The cost of a cup of coffee

The media love to report on coffee shop prices. Its readers love to comment on how they can make a cup of coffee at home for much less. So why is the price going up, and why can you make it cheaper at home?

Price rises really shouldn’t be a surprise given constant reporting on “the cost of living”, “inflation”, ”the energy crisis” and other similar phrases. Here are some major cost increases involved with coffee:

• The coffee beans themselves have risen, in part due to bad harvests due to bad weather
• Milk has risen 20%, because of the cost of food for cows and other factors (plant-based milks have risen too, because all crops are more costly)
• Energy costs have risen dramatically
• Wage increases every year

There are other costs you might not think about, such the laundry (£80/month up from £48/month a year ago) or ever-rising paper costs affecting kitchen roll (66% more than in 2020). Essentially, if something relies on oil, energy, paper, food or labour – so pretty much everything – there is a high chance that its price has gone up.

What can the coffee shop do about this? There are a few choices:
• Do nothing
• Find cheaper ingredients
• Reduce staff levels
• Put prices up

The first option of doing nothing might be fine if the business was originally grossly overcharging but since hospitality isn’t an industry of big profit margins, a more realistic outcome would be a business that is no longer a business: perhaps it disappears within months as unpaid bills mount up, or perhaps it suffers a longer-term decline with a bitter business owner and decrepit decor.

A search for cheaper ingredients might in some cases help but it risks changing what the the businesses stands for, and why its customers visit in the first place.

Reducing staff costs is always an attractive proposition, given that wages are the highest single cost. There may well be opportunities to be more efficient at how we work – something that definitely should be explored — but there are limits to how far this can go before changing the nature of the business. For example, self-service ordering on a screen could save staff time as would all drinks being served in takeaway cups (to save on washing up time), and perhaps customers could clear their own tables… but that’s a different type of establishment.

So really, a price increase is the best option.



BUT IT’S CHEAPER AT HOME…

People commenting on newspaper articles love to point out how they can make the same thing at home for less money. Unfortunately, they have forgotten the whole premise of goods and services: whereby you exchange money for someone else’s skill, time and effort. We could all be making our own clothes, building our own bicycles or cars from scratch, growing our own food, being as self-sufficient as possible. Yet most people don’t do this because they only have a limited amount of time and need to prioritise.

Of course it’s easier to make a coffee at home than, say, building a car from scratch, yet there are two other aspects often forgotten about.

THE TRUE COST

One is the true cost of making that drink. People only consider the cost of ingredients because they are funding everything else from income unrelated to that drink, such as their job. In a coffee shop, that drink is the job, and so all costs must be factored in. There are many:

• Cost of the ingredients. Not just the precise ingredients that go into your coffee, but also the cost of those wasted shots of coffee every café gets through in the morning as a member of staff sets up the grinder correctly for optimum taste. Or a coffee that gets made with the wrong milk and has to be thrown away.
• Cost of staff (including employer’s pension and National Insurance contributions). Someone to serve you, someone to make the drink, someone to deliver the coffee to your table, to clean the table afterwards. Someone to wash up the crockery, and to wash towels and cloths twice a week. Someone to spend time ordering stock and putting it away. Someone to deal with the rubbish and to go to the bank with cash. The time spent in the morning getting ready to open or the hour after closure cleaning everything and bringing in outside tables and cashing up. And then all the background admin which applies to any business such as staff management/recruitment/training, keeping track of finances, dealing with suppliers, putting photos on social media, creating signs and menus, doing the accounts or paying someone else to do it. It‘s a labour-intensive business.
• Till system is a monthly cost, plus the upfront cost of hardware.
• The coffee machine, grinder, and other equipment – thousands of pounds which have to come from somewhere.
• The cost of the cup, saucer, teaspoon… and all the rest. Then the cost of those things again when something inevitably gets broken. Or for takeaway, the cost of the packaging.
• Then of course the chair you sit on, the table you rest your drink on… tables alone easily cost £100 each.
• All the usual utilities: electricity to power a coffee machine (which is essentially a big boiler of water), gas for heating and hot water, water bills, phone and broadband
• In order to legally play music, we have to pay around £300/year (on top of the cost of any music streaming subscription)
• Rent and depending on the business size and location, business rates.
• Bank charges. Business accounts aren’t free like personal ones are. There are also fees for taking cash in or out and to process card payments.
• Rubbish collection – not a “free” service funded by council tax at home, but a £200-a-month payment to a private company.
• Delivery charges
• Cost of repairs – only last month we had to spend £300 on a plumbing issue, having already spent £400 the week before after the front door was smashed in. Things break. A lot. Sometimes it’s caused by a member of staff, sometimes a customer, but often it’s just due to wear and tear.
• The price of a cleaner to clean the toilets and mop floors etc. at the end of the day.

After all those costs, there is ideally still some profit remaining which can be saved for future improvements. For example, we need an obvious “order here” sign above the counter, the lighting could be better, it would be great to have a neater menu display in the widow, an awning outside would be amazing, and we’d love to refurbish the toilets. Walls need painting again…

On top of all those costs, remember the VAT! If you have just spent £5, the coffee shop gets £4 as the other pound gets passed on to the government.


THE SOCIAL ASPECT

The “I could do this cheaper at home” crowd forget that costs aside, you’re buying the *experience*, not just the coffee. Getting out of the house, getting exercise. Talking to somebody, either strangers or friends or staff. Soaking up the general vibe of being out.

You don’t get that with a cup of Nescafé at home. And somebody will wash up for you as well!



(March 2023)