Cafe owner you’re probably undercharging your customers. - Opinion

Opinion - Cafe owner you’re probably undercharging your customers.

You can’t turn on any connected device at the moment and not hear about the global supply chain issues and runaway inflation. It is in every digital print, network TV and cable news program all over the world and in particular in the USA. 

We business owners have managed to navigate our way through an economic shutdown, re-opening, secondary COVID surges, civil unrest, social movements, only to get through to the other side and get blind sided by rising prices all the way through the supply chain. 

During the pandemic we learned how to be nimble, make snap decisions and implemented changes to how we ran our businesses on almost a weekly basis. Now more than ever we have to use those tools we have learned to adapt to a new, more costly supply chain and take a deeper look at what we are charging our customers. 

We cannot make it all the way through 2020 only to collapse at the last mile in 2021 because we did not take care of our bottom line. 

Here is a photo, albeit a not so great photo, of a coffee menu in a Blue Bottle cafe here in Los Angeles. I thought I would share it with you because if any company is an ideal case study on how to price products it might be Blue Bottle. 

Somewhat recently Blue Bottle was acquired by Nestle for a rumored 500 million dollars which valued the company at around 700 million dollars. It is “our” specialty coffee industry's biggest success story by far to date. Ever since they have been on a massive expansion mission across the country and even around the globe. 

The reason why I bring Blue Bottle up is because for all intents and purposes Blue Bottle is still considered to be in our industry that we call the Specialty Coffee Industry. Though some might argue that and I am not going to argue with them, we might assume that they are continuing to buy the same coffees at the same prices as a small business such as Tectonic Coffee. 

Also as they are nationwide and the entire nation is going through the same supply chain issues, I’d argue that Blue Bottle would have their prices set so that they can continue to grow and expand. 

Let me quickly (ok not so quickly) dive into the supply chain woes as it pertains to coffee which, let’s not forget, is a seasonal agricultural product. That’s right, we are in the agricultural game ;-). 

First, green coffee is getting absolutely battered. Brazil, the largest coffee producing nation suffered a frost during their harvest season which reportedly wiped out up to 4% of their crop. As a result, the New York Board of Trade reacted and coffee prices soared to a 10 year high. Prices are so high that farmers are reneging on contracts in favor of the newer higher prices, and importing companies are actively suing them through the courts. 

Second, shipping containers: When the pandemic hit, container manufacturers shut down as demand dropped and as a result, now that products are in such high demand globally, the manufacturers are having an incredibly hard time catching up with the basic construction of those shipping containers. We have had our coffees stuck in countries of origin simply because there are not enough containers available in which to move the coffee... Lastly on this point, we have heard via Red Fox Coffee Merchants that the cost of shipping a container has gone from around $1500 +/- per container to the highest bidder as high as $13,000.00+! 

Third, trucking companies in the country are contending with a 200 - 300k +/- driver shortage which is causing a spike in freighting cost and slower ship times. Plus the cost of gas has gone through the roof which is a cost that is passed straight through to wholesalers like us. 

Fourth, paper goods and supply companies are seeing raw materials going up two fold and are raising their prices to offset.. New import duties and tariffs on China are basically affecting anything that has metal or paper stock in it. 

Then let’s not forget that the inflation rate in the US edged up to a 13 year high of 5.4% in September of 2021 alone. In addition,  California's minimum wage is now firmly set at $15 per hour which currently is not even enough to attract staff during the current labor shortage.

Quite literally in the month of October, Tectonic Coffee received emails from every single supplier we use announcing that their prices were going up from 8% to 18% +/-. This is all before we have even roasted our coffee and bagged it.

We reached out to you, our friends and customers. 

We conducted a very casual verbal survey of our customers' pricing at their cafes over the last few weeks and asked how much was being charged for a to go 8 oz. cappuccino. The range was stark, from as low as $3.50 (which is more inline with 1990’s beverage pricing) to the most expensive $5.00. This means 100% of our customers have room to move their pricing upward if we take all those aforementioned factors into consideration and look at Blue Bottle’s $5.25 (to go) for an 8 oz.cappuccino. 

Arguably one of the most difficult decisions to make as a business owner/ operator is to raise their pricing for their customers. There is no denying that it induces sleepless nights. After all, we do not want to lose our customer base. 

I would counter by saying that there is no other point in history where the consumer is more dialed into the global strains on the supply chain. Never has there been so much media attention on the supply chain woes and the impending price hikes nationwide. For lack of a better word there is literally no “better” time to act accordingly. 

We owe it to ourselves to protect our bottom line, to keep our staff employed and make sure that we still have a business to wake up to on a daily basis during this ongoing crisis. This is not profiteering, rather this is smart business and we need to quickly adjust to the new market. I am urging you to think about your cafe's pricing today and make changes tomorrow. It is time.

I would argue that no coffee beverage in your cafe, aside from a straight shot of espresso should be under $5.00, it is very appropriate for our time here in 2021. 

One last thing to consider and to think about here, is that I have not even talked about the true and “real” value of coffee - our seasonal agricultural product, which has moved from a commodity, into a true artisanal (undervalued) beverage. That would be an entirely different long winded post to write. 

Food for thought and please let me know what you think.

Deaton Pigot

Founder/ CEO

Tectonic Coffee Company