The shortfall was primarily caused by wage costs being significantly ahead of budget, although that was slightly offset by a higher gross surplus from trading.
Mr Foster said revenue was expected to be $10,000 under budget at the end of the financial year but the gross margin remained on track with the budget.
"At the current rate of earnings, it would take just under six years to achieve a full return on the funds the council invested to purchase the business, lease and chattels, compared to the business case estimate of approximately two and a quarter years.
"However a number of measures to improve the cafe's overall financial performance are currently being reviewed, including staffing levels, opening hours, product wastage and pricing.
Mr Foster said getting the operation back on track and its returns up to expected levels would require only a marginal increase in sales, combined with a decrease in staffing costs.
"Under that scenario, the cafe could improve its annual return on funds to 36 per cent, and this would provide a full return of funds invested within a three and a half year period."
Mayor Steve Chadwick said the council was taking a wider look across all current operations and would be assessing whether they should continue to be involved in running businesses like the cafe.
"The progress report on the cafe's current financial performance confirms what many of us thought at the time when the business was purchased on a decision made by the then-Executive Committee of Council. However we've moved on since then and I'll ensure such important decisions will in the future be made by only the full council."
The council bought the cafe in May last year.