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 has 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 going to 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 going to talk about the
UK which is obviously different in some
ways than other places you go and you
spend three pounds on a cup of coffee in
a good cafe well where does that money
go well in the UK the v80 that the tax
rate on coffee is 20 percent so 50 P of
your 3 pounds go straight to the
government the net revenue for the cafe
is only 2 pounds 50 so let's divide that
2 pounds 50 in a cafe about 30% of the
money that a cafe 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 administration leaving 10% on a
good day there's profit for the owner
that's 25 pence on a three pound 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 models will vary in some
places let's say Shanghai you might have
a very high rent and 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 percent
profit and
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
variants some cafes will pay more to
staff some pay less and will pay more
rent some will pay less wait wait wait
you might say if I go to a nice cafe and
I buy a four pound cup of filter coffee
there's no way that there's one pound of
product costs even if they're 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 cup of 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 a price of a cup of coffee
the cost of hiring and 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 baristas
are needed the more demand the market
sees and that drives up the prices for
skilled capable baristas this has 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 at 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 cafe is 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
and that cafe switched to something
really cheap really commoditized and
very low quality that cafe may save
fifteen maybe twenty pence of cost
that's it 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
but 20p more of a 30p more 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 okay 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 at at landlords 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 as always I'd love to hear
your thoughts in the comments down below
thank you so much for watching and I
hope you have a great day
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 has 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 going to 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 going to talk about the
UK which is obviously different in some
ways than other places you go and you
spend three pounds on a cup of coffee in
a good cafe well where does that money
go well in the UK the v80 that the tax
rate on coffee is 20 percent so 50 P of
your 3 pounds go straight to the
government the net revenue for the cafe
is only 2 pounds 50 so let's divide that
2 pounds 50 in a cafe about 30% of the
money that a cafe 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 administration leaving 10% on a
good day there's profit for the owner
that's 25 pence on a three pound 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 models will vary in some
places let's say Shanghai you might have
a very high rent and 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 percent
profit and
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
variants some cafes will pay more to
staff some pay less and will pay more
rent some will pay less wait wait wait
you might say if I go to a nice cafe and
I buy a four pound cup of filter coffee
there's no way that there's one pound of
product costs even if they're 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 cup of 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 a price of a cup of coffee
the cost of hiring and 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 baristas
are needed the more demand the market
sees and that drives up the prices for
skilled capable baristas this has 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 at 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 cafe is 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
and that cafe switched to something
really cheap really commoditized and
very low quality that cafe may save
fifteen maybe twenty pence of cost
that's it 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
but 20p more of a 30p more 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 okay 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 at at landlords 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 as always I'd love to hear
your thoughts in the comments down below
thank you so much for watching and I
hope you have a great day