Cost of Goods and Price Sensativity

DDP

Question:
"How do I create great return with great product?"

I am finding with the hightened focus on quality espresso, margins have decreased due to increased pay rates of quality barista's (deservedly), and the use of premium products such as beans, milk and chocolate. Whilst our expenses have gone up, prices of end product have not (seemingly) increased accordingly. Saturated markets have kept coffee prices to a minimum. I believe the average cost of a standard latte to realistly be around the $1 mark when considering raw product, wastage and labour.Added to this is the GST component as well as it's contribution to the business's fixed costs. So how many coffee's do we need to sell to make an honest living. Can the market sustain premium prices for a premium product, or is the market too price sensative? Some perspective on this would be greatly appreciated as I believe in quality products, but I also need to pay the bills. Help! lol.

askthecoffeeguy

Good question! I get around this by value adding.  Using a premium product (Jasper FairTrade Juliet Blend), keeping my introductory prices purposely affordable, and the getting my margins on medium and large sized coffees. Thinking outside the square:  we serve seven different types of chai and people are prepared to pay for it. Optional extras:  You want Bonsoy instead of my usual organic soy?  That's an extra 50 cents please. Same applies with a couple of differnt hot chocolate mixes, and adding flavour shots / chocolate and coffee combinations:  People are prepared to pay if you can do it well. Also, carve out a niche in the market place by doing something different to the other guy. Think about wheat free / sugar free / fat free options Constantly innovate - my joint sells over 700 coffees a day from a space the sixe of a shoebox, but that doesn't mean that I'm not on the internet most nights, doing a bit of product research, and calling up suppliers each day and asking them to show me how they can do what I'm doing, but better, smarter, and cheaper. I reckon we've easily shaved $1000 a week off our purchases recently, and improved our products, services, and bottom line in the process, by looking around and seeing what's out there. Hope it works for you. ACG

tommy

interesting solution. In many ways it does create a larger profit margin but do you find that it has some affect on your barista/s capacity to efficiently serve coffee? ie affecting speed and quality with all these additional things. The time it takes to put a shot of syrup here and a clean jug for cats milk etc takes just that bit longer and slows down the process - unless you have a few ppl behind the machine who have sorted out a bit of a system. Thoughts?

askthecoffeeguy

If your systems are in place, and staff are up to scratch, then it shouldn't take any longer to make a flavoured coffee / hot choc / chai etc.   I think a lot of it comes down to how effectively you get your message across Also, I have, when its busy, one person pulling shots and pouring coffees, another steaming milk and co-ordinating orders, and another taking orders and putting together my pre-mixes.  Having highly qualified staff who are passionate about what they do, as team players and excellent communicators, definitely helps service to flow. To me its all about innovating and anticipating demand Drink well, ACG