realised that the food and beverage business runs on tight margins and very high working capital. Customer loyalty is hard to build and foodies are always looking for new options. If a cafe isn’t set up and run with care, profitability takes a hit in a saturated market.

Setting-up hurdles

One of Kumar’s first challenges was designing the menu. “It is the backbone of the (cafe) business,” he says. The menu determines the raw material to be stocked, the equipment to buy, the number of people to hire and the skillset they must have. For the first outlet, Kumar designed the menu himself with the help of a chef. Now, he keeps changing the items based on customer response and profitability. In fact, he alters it 5-6 times a year, depending on the dishes that work and those that drain cash.


Menu development can also be outsourced to agencies, freelance chefs and consultants, who take into account the budget, kitchen size, equipment capacity and business model.

While Kumar opened the Khanpur Olipo with an investment of around Rs.25 lakh, it proved insufficient and he had to pour another Rs.6-7 lakh over the next few months for smooth operations. Nearly 25% of the investment went into developing interiors and paying rent; 35% on equipment and utilities; 25% for raw material and opening stock; and the remaining was kept as a buffer.

In Olipo’s case, the monthly working capital requirement for each cafe is around Rs.3.5 lakh. Kumar recommends an emergency corpus of at least six months. Without this cushion, he says, even a slight dip in sales can destabilise the entire operation. This is because the working capital is extremely high, while rent, staff salaries and raw material costs are recurring expenses.

A thumb rule Kumar follows is not letting monthly rent exceed the value of 4-5 days of sales. Margin, too, is a non-negotiable. He asserts that cafe owners should price their menus such that it ensures a minimum gross margin of 60-65%. This means the food cost should not exceed 35-40% of the selling price. Breaching this cap makes it difficult to manage fixed expenses like rent and salaries.

While delivery platforms bring visibility, they take away a large chunk of revenue through commissions, advertising fees, and mandatory discounting. In Kumar’s experience, these charges can erode nearly a quarter to a third of the bill value, leaving the cafe with barely 8-10% margin on online orders. This is why he consciously shifted his focus to walk-in customers. Delivery platforms, he says, should be treated as a discovery tool, rather than a primary revenue channel, especially for new cafes looking to shore up finances.

How to start a cafe business

STEP 1
Fix the menu
Identify the menu items as well as your target audience. The menu will determine the equipment, raw material, staff skills and pricing power. Keep it focused and simple so that multiple dishes use common base ingredients.
STEP 2
Arrange the capital & buffer
Don’t underestimate the working capital requirement. Apart from the initial investment, maintain at least six months of corpus for rent, salaries and raw material. Many cafes fail when cash runs out before sales can stabilise.
STEP 3
Choose location by price point
Your location should match your pricing. A Rs.200 coffee will sell in a high-income neighbourhood, but struggle in a low-income market. Finalise the menu and price range, and then pick the area.
STEP 4
Decide pricing
Price every item to ensure a minimum gross margin of 60-65%. Avoid changing prices frequently as it erodes customer trust. Don’t offer too many discounts as it kills profitability.
STEP 5
Build the team
Hire an experienced manager before picking the chefs. New cafés often struggle to attract good baristas and chefs because of job security concerns. So, be prepared for delays in building a stable team.
STEP 6
Focus on walkin customers
Walk-in customers are more profitable. Provide quality service and get their feedback. Use Google listings, reviews and simple organic social media postings to build awareness.

Business at a glance

Initial investment
Rs.25 lakh
Launch team
3 members (founder, chef, manager)
Revenue
Rs.1.2 crore in 2024, for both cafes
Profit
Rs.18 lakh in 2024, for both cafes
Total items in menu
87
Food categories
8

ROHIT KUMAR
Founder, Olipo Cafe & Bakery

Challenges ahead

Hiring, however, remains the toughest nut to crack. “When you open a new place, good chefs or baristas are rarely willing to work with you,” explains Kumar.

Experienced professionals prefer established brands as these offer job security. Kumar recalls offering a higher salary to a barista working with coffee chain Blue Tokai, only to be turned down because he did not want to risk moving to a new cafe. Building a trustworthy and stable team is a big struggle.

When it comes to marketing, Kumar takes an offbeat path. Instead of making aggressive promotional offers, he focuses on building brand awareness. Too many discounts make customers devalue the brand, he believes. “Worse, such offers attract the wrong crowd,” he adds.

Kumar wants Olipo to be a cosy place, where patrons sit, talk and unwind. Hence, his marketing remains minimal, with most of the budget going to Google search visibility so that nearby customers can find the cafe easily.

He plans to rely more on organic marketing, posting on social media, and sharpening service quality for his outlet in Malviya Nagar, a south Delhi locality. Once the operations stabilise, he hopes to expand to more locations.