{"id":3387,"date":"2017-06-28T10:04:36","date_gmt":"2017-06-28T09:04:36","guid":{"rendered":"http:\/\/unitedbaristas.com\/?p=3387"},"modified":"2022-01-14T10:38:42","modified_gmt":"2022-01-14T10:38:42","slug":"the-true-cost-of-espresso","status":"publish","type":"post","link":"https:\/\/unitedbaristas.com\/articles\/insights\/the-true-cost-of-espresso\/","title":{"rendered":"The True Cost of Espresso"},"content":{"rendered":"
<\/div>
<\/i> Coffee Shop Commercial Viability<\/a> series<\/div>\n

Just what are your customers paying for, and what does it cost you?<\/h4>\n\n\n\n\n\n\n\n

When specialty coffee hit London in the noughties a couple of mistakes were made. Ben Townsend, one time founder of The Espresso Room, has previously pointed out that we launched too cheaply by setting prices at only a small premium to high street coffee shops to encourage accessibility. I don\u2019t disagree, but my sense has always been that the more egregious shortcoming was made by shops who told customers that the cup price of specialty coffee was set because espresso machines and green coffee are expensive. Many customers have come to believe that this is the situation \u2013 and now shop accordingly.<\/p>\n\n\n\n

But, it\u2019s just not true.<\/p>\n\n\n\n

Because this belief is now deeply entrenched, let\u2019s take a couple of minutes to destroy the argument.<\/p>\n\n\n\n

Espresso machine costs<\/h3>\n\n\n\n

We started breaking down the myth of the expensive espresso machines several years ago with a post explaining the\u00a0actual cost of an espresso machine<\/a>. It\u2019s still up on our blog and is frequently read as it\u2019s a basic guide for setting a selling price of used equipment. But to prevent you from having to read it to make sense of this, and so I can use a more extreme example, if a business buys a \u00a310,000 machine (many coffee shops don\u2019t buy espresso machines this expensive), uses it for five years, sells it for \u00a33,500 (just for the sake of this example) and spends \u00a3500 per year on parts and maintenance, then the actual cost around a fiver per day \u2013 yip, less than two cups of coffee. To put this in perspective, the utilities bills for most shops are of greater cost.<\/p>\n\n\n\n

Coffee costs<\/h3>\n\n\n\n

It\u2019s true that the cost of roasted coffee has a greater impact on cup price, but it\u2019s still not that significant, because most shops achieve margins in the nineties. For example, making some assumptions about dose and wastage, a shop selling 300 cups per day could save that fiver a day by knocking \u00a31.50 per Kg off their roasted coffee price (or, the other way around, with smart buying you can move up a tier of quality for a fiver a day).<\/p>\n\n\n\n

To be clear, we are not advocating some kind of financial imprudence; rather these examples illustrate that both these costs are small compared to many of the other costs in a retail coffee business \u2013 and consequently are not key drivers of the price of a cup of coffee.<\/p>\n\n\n\n

\"\"
The cost per day of use of these designer brand sunglasses is probably higher than the cost of these two coffees.<\/figcaption><\/figure>\n\n\n\n

The human cost<\/h3>\n\n\n\n

A key cost is staff. Even with a barista paid just \u00a38 per hour (50p above the current minimum wage), assuming they\u2019re not on a zero hours contract, they only need to work for a bit over 30 minutes per day to add the same cost to the business as a \u00a310,000 espresso machine.<\/p>\n\n\n\n

Now in an ideal world we\u2019d all buy better machines, pay more for coffee and see barista wages significantly increase. And for that to happen we need to stop pegging the price of a cup of coffee to the machinery and its ingredient costs in the minds of consumers.<\/p>\n\n\n\n

It actually shouldn\u2019t be that hard, many other hospitality businesses do it perfectly well. In terms of cost basis, our customers are actually paying for a mixture of: service (people), convenience (a coffee made for you, by people) and the use of space (their share of rent, rates, utilities etc). The mix of these factors in a shop\u2019s cost structure varies by location and proposition, but they\u2019re all broadly the same.<\/p>\n\n\n\n

\"\"
What costs more, a coffee or an orange juice?<\/figcaption><\/figure>\n\n\n\n

The need to add value<\/h3>\n\n\n\n

Under the flawed logic of positioning a cup\u2019s value on the cost of the coffee and the price of the machine, we leave ourselves little room to add value. In fact the logic dictates that prices can only justifiably increase when ingredient costs rise \u2013 and this is precisely the claptrap that gets rolled out whenever there is a retail price rise, whether it\u2019s true or not.<\/p>\n\n\n\n

If you don\u2019t add value, you\u2019re just selling a commodity<\/h3>\n\n\n\n

If cup prices are to rise \u2013 and we\u2019re of the opinion that they should \u2013 then shops are going to need to add greater value to a cup of coffee in the mind of the consumer. And if they want to add significant value they\u2019ll have to hone their proposition around selling intangibles. In fact, this is what hospitality is about.<\/p>\n\n\n\n

No consumer, or critic, primarily judges a hospitality establishment on its oven or ingredient costs. For me, visits to my favourite establishments leave me feeling energised, excited and empowered as well as having served me delicious food and drink \u2013 and I\u2019m happy to pay for that experience and feeling. Other people will, of course, be attracted to other qualities, which is why there are many different forms of hospitality businesses.<\/p>\n\n\n\n

I\u2019m well aware that some people in specialty coffee will feel uneasy about the idea of selling the intangible \u2018nothing\u2019 for something. But there\u2019s a word for products that are bought and sold on the basis of their purchase price without much value added \u2013 and that word is \u2018commodity\u2019.<\/p>\n\n\n\n

Premiumisation and pricing<\/h3>\n\n\n\n

I\u2019m being deliberately provocative with my language to elicit action, as the track record over the past decade is that the UK specialty coffee community has successfully de-premiumised the world\u2019s best coffees (for example, higher grade speciality green coffees are easily three times more expensive than the cheaper speciality coffees, but currently command only a few pennies more per cup at retail) \u2013 and then commenced complaining that customers won\u2019t pay more for a cup of coffee. It\u2019s a self-inflicted wound. Presumably since we broke it, we can fix it.<\/p>\n\n\n\n

How? Well that\u2019s a topic for another post, but there many places to look for inspiration and there are as many potential answers as there are coffee shops. The key thing right now is to make sure your business is intelligently asking these questions and finding answers that put you on the journey to adding the right value for your customers so you can charge them correspondingly. For most businesses this means moving past mimicking components of somebody else\u2019s coffee shop and actually working out what customers you actually want and how you might serve them well.<\/p>\n\n\n\n

We\u2019ll explore some options in the autumn\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"

<\/i> Coffee Shop Commercial Viability<\/a> series<\/div>

Just what are your customers paying for, and what does it cost you? An egregious shortcoming was made by shops who told customers that the cup price of specialty coffee was set because espresso machines and green coffee are expensive. Many customers have come to believe that this is the situation \u2013 and now shop accordingly. But, it\u2019s just not true…<\/p>\n","protected":false},"author":2,"featured_media":3388,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[80],"tags":[121,154,298,41,82,100],"false":[1781],"ppma_author":[1926],"yoast_head":"\nThe True Cost of Espresso - Insights - United Baristas<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/unitedbaristas.com\/articles\/insights\/the-true-cost-of-espresso\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The True Cost of Espresso - Insights - United Baristas\" \/>\n<meta property=\"og:description\" content=\"Just what are your customers paying for, and what does it cost you? 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