Whether you are opening or starting a coffee shop business, you must maintain a certain margin in order to be profitable. Even if you are new to the coffee business, you probably know the reasons behind the green price hikes these days in the specialty coffee industry. Right now we are in a tough economy there is no doubt. The coffee market is up so high the price of green coffee in most cases is double what it was a year ago and in some cases triple. It’s hard to imagine paying more for fresh roasted gourmet coffee beans as well.
Being in the specialty coffee business is a lot harder than most businesses since the margin is small to begin with. Couple that with here and now in 2011 and I think more shops and roasters will close. I don’t want to think that but unfortunately I believe it will happen. As a lot of us struggle to make payroll, rent and the rest of our overhead we need to be sure that we are on top of our game and hit the cost increases from the get go.
A few weeks back I wrote a two part article series about how to stay profitable that without a doubt are words to not only consider but implement if possible. However we must not forget about our pricing structure. I cannot tell you how much to raise your prices; that is only something that you can do. Sometimes it’s a nickel, sometimes it has to be 10 cents or even a 25-50 cents. However I can urge you to do it for business sake. If you are just starting a coffee shop business then you must price your menu and coffee beans correctly from the start.
Increase has hit everything however: not only coffee but sugar, milk, grain, paper, transport, rent and other overhead. We are faced with a dilemma: buy cheaper products or increase prices. I think we know what needs to be done if we want to remain in the quality game. We must, however be prepared to educate the public as to why because we will hear some negative things about it. I think they will be minimal though.
We must also remember to be sure we raise prices to be profitable and not just to cover the increases. Most of us are passionate about coffee and look at profit last, however profit makes being in business seem much less risky. To not raise prices will be harmful to our business. The increase must be all around however, not just on whole bean coffee or brewed coffee.
In my small artisan roasting business I am very careful to not take on much more wholesale business. Seems odd I know but my reasoning is that since wholesale green prices have increased (we pay 2 or 3 times what we paid a year ago) that we can barely double our wholesale prices and make much of a profit after costs. I am focusing on retail, but I have that option being a roaster as I can roast my own coffee; most retailers do not. The summer season is coming upon us in my area and we’ll be hitting the farmers markets retailing our fresh roasted coffee beans again.
I think it’s plain and simple whether you are open for months or years, or just starting a coffee shop business: If we do not raise our prices in accordance with our costs then we will inevitably not be in business for the long term. Some customers will understand this and some will not. The ones that do understand will be our loyal customers and will gladly pay the increase as long as they keep getting the same high quality product and service we have always provided. Those customers that leave for a ‘cheaper’ product will most likely be back when they want quality again.
My name is Tony DiCorpo, and I am a coffee roaster, coffee shop business consultant and barista trainer. I am a coffee shop business consultant and have an eBook on how to start a coffee shop. I also own Troubadour Coffee Roasting Co. where I sell coffee and espresso equipment and where you can buy gourmet coffee beans.