now, not everyone feels this way, but it's not uncommon for me to hear from people that coffee has gotten pretty expensive and to be fair to them, it did used to be much cheaper to buy a cup of coffee.
That's changed as the coffee boom has happened in cities around the world and at a time when there are increasing numbers of articles highlighting the fact that coffee growers aren't getting paid the cost of production for their coffee, that it's become unsustainable.
Well, this rising price of coffee leaves many people with questions that should be answered.
So that's what we're gonna do today.
We're gonna talk about where your money goes when you spend it on a cup of coffee in a specialty cafe.
To do that, we're gonna have to talk in generalities.
We're gonna have to talk about the business model of cafes, and it's impossible to be completely accurate because every business is a little bit different, and also to begin with, we're just gonna talk about the UK, which is obviously different in some ways than other places you go and you spend £3 on a cup of coffee in a good cafe.
Well, where does that money go?
Well, in the UK, the V A T that the tax rate on coffee is 20%.
So 50 p of your £3 go straight to the government.
The net revenue for the cafe is only £2.50 So let's divide that £2.50 in a cafe.
About 30% of the money that Kathy takes in goes back out to product cost.
Cost of buying the things that you ultimately end up selling.
About 35% of its money goes to pay staff.
15% of its revenue will go towards paying the rent and associated location costs.
Maybe 10% will go towards general overheads, from lighting to heating the administration, leaving 10%.
On a good day, there's profit for the owner.
That's 25 pence on a £3 cup of coffee, which means you've got to make a lot of cups of coffee to really make any money.
I should also add that around the world, those mortals will vary in some places.
Let's say Shanghai, you might have a very high rent on a much lower staff cost, but by and large around the world, the net profit remains the same.
It's not uncommon to be making 10 to 12% profit, and doing better than that these days is really pretty unusual.
As I said, this is the typical kind of business model for a specialty cafe.
There will be some variant.
Some cafes will pay more to stuff.
Some pay less and will pay more rent, so will pay less.
Wait, wait, wait, you might say, if I get a nice cafe and I buy a £4 cup of filter coffee, there's no way that this £1 of product cost, even if they using good quality coffee and paying a sustainable price and you're right, that 30% of product cost is the average across the board.
A couple filter coffee.
You may make a much higher margin compared to, say, a pastry that you might buy with it that has a much, much, much lower margin, a much higher cost associated with it.
So once we break apart the costs of a cafe, you can see what's really driving the increase in the price of a cup of coffee.
The cost of hiring retaining staff has really increased a lot in the last few years, especially as coffee cultures have become increasingly competitive.
The more cafes that open, the more barristers are needed.
The more demand the market sees, and that drives up the price is for skilled, capable barristers.
This is meant that the staff cost for cafes has constantly crept up and up and up and up and up.
When I first got into the business, it was only down a 25%.
Now it's easily 35% plus that really has changed.
And I think anyone in any city in the world knows that landlords have been greedy and continue to be greedy.
But let's talk a little bit more about the coffee that goes into each cup.
As I said before, the actual cost of the coffee is surprisingly low.
It's a very small part of the total cost for a cafe.
This means that if a cafes buying really good coffee, it doesn't actually drive their price up all that much.
If you took a cafe serving a really great espresso blend full of coffees, bought ethically and sustainably on that cafe, switch to something really cheap, really commoditized in very low quality.
That cafe may save 15 maybe 20 pence of cost.
That's all the saving there is to be made.
It doesn't really make sense to cut those corners.
It makes sense to ask the right price for something delicious.
But for 20 PM or for 30 p.
Moore, you can have something incredible.
Great coffee is actually incredibly cheap for what it is, even when you're drinking in a cafe with all the associated costs.
So if you're angry at the price of a cup of coffee, that's OK.
But don't be angry at the cafe.
They're not exploiting you.
Cafe owners are not rolling around in piles of money.
If you want to be angry, be angry it at landlord's being greedy and driving up the cost of doing business in cities around the world.
Be angry at governments whose failure to address housing crises have driven up the cost of living in so many parts of the world, too.
But don't be angry at the cafe, especially if they're buying something high quality something traded sustainably.
I'd love to hear your thoughts in the comments down below.