Colonna Labs Compostable Capsules Now On Sale! Order Now »

« Back to Maxwell’s Blog

Pricing

June 28, 2012

Is the price we charge for a cup of coffee a fair one?

Not really. We have always been a bit partial to undercharging.

However if what you’re looking at is perceived expectation and value of a “cup of coffee” then the idea of a fair and correct price becomes more complicated.

This is a problem within speciality coffee that needs to be addressed on a larger scale.  To serve speciality coffee without compromise in a commercial environment costs much more money than the existing larger commercial approach.  Many people question the economic viability of pursuing speciality coffee full stop.  The only way forward is to differentiate and present speciality coffee as the premium product that it is along with prices that match.

Like elsewhere in pursuing speciality coffee, pricing is tied up with expectation.  Many of my blogs have covered the journey we have taken since we opened our little shop around the corner and how we are now in a very different place to where we began.

We were so excited to serve great coffee and felt that there was enough to explain and communicate to the customer that the less hurdles the better.  We chose to sacrifice a significant percentage of our margins with expensive raw ingredients, the best equipment etc. and put ourselves in a position where we could say, “Hey, I know an espresso with notes of raspberry and cocoa sounds odd but why not give it a go, it’s no more expensive than anywhere else.”

Our first property had very reasonable rent and rates.  We lived above and we only had one member of staff.  We were under the VAT threshold and it all worked pretty well.

Two things were considered but their impact was not fully realised until later:-

1. The price you charge says a lot about your product and what goes into it.  Basically, a cheap price for an expensive product is misleading on many levels.
2. As we grew our costs and logistics would change.  It would no longer just be about serving a product we loved - we would need a better pricing structure to make sure we didn’t go out of business.  Pretty naïve really.

I have become aware that it can actually even be irresponsible to charge a price that’s not relative to what goes into a certain cup of coffee.  It means consumers don’t learn about all of the pricing factors that go into offering this product - paying the farmers to take more care over what they grow, roasters investing in these farmers, their own equipment and staff and committing to showcasing these coffees characters, coffee shops then investing in these roasters, in their staff, equipment and so forth.  You are in danger of becoming a coffee martyr.  You may run a renowned shop but you are not proving the economic viability of your pursuit.  There are hoards of people passing through your doors but you are not making any money.  To benefit speciality coffee on a wider scale we need to have a transparent product that proves its own economic worth.

What are the solutions?

Just pricing the product properly is not very helpful to us unless we think about how we can frame the product for the customer.  As with all customer related discussions we come back to communication and the management of expectation.

Most people are used to having an up-sell gently forced upon them in many coffee shops and have quite rightly become resilient to the efforts of the till person.  A wine-like approach to serving coffee in the mind’s eye of the public has not yet been widely established.

This is why having an interesting coffee on which costs more and then a cheaper house coffee option can fail dramatically.  Most people will always go for the cheaper house option, as soon as an up-sell comes into the equation a barrier comes up.

We pay varying amounts per kilo for our coffee based on what the farmer was paid (which depends on other factors, country to country, past history, markets etc.) But we do not pass this on to the customer as otherwise the idea of exploring taste is less likely to be undertaken, the immediate reaction to a coffee shop up-sell kicks in and dialogue doesn’t get a look in.

We have charged extra when we have bought very expensive Cup of Excellence coffees, which come in at around double the £15per kilo which we base our pricing on.  We have done the same for lots from famous and pricey farms like Esmeralda in Panama for example.  For these we have had to add an extra cost to each cup, but because we so often suck up the price differences in other coffees that we buy in, when we do buy at the extreme end of the spectrum our customers are eager to try, they are more than happy to pay a little extra for the experience of one of the world’s most expensive and highly regarded coffees.

As the concept of the store becomes established the different costs seem to be more immediately understood. I wonder if something closer to a wine list with different pricings per coffee that reflect its origin and production would be more or less beneficial based on the problems I have just discussed?

A lot of the larger costs within our model are elsewhere.  The nature of espresso means that if you want to commit to making sure that every cup that goes out is of the highest quality, there will then be much more wastage than in a regular commercial setting. The same goes for not twice heating milk, the purchasing and maintenance of the best equipment and experienced trained staff that are well paid. The model also requires a higher number of staff on shift at any one time to keep up with and deliver the dialogue and explanation that you have promised. This all starts to really add up.

Once the costs are explained in depth the price of the product can be very easily justified, often people are then surprised at how reasonable the prices are all things considered, but it would be silly to believe in the truth and fairness of your pricing without considering the fact that the majority of customers will not know the inner workings of your pricing structure. They will be quickly putting a few bits of data and market perceptions together in their head to garner an idea of what they think is a good price for the product they are about to buy. You are being compared whether you like it or not.

You can influence this comparison with your design and communication, giving the customer a clearer idea of what your product is and what this then means about price from the moment they walk through the door.

Our menu changes (taking the choice away from the usual espresso, cappuccino etc. and only displaying the different farms we have on accompanied with method and flavour notes) were originally aimed to alter the way a customer would immediately view our approach to coffee, and to the kind of experience we were offering. I didn’t really think about how useful this would also be for price. With this menu approach, most customers are then focusing on experience first and show little interest in the price, at other times the experience indicates a more valuable product, expectation immediately changes and the question is then ‘can I see a price list please’ when presented with one the comment often goes along the lines of, ‘ooh how reasonable. I thought this was going to be much more expensive’.

Our prices will still need to increase by between 5 and 10 per cent before we are at an appropriate price. I would say we will then be at a point that proves the economic viability of pursuing speciality coffee. Not to be misleading - this could do with stretching further as there are issues that still need to be tackled such as rewarding all the staff with increased wages for what is expected of them.  At the moment we pay all of our staff well above the average wage for similar front of house work.  But the point is it’s not really similar, as I have mentioned in my “staff” post previously the environment requires coffee professionals.  Currently the reward really lies in the type of environment they get to work in and the unique coffee experience they can gain.

For this to be achieved the product needs to be recognized as a carefully crafted valuable item that’s worth that extra cash. I think we are achieving this goal. It will be interesting to see where the commercial nature of speciality coffee can go in the future - much like a great cup of coffee it’s all about a certain kind of balance.

Share

View Our Capsules

Capsule An icon showing a coffee capsule.

Previous

Sugar

June 21, 2012

Next

“Isn’t it all essentially subjective, just a matter of taste?”

July 12, 2012