Yes. In fact, this would be more correct: Duolingo ignores the guidelines for у—в alteration (most people do), but in professionally proofread texts it should be «ви в кафе» because «ви» ends in a vowel, and pronouncing «ви в кафе» is easier than «ви у кафе» («и в» is pronounced like a diphtong [ɪw], and this helps to avoid hiatus, two vowels coming together).
I also translated as "are you at the coffee bar". The thing is, in some countries there are "caffe bars" that don't exclusively serve coffee, but also other drinks like tea, juice, soda, alcohol, hot chocolate... So I think it should be accepted.
In Russian and Ukranian (and maybe in other neighboring countries) "cafe" means a small restaurant, eatery. But, I think, yeah, you're right. Coffee bar should be accepted too.