If you take a coffee shop in dublin city I dont see how they make any money. You need to sell an awful lot of coffee and sandwiches to make money on it when you factor in the staff, the cost of the coffee and milk, the cost of the coffee machine. Does anyone know what the markup up is on a coffee?
Hows do they make money....its easy there are too many people throwing it at them. Just take a trip down to your local supermarket and price a bag of coffee beans of ground coffee, it works out at 5euro for about 30 cups of coffee or around 15 cent a cup excluding water I'd guess 5 cent a cup and a splash of milk 15 cents. Now assume that the coffee shops have a wholesale deal it costing them less than that, the grand total cost to them for a cup must be 30-40 cents they then sell it to you for over 2 euro, and that before you throw in the flavorings and a over sized biscuit and a overpriced muffin.
I used to have a coffee shop. Machines are provided free of charge by the distributor, usually. Coffee, as the other poster points out, is not expensive at wholesale level, and he's remarkably close to the per cup cost - 25 to 30c. Staff are at or about minimum wage, so three four cups per hour will pay one persons wages. Our favourite customers are the cappucino crew. By the time it's foamed up to fill a cup there's a very small amount of milk, and you can get €4.00 for one !!!
30c per cup is v. cheap alright, so I can see how you can make good profit selling coffee but not when you factor in rent (which is really expensive in dublin), insurance, lighting, heating etc.... you need to sell an awful lot of coffee to just break even.
But i guess coffee shops must make money or there wouldnt be so many of them.
They do sell an awful lot of coffee. Not to mention sandwiches etc. Theres a constant queue, all day every day in my local one.
There's an interesting analysis in this book, The Undercover Economist
Essentially as nipplenuts said, some people are willing to pay extra(e.g. 20%) for 'special' coffees when in reality it only costs a few cents more than a regular coffee to make.
Good margins for sure.
The big problem with the business now is that you have to pay big key money to get a decent pitch with good passing trade and enough seating.
Good staff are hard to get too.
Make no mistake, there is money in it, but it is quite possible to lose loads of money in the coffee business too!
What starbucks have done though, is extraordinary. Sit in the Mespil Road shop some day and watch the money roll in. It's like magic.
I think Starbucks have succeeded where others have failed by creating a lifystyle along with their brand. To be a Starbucks customer says something about the person you are, what you expect out of life... that sort of jazz, the've cleverly shrouded themselves in this aura of upper class and distinction, at a "reasonable price", so by buying their coffee and getting those elusive comfy seats you instantly feel you're amongst those in that echelon... when in fact you've just been duped to pay above the odds for a mediocre coffee, dry biscotti and a seat stained with what I hope is a frappacino. I personally like SB because they are consistant, i've been to a few of their outlets in various countries and the decor is always the same, the coffee always has the same taste and you know what you are getting for your money. I'll take risks when traveling with food and alcohol, but never with my morning coffee
Can I ask nipplenuts, if you don't mind me asking, why did you get out of the café business if you yourself can see the lucrative side of it, and knew how to exploit it?
Mark up is about 90% Food and drink is the highest profit margin out there.
Bad choice in location, nowhere for parking, poor passing trade, plus - significantly - it was 10 years ago, before Chocka-Mocha chinos etc were cool. We couldn't sell a bagel to save our lives, now you can't move for them
There were other factors, like term of lease, but mostly went out of business through naivety.
When you think about it, a coffee is about€4.00, you'd only probably have to sell 20 an hour to be in profit, the way starbucks pumps the stuff out it's not suprising, also people actually eat their manky over priced sandwiches (That's only my opinion before starbucks sue me)
Not hard to see how they coin it,
Typical Net Margins are 85%. Ask any blindman for details.
I would have to agree that location, location, location is th ekey to success in a coffee shop. Without regular foot fall you don't have business. Our Cafe handles 200 people per day during the summer months but during the Winter we handle about 5 per day. So it is pofitable about 3 months of the year, the rest of the time it works as more of a service than a profitable arena.
The profit on really good coffee is not as good as say a cheaper brand such as bewleys. The money is in fruit and fresh teas, these can easily have profit margin of 90%. Good quality coffee in cappuccinos will have substantialy less.
All the add-ons have good profit, in the same way as extra cover for your Tv, cover for your camera, the add ons is where the money is.
It is a tough business to be in, If you go to the bank and ask for money to set up a cafe they will say no, as there is too many people defaulting on ther payments they see this as being very high risk.
If it was as easy as people think, everybody would be doing it. Now is you can combine an 'image' and 'life choice' with a brand such as Starbucks you are in - as the whole experience becomes more brand than substance.
Now time for a nice Espresso..........
If the location is no good you are going nowhere, but I'd like to think that service, design/layout, atmosphere and quality have something to do with it too ...
Do you use a branded coffee as a matter of interest?