Friday, November 03, 2006

The Economics of the Cup

Keith Martel, here and here, has been having an interesting and important back and forth concerning free refills of coffee at coffeeshops. I thought I'd throw my two cents in (hey, I thought these were free refills), since supposedly I'm supposed to know more about this topic. There are three points that I think need to be brought up: (1) what are we paying for in a cup (2) the americano versus drip debate (3) waste. I don't intend these comments to be taken as a pro-con of free refills, but more as important background considerations to the debate.

(1) Jason and Keith have an interesting interchange in the comments section of Keith's post about the cost going into a cup of coffee. The specific numbers and there accuracy isn't my concern. The thing that does concern me, however, is what numbers need to be added to the analysis. Jason and Keith's breakdown is good enough as far as it goes, but as a business owner, the overriding concern in pricing is not necessarily profit, but place. Each cup of coffee sold provides for our inventory, our labor costs, our tax costs (which are huge and ever growing), our mortgage on the property, the utilities, the care and improvement of the shop/property, the ability to buy more varietals of beans/leaves (for tea, that is--we're not that kind of coffeeshop), debt payments (hey, coffee doesn't grow on trees, at least not in Beaver Falls), and a modest profit to (a) eventually train and skill more people and more locations possibly and (b) get something for the work we put in. Our primary concern is our place and only secondary (if even that) on pure profit. The thing that most consumers or customers or whatever you want to call them don't realize is that every penny they spend on a product isn't for that product: it is for a place. Every time we go to the grocery store, we are supporting the farms and factories and places that the grocer does business with. That is the vital importance of farm markets: our monetary influence goes farther when it is passed between neighbors you, by constraints of space and time, have to share the same geographical area. Every cup of coffee bought at a coffeeshop supports some farmers instead of others (which is very significant concerning some of the social dilemmas that Fair Trade is causing in Latin America and elsewhere); some paper companies and some forests and not others; some corporations and not others. Everytime you buy something, you aren't supporting an abstract product, but a real, concrete place.

(2) Many of my friends prefer the Cafe Americano to any other espresso drink. It is relatively simple (since it doesn't involve the art of steaming milk), but easy to mess up. It is a shot (or two) of espresso mixed in with hot water to make whatever size drink you order. Basically, it is a strong cup of coffee. Most espresso consultants that we have run into have recommended offering the Americano to customers when they order drip coffee. There are a variety of reasons for this. Some are economic (you can sell an Americano at a higher price than a drip cup for less materials cost), some are quality based. Frankly, coffee through an espresso machine--if done correctly--tastes better than drip coffee. The extraction and pressure and saturation and heat time of the espresso machine allow for more favor and less burn to come through in the cup (although, it must be said, most espresso bars burn their espresso so badly or over-extract that the differences are minimal--ideally, though...). So, theoretically, an Americano is going to taste better than a cup of drip. Plus, an Americano doesn't sit in an airpot (or on a burner *shudder*) becoming rancid and tepid and over heated. The difficulty with this in the free refill debate is that each Americano requires barista attention, whereas the drip can be ignored and only requires one period of attention for a large quantity of brew. I've never seen any coffeeshop offer free Americano refills. You are paying for an art and a skill, not just for a caffeine buzz.

(3) This leads into the third problem: waste. Jason and Keith bring this up and rightly so. No coffeer worth his grounds will want to see good coffee (or coffe that you had a hand in preparing) wasted, whether by staleness or the infamous airpot dump out. If he puts up with it, it rends his heart a little bit each time a drop goes down the drain. So what to do :43 minutes after the brew has been made, when the coffee is on a quick, downward slide to viscous sludge? The point is to avoid the problem entirely. This can be done with free refills. However, the owner (and the place) misses that profit from that cup, even though it is good community relations. Keith brings up an interesting point, though, that the PR might be more profitable than the lost cup cost. For most business owners, that would require a pretty dramatic paradigm shift. Since it is largely unprovable, it remains in the entrepenuerial space of "risk." Thankfully, that is a quality that defines entrepenuers. What about what the Little Italian says? 10 cent or 20 cent refills? Is that a good compromise? I'm not sure at this point, but from the ledger it looks a whole lot better than 0 cents.

As of right now, I don't think that BiFC&T has come to a decision concerning the whole issue of refills. We want to be a community place, we want to do well, and we want to do good. Thanks to all involved for helping us think through these issues. And, Keith, bring in your own mug or we will supply you with one in the store. We plan on using real mugs for our in-store customers. Maybe I'll even give you a discount or a refill!

Bottoms up.

5 comments:

Keith Martel said...

This is helpful. I did mean to insist (repetitively) that I realize one is not paying for "a cup of coffee" if that were the case then $1.80 or $1.50 or $.85 for a $ .06 or even $.10 product would be highway robbery. There is a lot that goes into a business, more than I know and with a business that makes money off of a relatively low cost per unit product, this becomes increasingly difficult- takes a lot of coffee to pay Jason Panella. We all know this is why so many shops go under.

Would you agree that shops live or die from specialty drinks and light food items? The standard cup of joe will not carry one through regardless of how many times I fill my cup or if my cup overfloweth.

I am curious Russ what you think of my bit of math with frequency of visit and the earning made from drawing a customer in more frequently with the refill philosophy. I think the equation is pretty consistent for me and probably many others and does not account for the one-cuppers, the to-go-cuppers, and the specialty drinkers.

Regardless of your decision, I will not judge you and I will certainly still show up.

My vote, at least here in BF, would be for drip. I really like good coffee and I do like the CA better than the drippy stuff, but a nice bean dripped in fresh in an airpot is really quite satisfactory, especially for the cost. Offer the Cafe Americano, but have the trusty airpots. My $.02.

Its early novemeber... getting excited...

Jason said...

Hey, when are you guys opening?

Qere Ketiv said...

Keith,

"takes a lot of coffee to pay Jason Panella. We all know this is why so many shops go under." Interesting. I always thought it was when the Starbucks moved into the neighborhood. Turns out it was Panella...never saw it coming.

You are right that the "standard cup of joe" won't keep a shop open. Although, I don't necessarily think it is the speciality drinks/light fare, even if that makes up a significant chunk of the revenue. It is the espresso-based side of the equation that keeps things afloat, plus bulk bean sales.

Concerning your "bit of math", I'm not currently sure, but it makes sense. The difficulty is seeing past the dollar signs that come out of every pump of the airpot--a difficulty I've heard many coffeers have. I would go back to a shop that offered at least some refills on good coffee--EnP doesn't cut it for me on that count. The community aspect does, of course, come in play as a major factor. Can you feel the almost eschatological tension brewing here? (Obscure theological reference and a pun! At midnight!)

John Noonan once told me to make sure that I have a "regular cup of coffee" on the menu because of our location. Many of our neighbors don't care for the "pretention" of the espresso based coffee business. So drip is a mainstay in this area, for now. Since I am such a firm believer in the quality of the Americano over drip, though, I will try and win over our regular coffee drinkers to it. If you are there for awhile working on papers or what have you, though, refills make a lot of sense (does not legally construe as a promise).

We will be happy to have you here drinking drip or Americano or whatever. We also will be more than happy to serve it to you in your own mug--we'd prefer it! It is thoughtful folks like you that make this fun and challenging on levels different than the craft itself. We should really have this conversation over a cup of coffee. Know anywhere that gives free refills?

Keith Martel said...

All of your posts should occur at midnight. Quite enjoyable.

Here's the thing- I want to make sure you know this post was not begun to "strong arm" you into having refills (or big comfy couches or any of the other things). It was bred from excitement for the opening and I wanted to build the dream shop and see others do the same.

It is a hard decision.

As for free refills. Well, there are many- some have better coffee, some have worse- all are drip. Some of the bigboys do it Panera, Einstein, etc. Gross coffee? I have never thought so. But my palate is not so sharp anymore (hey I drink coffee at Perkins).

In State College there was a privately owned shop that did. When I met with students there it was great! And they were VERY diligent in dumping pots if necessary- could set your watch by it. Market Caffe (no really how they spell it- like) in Cranberry. A place down by my parents etc.
One of these places served fair trade- or so it said on the airpot.

Qere Ketiv said...

Keith,

I know you aren't trying to strong arm us. I never thought of it that way.

The dumping thing is always going to be the issue for me. With an Americano, there is no dumping, except if the customer doesn't like it. With drip, it is almost inevitable--I don't like that. I can't do anything about it, though, except when time is short to look worriedly over in your direction, making "drinky drinky" motions and hoping you don't take me for a hopeless drunk.

Bottoms up?