#9 Is the Price Right?
This particular blog comes about after an industry talk hosted at Local Brisbane Legends Dramanti Coffee a few months ago. The talk was focused predominantly on running a profitable business in the coffee industry in 2020. Upon the commencement of the Q & A at the end of the night one question in particular stood out for me, a café owner asked;
“When do we get to start charging more for coffee? Our overheads have increased significantly over the past few years as an industry and yet the coffee price in Australia stays the same?”
The question got me thinking that the retail price of a cup of coffee is perhaps only half of a much wider picture. While I do not begrudge them the question, I do feel the concept of putting the price up at the consumer end culturally is considered the silver bullet, the idea that the only objective between coffee businesses and profit is the amount paid for a cup of coffee is simply not true.
It oversimplifies the way business owners market their product and how we build a perception of value in the minds of our end customers/consumers. While I understand some businesses in their structure do indeed feel trapped in their cost of goods vs their retail price. The greater question business owners should ask is, why does our coffee deserve a higher price & does the customer receive a higher value? I also feel as if the Australian roasting community does not often consider how already weighted in our favour the coffee pricing structure really is. Is this a profitability issue after all? Or a structural issue in how businesses create coffee and markup products.
Lets go back abit:
A lot of business owners in the Australian marketplace are continually decrying their inability to make a profit. They are forever analysing their margins and profitability across the range of products offered in cafes. Often it’s said that coffee is unable to increase in quality, because the customer is fixed on their price point and will not budge. But perhaps we need to consider our own margin and what percent of a mark-up we are expecting from our green coffee to recieve at shelf price.
Additionally we see more and more specialty roasters abroad, especially in Europe add the price paid for green beans to their packaging, we see reluctance on the part of Australian coffee roasters to follow suit.
Is this coincidence? Or is it something altogether more sinister. Add to this the discussion that Australia is moving away from true specialty . We are engaging a policy that there is room for both commercial and specialty grade beans in a café. This is completely at odds with global movements in specialty which are becoming more and more aggressive in their assertion that their product is not only better, but completely separate from the commercial coffee template we see played out across many consumer cultures since the 90’s.
For example the gridlock of pricing decried by Australians is almost completely irrelevant in Portland Oregon, companies their have robust and well curated high quality coffee menus. These menus are unashamedly more expensive, but also use better coffee than what can be seen being used by their Australian peers.
A friend of mine, showed me a Guatemala procured by their specialty coffee employer to go in a milk blend, they remarked it was “one of the expensive ones to fill out the middle of the blend.” Anyone unfamiliar with the mixology of coffee blending now would be a great time to jump over and check out my previous blog blending: the basics. My friend was implying this was one of the better coffees added to their bestselling coffee, which is their milk based house blend. I enquired to the price and it was“$6 a kilo.”
Whether the numbers are exactly true or not is debatable but this is a sentiment I come across a lot, using coffees that are ranging between $3-6 a kilo is not uncommon. Indeed I myself offer a percent of cheap friendlies (no shame complete transparency), but what I attack here is the shift in mindset I see. Using only cheap coffees and omitting better grade ones over the top. Another well-known coffee roaster uses coffee of such a poor quality they require the use of a destoner (used to remove rocks from bags of green coffee standard practice), but in this case is also being used to remove metal and wood that has become mixed up in these cheaper coffees! This indicates a lack of care in the sorting of the beans at origin. Usually for sorting to be this poor its either a massive tree stripping exercise of all the coffee cherries in one pass or a mechanical harvester shacking branches of every cherry. both indicative of a bean that will eventually become a very ver cheap commercial grade. .
Let’s probe a little deeper though, I hear the shocked responses from many of you reading this: but Cal, on your high horse passing judgement on others, if they removed the wire its ok, if its $6 but tastes good surely it’s not wrong?
Again I come back to the shift in mindset from my own blending methodology. Several years ago the consensus was around cramming as many coffees that had cupping scores OVER 86pts into blends, indeed this was a trend that coincided with higher coffee prices than we are currently seeing. Even with the upwards trend since November last year of the C price (that’s the commercial coffee price as dictated by Wall Street) largely the industry as a whole or at least those identifying their branding as ‘specialty’ used a few cheapies to keep the overall price down and threw 25%-50% of premium higher scoring cupping lots. As an industry it was our pleasure to show these beautiful coffees mixed into the milk to as many new converts to specialty coffee as we could. Worryingly now I am seeing a lot of roasters omit the expensive coffees and just put cheapies in the blends to 100% of the volume!
So cheap coffee is being sacrilegious?
Not quite, but we can see a subtle if widely felt shift in how good coffee is showcased and used by the industry as a whole and it is hardly encouraging. So what Changed? Do we feel we are not being held accountable by our customers to deliver quality anymore? Surely roasters still receive negative feedback and want to improve?
Retail wise, years of solid education of the consumer has paid off. We are seeing greater numbers of Australian micro roasteries charge anywhere from $45- 62 a kilo over the counter. Good money by anyone’s estimate, but for cheaper and cheaper coffee! If we consider a ‘middle road estimate’ of $53 and a green coffee price of $7 per kilo that’s an almost 800% mark up on the green price!
So I know what you are thinking now: yeah but Cal, the green price isn’t the only overhead in the equation? What about wages, packaging, roasting expenses etc. couldn’t these overheads be worth a few extra bob?
A point has been made, however let’s just put this into a percentile context. Commercial pubs and the restaurant industry as a whole run off around 100% mark-up to cover all of these outgoings. This means a $30 steak and chips; excluding wages should be assembled for around $15 cost price. It is a respectable mark-up for a meal, as it leaves a profit for the operator after rent and wages of between 7%-20%. I’m all for businesses making a profit and believe no business should be ashamed to admit they are doing well…. But going back to our kilo price vs green coffee 800%?!
To further reiterate this silliness, imagine a steak and chips dinner with a small salad being priced at $120 per serve. That business model isn’t going to last long, the consumer won’t pay, and they will realise the actual cost resulting in them going elsewhere.
This is happening to coffee and our end demographic, the over the counter consumers and connoisseurs are realising. Thank to the years of education and discussion that was started by our community in the first place. This is occurring after almost a decade of us handing out flavour and info cards with our products. After almost a decade of ethical and sustainable marketing being festooned across our business fronts and our products. And after a decade of mission statements and values stating, flavour above all else.
The end consumers are genuinely in their thousands tasting the cost of cheapness, we have moved the mean average coffee drinkers taste acuity up. As more and more coffee shops pop up we seem to loose just as many consumers to the $1 coffee, as we gain from exposure. My argument is maybe they are realising that the specialty coffee industry as a whole is flogging the same dollar coffee as the corporate mobs. In some cases this is literally true; the same cheaper coffees I am blending at 25% in Midnight Oil are sold by others as Single Origin special releases. Despite the marketing of that particular coffee as a reserve single, it does not fool anyone and they are failing to get repeat patronage with these coffees.
On a deeper level they are realising that the purposely ‘specialty coffee’ in the blends being presented is just a dark roast cheap Brazil, knocking about with a Colombia of dubious pedigree and they aren’t buying the shtick anymore. They taste a bit of chocolate and nothing else and can get a similar product on the seven eleven counter.
Sadly these customers have closed their minds off to our world now, they feel exploited and it’s hard to build a perception of brand value in the mind of a customer after they start to feel that way. I feel the industry has started to notice the effects of this shady dealing as well. Cafes are not making the higher low hassle margins they used too in a peak takeaway crush. Partially due to saturation of cafes granted, but I feel there is a group of consumers who feel they have come to understand the product being served and are no longer as enthused by it as they once were. We need to be pushing better grade coffee for everyone and aiming to exceed customer expectations.
We need to be inspired by our principal product again; I talk often of the absolute must for baristas to add value to every sale by giving out knowledge on the bar, but their also needs to be coffees that have serious value to back that up. This conviction from the back of house needs to be completely legitimate with the front of house ethos and marketing presented to the customers for it to succeed. I’m not going to lay out a pricing plan that I find reasonable here and neither do I claim to have all the answers, but the industry needs to stop being so greedy and aim to use coffees that arouse magical feelings from both customers and industry peeps alike.
I play host to a lot of secret confessions from industry peeps visiting Blue Sky, they hate the cheap coffee that management is buying and many of them don’t particularly relish the idea of selling it to their customers. A business can only get so far with this as its most basic foundation.
I guess the conclusion here is honesty; we need to present what we sell. We need to sell what we know; we need to know our product back to front. Don’t aim to maximise products. Aim to exceed customer expectations.
Keep brewing, Cal.
Postscript:
This article was started in February and I have endeavoured to finish it with the mood and musings that I commenced its writing with. However I cannot ignore that Covid19 has changed the hospitality landscape irrevocably at the time of posting this. While in a marketplace of mass joblessness and cafes closing down the frankest passages here may feel unkind, I cannot escape the fact that I myself still stand behind these comments.
My feelings are that this article is correct in its assessment of the unrealistic commercial pricing of many “specialty roasters”, their crisp marketing alongside insincere products has inadvertently destroyed many cafes/accounts they claimed to ‘support’ as the only things customers wish to spend their limited expendable income on are items they associate with high value and enjoyment. The companies that will get through this on a strong footing will be the cafes and roasters that can provide something greater than a product: an item that is essential to a person’s own routine supported by a group of individuals the community cannot conceive of doing without.
As former American President Barak Obama is famous for saying, its important to be on the “right side of history” and not to look back and find you devoted a lot of your time to the converse “the wrong side of history”.