The Coronavirus pandemic and subsequent lockdown presents a unique opportunity to reimagine the coffee industry and to make it better for the future. As we return to work we should be aware that the world is a different place and that consumers are willing to accept profound change as they cope with this new reality. We should take advantage of this moment to rectify one of the most market-distorting and destructive incentives in the coffee industry: discounts for reusable cups.
The financial cost of the reusable cup discount
At present reusable cup discounts are offered in many coffee shops and typically ranges between 20 and 50p. The take up of this takeout discount varies by shop, but if 50 percent of to-go customers use a reusable cup then the discount can easily surpass £10,000 per annum.
400 coffees per day
200 in / 200 takeout
50% of takeout customers receive discount = 100 customers
100 customers x 50p = £50 / day
~ 250 trading days x £50 = £12,500 per annum
The impact on coffee shops, their financial position, and their sustainability is significant. This isn’t £10,000 of lost revenue, because it’s a discount after all other costs it largely represents £10,000 of lost profit.
This means that if your coffee shop runs at 10% profit margin, then you would need to generate £100,000 of additional revenue just to stand still. Or if this example coffee business was generating just 5% profit margin, then it’d require £200,000 of additional turnover to maintain its financial position.
The reusable cup discount hampers business performance, harms the sustainability of the industry and is financially unjustifiable. It’s has always been the case that coffee businesses could better use this money than giving it away – and even more so as we seek to build new business models to succeeded in a Covid-19 environment.
The opportunities we should be taking
Here’s three ideas how coffee shops could better use the money.
Pay staff more
A 50p per hour pay increase could be funded by eliminating the reusable cup discount. This would help lift barista wages to Living Wage levels, could help provide greater greater job security and provide sickness benefits and job security over the coming time. Many baristas like the idea of the reusable cup discount because it’s a small gift for customers, but proprietors should ask staff whether they would like to retain the discount or benefit from a pay increase.
Pay farmers more
According to a recent report, just 1p per cup passed back up the supply chain would be sufficient to lift farmers incomes to sustainable levels. In our example shop, by removing the discount this could be paid for dozens of times over each day. The coffee industry needs to find ways for more funds to return to origin and this is one easy and significant route to achieving this goal.
Be more profitable and strengthen the financial position of your business
A number of coffee companies have found that having financial reserves equivalent to just several weeks’ revenue would make weathering a crisis, such as the Covid-19 outbreak, sufficiently more bearable. We recommend pocketing some of the additional profit for owners and retaining some earnings to strengthen its position both now and for the future.
Opportunity Costs
As we have explored previously, the use of reusable takeout coffee cups does very little to lower the carbon footprint of coffee, if anything at all. And in fact there are significantly cheaper, more efficient, and more effective ways to lower coffee’s carbon footprint.
United Baristas is committed to helping the coffee industry lower its carbon footprint and we are increasingly concerned that in the forthcoming time economic pressures are going to crowd out the important task of lowering our carbon emissions. As an industry we must not allow this to happen.
In addition to the above options, a portion of the money currently being given away as discount should be used to pay for carbon offsetting, build new infrastructure, purchase more energy efficient plant and fund shop fits that lower emissions as well as finance industry-wide efforts to lower emissions at origin.
Why did the discount start?
So we can intelligently remove the discount, let’s understand why it originated.
The discount started to incentivise consumers to use reusable cups. This incentive helped overcome the perceived friction point of having to buy a reusable cup, carry the cup and wash it between uses.
In the early days of the specialty London coffee scene it was not uncommon for takeout drinks to be discounted. However, around 2010-11 this started to change as key shops started offering level in and out pricing. The instigators of reusable cups pitched their product as a cost saving to coffee shops, who would no longer have to buy a paper cup, and also a reduction in environmental impacts. However, it’s become clear that neither of these points stack up.
The cost of a takeout paper cup is typically just 5 – 10 pence (significantly less than the discount) and it is becoming increasingly apparent that takeout cups do little to benefit the environment, especially those made of energy intensive materials such as glass or metal.
The industry now also has a greater appreciation that takeout sales are not bonus sales, they are core business. Most coffee shops in the United Kingdom operate in an A1 use class premises, which require the majority of sales to be consumed off site to be compliant with legislation.
The greatest beneficiary from discounts on reusable cups hasn’t been coffee shops, the coffee industry, or the environment, but the reusable takeout cups brands themselves that have achieved strong sales growth and profitability through the business model. Simply put, our calculations show that the benefit of the discount has always been unfairly tilted towards these brands and not the coffee shop business or customers that they purport to serve.
Why now is the time to end the discount
Reusable takeout cups will not be accepted in the first stages as the lockdown lifts. Both government advice and staff and consumer concerns about contracting Covid-19 through cup contact means that many shops will continue to refuse reusable takeout cups for the foreseeable future.
Once an effective treatment or a vaccine has been created to combat Covid-19, consumers will be out of the habit of receiving a discount when using their reusable cups. It’s not our position that people shouldn’t be allowed to use reusable cups; it’s our recommendation that they shouldn’t be financially incentivised to use them as the costs of the discount vastly outweigh the benefits.
Proprietors should use the funds to strengthen their business, support their staff, reduce their carbon footprint, and support coffee farmers – and these aspects hold greater prospect for the medium and long term sustainability of the coffee industry.
As the country gradually lifts the lockdown this presents a unique opportunity to see a profound change in consumer behaviour that the coffee industry should make the most of, both for itself and for the environment. It is by following these priorities that we can in fact best serve our customers by being more viable and sustainable.
