How do coffee shops make money?

homeOwner

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?

parliament

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.

Mr. Presentable

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 !!!

homeOwner

nipplenuts wrote:

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.

CiaranC

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.

PDelux

There's an interesting analysis in this book, The Undercover Economist
http://www.amazon.com/Undercover-Economist-Exposing-Poor-Decent/dp/0195189779

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.

antoinolachtnai

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.

L31mr0d

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?

Lump

Mark up is about 90% Food and drink is the highest profit margin out there.

John

Mr. Presentable

L31mr0d wrote:

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?

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.

Wishbone Ash

homeOwner wrote:

when you factor in the staff, the cost of the coffee and milk, the cost of the coffee machine.

I don't use coffee shops but I presume that rent would be a major cost.

Lump

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,

John

Sonnenblumen

homeOwner wrote:

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?

Typical Net Margins are 85%. Ask any blindman for details.

Gareth Austin

Hi there

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..........

antoinolachtnai

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?

SouperComputer

It might be interesting to note that Starbucks LOST money in Ireland in their first year and expect to loose in the 2nd as well. Like a lot of business really. Personally I find them OK, and I like their sandwiches although the places in Ireland are very hit-and-miss in terms of quality. Same with Bennigans.

Sales however were well above forcasts for them.

/sips caribou

My understanding of coffee shops is that you make your money by running it like an assembly line. Get the customer in, take their money and get em out asap. Ideally you dont want them sitting around. Yes the margins are high, but the turnover is pretty low so you need to keep that till cha-chinging. Throw that on top of the overheads in Ireland its quite a challenge to stay in the black.

Gareth Austin

We use a coffee called global grounds which is a very premium type. www.globalgrounds.com . We tried a few different types at the start but this Global ground seems to be the customer favourite.

Plissken1

Lump wrote:

Mark up is about 90% Food and drink is the highest profit margin out there.

John

No, Jewellery is.. but Food & Drink aint far behind

narommy

Plissken1 wrote:

No, Jewellery is.. but Food & Drink aint far behind

I wouldn't say the Jewellers have the highest margins. especially not the smaller guys. And they also have high stock holding costs compared to many other retail businesses

frobisher

narommy wrote:

I wouldn't say the Jewellers have the highest margins. especially not the smaller guys. And they also have high stock holding costs compared to many other retail businesses

But at least the stock they hold retains its residual value. Food stock goes off and goes into the bin. Money wasted.

antoinolachtnai

Only if you don't sell it ...

Jewellery has fashions and trends. Doesn't necessarily hold its value all that well. Sometimes it is available on sell-or-return, I believe.