Coffee is Better at Home
The economics of specialty coffee cafes in metropolitan areas are becoming unsustainable. In this post, we'll work through the costs of serving a quality cup of coffee to provide transparency into coffee pricing, and then show you how much less you can spend on coffee by brewing at home.
Cafes are Expensive to Run
There are a few large cost areas for cafe owners:
- Rent
- Staffing costs: salary, benefits, insurance
- Cost of goods sold: coffee beans, milk, cups, supplies, etc.
I'll apply some basic math here to get to an average price per cup to arrive at a break even point.
Rent
Retail rents in New York vary greatly based on size of space and location. When I was looking for a shop, I managed to find several spaces that averaged around $4,000/month for 300-400 square feet of space. That's tiny, I know. But it was what I could reasonably afford.
Staffing Costs
Even a small shop requires at least two people per shift: one person behind the espresso machine and another behind the register. If your shop is open from 7am-5pm, you'll need to cover 20 hours per day in salaries. At $15/hour, that's $300/day. Extend that to a month, and that's $9,000 in salaries for just two staff. Realistically, you'll need at least one more person, or a manager, so let's bump that figure up to $13,500/month. Let's assume a payroll burden of 25% (taxes, insurance, benefits, etc.). That takes our monthly staffing costs up to $16,875.
The Price of Coffee (COGS)
If you are a shop that is buying roasted specialty coffee wholesale, you're paying anywhere from $10 to $15 per pound of coffee. One pound of coffee will produce approximately 18 cups (12oz cups) of coffee. This sets our cost per cup of coffee between $.55 and $.88. If we add milk, and the cost of paper cups, that's an additional $.10 total. To make things simple, let's say the average cost of a cup of coffee is $1.
Bringing it all Together
| Fixed Costs | |
| Rent | $4,000 |
| Staffing | $16,875 |
| Taxes & Utilities | $2,000 |
| Monthly Cost | $22,875 |
| Daily Cost ($22,875 / 30.42 days) | $751 |
If a shop sells a cup of coffee for $3, it is contributing $2 towards covering the daily fixed cost of $751. This means that a shop would need to sell 375 cups of coffee a day to break even. If the price of a cups goes up to $4, we're looking at a more reasonable 250 cups of coffee a day to break even. All of the above is excluding other costs such as corporate income tax, marketing, initial capital investment or debt, etc.
The Cost to the Consumer
As the cost of doing business continues to rise, the price of a cup of coffee becomes more expensive for the consumer. This is why it's not uncommon to see prices in the $4-$6 range at specialty coffee shops. Let's keep playing with the math to see what a consumer that is having 2 cups of coffee a day spends in a week by buying coffee at a specialty coffee shop:
| Cup of Coffee | $4 |
| Sales Tax 8.8875% (NYC) | $.36 |
| Tip | $1 |
| Total | $5.36 |
| 2 Cups/Day | $10.72 |
| 5 Days/Week | $53.60 |
Coffee Is Better and Cheaper at Home
I believe that consumers will move away from spending $50+ a week in cafes to brewing more coffee at home. The reality is, you can make better coffee at home, for significantly less than what you pay at a cafe. All you need are a few basic tools and about 5 minutes every morning. Let's see how much you could save by brewing at home:
| 250g bag specialty coffee* | $20 |
| 25g / cup of coffee | $2 |
| 2 cups/day | $4 |
| 5 days/week | $20 |
| Money saved/week | $33.60 |
| Money saved/year | $1747.20 |
You're probably thinking: "yeah, but I'd have to buy all kinds of equipment", and you wouldn't be wrong, but the initial investment into brewing great coffee at home isn't as high as you would think. The basics you need are a quality grinder ($75), a proper setup for the kind of brewing method you prefer (pourover - $10, french press - $20-$100, etc.), and a scale ($25).
And, of course, you need specialty coffee!