coffee pricing

I’m not sure the following makes much sense but I haven’t posted for a while so here goes.

How and why do we price coffee like we do? Selling beans is easy as you can work out exactly what you lose through roasting in labour and other expenses and then calculate what you need to make and mark it up accordingly. Coffee by the cup is more complicated as it is a lot more dependent on volume. The question I’d like to discuss is whether current specialty coffee prices are too cheap or is bad coffee just too expensive?

I’m going to say an average espresso price in Australia is $3.50, $4 with 8oz of milk. We charge about this and in our current ‘house blend’ is 2 coffees, 70% of the Rwanda Kinunu and 30% Brazil Passeio. We sell this coffee for $30 wholesale. I realise we save money by roasting our own but there are lots of other costs involved so I’m working on a average cafe buying in their coffee.

As I write this next bit I realise it makes not a lot of sense and is kind of irreverent as no two cafes are the same.

$30/kg = a base price of about 30c per shot or 60c per double. (20gm/espresso)
Milk costs us $3.45/2l = 34.5c per cup (200ml/cup average)
So at $3.50/cup a single shot cap we make $2.85. If you do doubles standard $2.55

After this things get complicated as everything else is based on volume. I’m going to work on being open 6 days and 9 hours a day.
Equipment costs get a little tricky, the lease payments on around $20k worth of gear though (2 grinders, Synesso or Marzocco, water filters, fridge) is about $350/week.
A bank loan for the fitout of $40k would be around $300/week.
Staff costs are about $22/hour for a barista. 2 baristas @ $22 x 8.5 x 6 = $1122/week
Rent and outgoings are going to be $40k/year = $770/week

So our costs per week are $2542
Coffee profit is $2.85
2542/2.85 = 892 = the amount of cups you need to make to break even. I think this setup could do 1800 a week with 2 people though. That would equal $2,588 profit. I think I missed something because that’s a lot.

If you go in cheap though and buy $2 milk and coffee for $20/kg you can make $3,038/week profit. You’ll probably get a free fridge with a big milk supplier also.

So if you take 2588 from 3038 you get 450 divide by our 1800 coffees and it comes to 25c extra the good cafe should charge to make the same profits as the one using cheaper gear.

Like I said above this makes no sense though and now its written I feel like I should delete it but I’m going to leave it in as it took a while to write. There is a few reasons it doesn’t make sense. Firstly people should pay more for atmosphere, time spent in the cafe, and experience as these things all cost much more money to deliver. Is it value for money to have 2 people share a $5 pourover and take up 2 seats for an hour? Is an espresso pulled on a Strada worth more then one pulled on a Linea? Does a more expensive fitout deserve a more expensive coffee?

There are lots of cafe owners not doing great every week and making less money then they would if they had jobs, but enough to stay open. Everyone of these cafes takes a little profit from the others and you end up pushing everyone to the point where it’s all a bit of a waste of time. Volumes for individual cafes drop so the cup price needs to rise and it goes around in circles.

So how do you price?

Perceived value vs actual value.

Good packaging is perceived value, good coffee roasted well is actual value. People will pay good money for both, however long term the actual value needs to be there or things will start to break down. This is important for pricing also as a higher price will add perceived value but it must be justified long term with a great product or people will stop coming back. Education is important here. I remember a very good roaster talking about selling coffee for a high price by just naming a famous farm. Farms are becoming brands now and a common misconception is trusting a farm name to mean great coffee. I’ve been given coffee from famous farms that was 2 years old (before roasting) and it was terrible. The roaster was so proud of it and happy to tell everyone when it was from and how great it was.

Its like the filter coffee is too expensive argument. Less coffee in, much less equipment needed but a higher price. You can’t really argue that labour costs are high as it takes more time as the only reason it’s slow is because demand is low, if you had to make 300 cups of filter coffee a day you would find a way to do it fast. That would be like me charging more for my roasted beans because I roast on a 5kg roaster.

I think in the end you need to price according to your location and market, not by comparison to others. Don’t expect people to pay lots for coffee when they don’t care. Education is important but specialty coffee isn’t for everyone. Know your market before you open and if there isn’t demand for something special then maybe you shouldn’t try to push it. At the same time if you are doing something great in the right location don’t be swayed by people telling you you’re to expensive.

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Cupping espresso

I struggle cupping espresso roasts and I’m not sure it really translates. At the moment I just find it best to taste espresso roasts as espresso but sometimes I think the variables make this hard also.

Still not sure of the best option, if anyone reads this it would be nice to have a comment on how you or your company does it and why you do it that way.

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water

I’ve been messing with water a bit lately and also talking to as many people as I can about it. Thoughts are spread pretty wide on what is best for coffee and I still haven’t really worked out what to do with ours.

We ran an RO (reverse osmosis) unit with a re-mineraliser on it for the first 18 months of being open. The water tasted great but lately I’ve been seeing a few reasons it might not be the best option for coffee. Brisbane tap water I’ve found is pretty average-high in terms of ppm (170), its also pretty high in chlorides and add to this heat and acid and it’s great for eating holes in stainless steel boilers. Which I’m hearing a bit of lately and makes me wary of putting the wrong filter on our machines.

I’ve been told RO takes out the chlorides and also that it doesn’t really, so still chasing an answer on that one. The RO water without correct re-mineralisation is also more dangerous to the machine then straight tap water. Which makes it a tricky option to go with unless you are constantly testing your water.

I have however found a stand alone re-mineralisation inline cartridge which looks pretty good. At the moment I’m thinking I’d like to have a big custom RO made and then run separate mineral cartridges before each machine/boiler with changeable bypass settings and litre counters so we know when to replace them.

Does anyone have any thoughts on this?

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the cost of competition

Disclaimer. This post will most likely come off as me hating on barista comps, which is not my intention as I have competed before and do mostly enjoy them. However.

They cost way too much money and the current structure promotes spending money. I look at this 2 ways. Firstly you can look at the comp as you would with any competition and say to be the best in the world you should put the best in. People have argued that simple setups can win but the reality is they don’t. If 2 people did the exact same routine and one had nicer cups, table setting, glassware etc, they would score higher. This makes the fancy setting nessesary. I’ve talked to people who have spend over $3000 on their setups, this is a waste of money for anyone unless you win.

For a quick breakdown. Lets say you have no backing from your place of work.
Entry fee – $370, this is expensive and just the start. You will also need a solid table setting, glassware, cups, appliances. The more custom made the better.  What about coffee? Including test roasting and coffee for the day you can go through 30-40kg easily. You need at least one grinder, which will have to be a very good one if you want a shot at winning. To say you could use the provided grinder is ridiculous for a few reasons.
Then there is time, runthroughs etc, lost work time when your at the comp. Also travel money, flights and accommodation etc.  This can easily add up and it is most often reflected in the results.

If all of this is paid by your workplace I would say go for it, it will be fun. If not, I would recommend saving the money and traveling to origin or doing a quality roasting course.

I think they should standardise the table setting, drop the signature drink and add brewed coffee. This would reduce costs and test real world skills.

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little story

This is a little story I wrote recently for Beanscene magazine and thought I would post it here also. This is the unedited version (with grammer mistakes).

The coffee industry, especially the specialty side of things seems to attract lots of talented people. It’s not that I believe making good coffee doesn’t take talent but sometimes it feels more like a fill in job. Something on the side to make money while we study to be become someone more important. Yet coffee continues to draw these people in. Whenever I advertise a barista job I’m given resumes which don’t seem to fit and while sometimes I feel like telling the person to get a ‘real job’, the truth is I was exactly the same. Qualifications to be a carpenter and designer but all I wanted to do was make coffee.

So where is the link between creative people and coffee? Coffee can be very frustrating, and questions always seem to lead to more questions. As an organic product you can do the same thing twice and get different results. Why is coffee from a particular farm different from one year to the next? Who’s to say even 2 bags from the same farm will taste the same? Do they separate varietals? Do the farmers do one pass and pick everything or only pick the ripe cherries? How washed is the semi-washed or honey process coffee from this farm? All this before we get to shipping, roasting and then brewing the coffee. At the same time this is what attracts people to it, the frustrating nature of coffee pushes creative people to get creative. Trying new things, evolving processes and problem solving until you finally finish with an beautiful cup of coffee. Only to find yourself thinking 5 minutes later, if we tried this or that, maybe it would be better.

Maybe it’s just a desire to create something beautiful, something lasting. While most people see coffee as an everyday thing, and I’ve probably had at least one coffee nearly every day for the last 10 years, I don’t remember hardly any of those coffees. Yet I still remember the first real (not instant) coffee I ever had. It was at a cafe named Beachwood in the little coastal town of Yamba, about 17 years ago. I was on a family holiday with my parents and 2 sisters and we would go to this cafe each morning for breakfast. I remember eating pancakes with strawberries and drinking hot chocolate everyday. It was near the end of the holiday and seeing my Mum and Dad enjoy their coffee everyday I decided to try one. At the time it was just coffee, but now I realise it must have been pretty good because every time I drink a washed coffee from El Salvador with milk it reminds me of that place. The cafe has since moved around the corner but is still serving great coffee and food from the same owner. Another coffee that has stuck with me for a long time is the first really great espresso I ever had. I was in Sydney for a design related trip and had to check out Mecca in the city on some friends recommendations. I ordered an espresso, some sourdough toast and jam and sat outside. It was a nice sunny morning and I watched the multitudes of people coming and going very quickly with their takeaway coffees, I’d never seen a place so busy. Even still, my coffee arrived very quickly. It was like they had melted chocolate in the cup, it was so sweet. I’d never tasted anything like it and although I’ve probably had better espresso since, they haven’t stuck in my memory like this one. I went back the next day and was lucky to chat with Paul who told me they had just started roasting their own coffee a few weeks earlier. I still compare my own roasts to that memory sometimes and think about the path that coffee took to get to me. Every hand it took to create something beautiful that has stuck with me for years.

I can see people reading this and laughing, it’s just coffee after all. I think it can be more then that though, and the desire to create something lasting should be in everything we do. A craft rather then a job, to create something beautiful.

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good to know

Some good things to know if you’re opening a cafe anytime soon.

Patience.

If you do anything well for long enough it will grow. Look at the cafe down the road full of people and serving the same product as they were 10 years ago. It’s easy to see that and say, I can do better product and service in the shop next door and I’ll get all of their business, but that’s generally not how it works.

It takes time to get customers and build a reputation, there are exceptions, but if you’re reading this then you’re probably not one of them.

It also takes time to train staff, and training rather then hiring ‘qualified’ staff is nearly always better. So be patient, don’t expect things to happen overnight. Don’t expect your new barista to be up to speed on day one, if you don’t train them then don’t complain there is no qualified staff around to hire.

Cash.

I would say keep about 40% of your years rent in the bank as a backup. So if your rent is 50k/year then keep 20k in the bank and only spend money on things when you have more then 20k. This is pretty optimistic but it would be nice and save lots of stress.

This is for a few reasons but a good one is for when opportunities arise. I once saw a 3grp la marzocco fb80 that was about a year old sell for $2500 just because the buyer had cash ready to go. The other main reason is also the next point.

Things do go wrong.

20111220-190820.jpg

Last year brisbane had a flood. Although the water didn’t directly get that up to our shop in the end, it still messed things up pretty well and I estimate cost us around $10,000 in problems that followed.

You can’t predict things like this but they still happen. Machinery will breakdown, staff will be sick, things will wear out. The emphasis is on the ‘will’ so allow for it.

Help people and make friends.

The cafe across town is not competition, they can be your friend. If other people need help then you should help them. Not for profit or recognition, but just because they need help. This industry can get tough sometimes and I know I wouldn’t have survived without industry friends.

Service.

Service should rank number 1 on the list of importance. It needs it’s own post. Give good service, provide the best product you possibly can and look after your staff.

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2011 favorite coffees

I want to be good at what I do so constant improvement is important. If my coffee this year is not as good as last year then that is a major problem. Something I didn’t like about last year was I felt I purchased to wide a range of coffees and my roasting suffered because of it. I felt like people wanted lots of variety but more variety = more test roasting = more profiles = more tasting = more time, which ended up running out. So this year I purchased less variety of coffee and just went for bigger amounts of what I personally prefer.

So my favourite coffees for this year.

Suiza – El Salvador.
We only just recently got this lot in and it has been amazing. Really sweet, big fruit flavours. Just an all round great coffee.

Santa Clara – Guatemala.
I love this coffee and got lots this year. Its currently 30% of our blend but thats set to rise after Christmas. It’s the first coffee I ever roasted at our shop and I think if they keep picking it I’ll keep buying it every year.

Alto Palmar – Colombia.
Another coffee I bought quite a bit of (for our size anyway), you knew this coffee would be great even before brewing. Amazing aroma. I remember a customer bringing in a roast that was 8 weeks old and asking if we could grind it as they were on their way to a friends house. We did, and it still smelt amazing. This also made up a big chunk of our espresso blend for a few months.

La Perla – Guatemala
Sweet red fruits and honey. Perfect combo. Another coffee that made a great pourover and also sat in our espresso blend very nicely at 85% for a couple of months.

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single origin = better

This seems to be the general attitude towards coffee in Brisbane. It comes from the cafe model of

  • buy great coffee and advertise the crap out of it.
  • buy average coffee, blend it, then serve that to all the people who just want nicely steamed milk.

And it works, mostly. Partly because of miseducation and partly because we sell a lot of big milky drinks in Australia and average is good enough. As a cafe owner why spend more on coffee when its going into a 12oz cup with milk and 2 sugars?

The problem being this doesn’t move us forward as an industry. If we know better then we should serve the best we can in every cup.

Edit- this post might need a little more explanation, so I recommend you read the discussion in the comments.

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places i’d like to visit

Phil & Sebastian - https://www.philsebastian.com/

Why.
One of our best baristas came out of Phil & Sebastian in canada. Everytime he goes home he brings back delicious coffee from there and because of the link up I see lots of photos from their shops which all look great.

Prufrock – http://www.prufrockcoffee.com/

Why?
Gwilym came to visit us at cup when he was world champ and the whole time he was here all we did was talk coffee. Really nice guy. I’ve had a few friends visit his shop in London also and they all say it’s the best coffee they had while there.

Four barrel - http://fourbarrelcoffee.com/

Why?
I’m kind of obsessed with it just from looking at photos. It’s also pretty much everything I want in a roastery. We had a few coffees from there also last year and they were really nice.

3fe - http://3fe.com/

Why?
I like Colin Harmon. I’ve never met him but I like everything he writes. I like his passion for great service and his attitude towards coffee. My sister visited his shop just after he won the national champs a while back and said it was some of the best service she has had and the coffee was really great.

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roaster mod

We did a simple little mod to the roaster the other day (probat L5) which has worked out really well. I was finding cooling times a bit slow especially on hotter days and noticed a lot of heat coming from the bottom of the roaster over the cooling tray. We installed a piece of heat deflecting material which was designed for use in cars. You can now stick you hand right under the deflector after 15 roasts and it’s still cool underneath.

Cooling times have dropped and the coffee also gets down to an overall cooler temp in the tray on hot days.

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