5 ms·

Awesome. Money quote: > Hyman received the expected news that the company was opening up next to one of his stores. But instead of panicking, he decided to cal

by alanh 11y ago

Awesome. Money quote: > Hyman received the expected news that the company was opening up next to one of his stores. But instead of panicking, he decided to call his friend Jim Stewart, founder of the Seattle's Best Coffee chain, to find out what really happens when a Starbucks opens nearby. "You're going to love it," Stewart reported. "They'll do all of your marketing for you, and your sales will soar." The prediction came true: Each new Starbucks store created a local buzz, drawing new converts to the latte-drinking fold. When the lines at Starbucks grew beyond the point of reason, these converts started venturing out—and, Look! There was another coffeehouse right next-door! Hyman's new neighbor boosted his sales so much that he decided to turn the tactic around and start targeting Starbucks. "We bought a Chinese restaurant right next to one of their stores and converted it, and by God, it was doing $1 million a year right away," he said. The article was written in 2007. The closing sentences seem a bit prophetic: > "You can't do better than a cup of coffee for profit. It's insanity. A cup of coffee costs 16 cents. Once you add in labor and overhead, you're still charging a 400 percent markup—not bad! Where else can you do that?" Until Americans decide they need to pay four bucks a pop every morning for a custom-baked, designer-toast experience, probably nowhere. Lo and behold, $4 toast is a thing: http://www.psmag.com/health-and-behavior/toast-story-latest-artisanal-food-craze-72676 http://www.psmag.com/health-and-behavior/toast-story-latest-...

gibblz 11y ago
Those margins don't hold a candle to bottled water.
- ironsides 11y ago
  The reality of bottled water profit is that unless you are a retailer, the only way you can make any money is based on insane volume. That requires cash to cover production, machines, warehousing, transportation (this is huge) and terms for your customers. Big box loves to pay in 60-90 days. Try that on for size when you are making pennies on the dollar. Similar to many other categories, the bottled water industry is experiencing a transition into automated manufacturing. This is putting a ton of the mom and pop bottling businesses out. Its become too difficult for them to compete against 24/7 automated production lines that the big dogs are running. The margins continue to be driven further and further into bare minimum/cost threshold by the buyers as they leverage it to drive in customers(door busters). There is a ton of pressure here and its not letting up. The smaller guys can't afford to put the cash up to secure the new hardware and are closing up shop left and right. Costco sells bottled water at near break even as a door buster. This strategy is very similar to what you see in traditional grocery stores where Arrowhead or semi-generic brand is selling for $3.50 a case of 24 bottles. Don't get me wrong - folks like Nestle, Fiji, Smart Water etc. all do well but there is serious cash invested in those efforts. The small and mid size players basically struggle to carve out an existence.
patio11 11y ago
$4 toast isn't nearly as good a business as $4 coffee unless they succeed in making the toast literally, medically habit-forming. That's Starbucks' entire business model: ensure that a caffeinated beverage is part of your morning ritual (afternoon is a nice bonus, but they make a stupendous portion of revenue before 9 AM), get you to do it with the same regularity as brushing your teeth, and ensure that there is a pleasant green priestess very physically convenient when you feel the need to make your obeisance to the caffeine gods. (Says a habitual coffee drinker who came to the habit late in life, and who is very happy he's moderately dependent on a substance which is highly unlikely to kill him, as opposed to being more-than-moderately dependent on any of the number of substances which would stand substantial risk of killing him.)
- th0ma5 11y ago
  Carbohydrate addiction (and sugar) are a thing, right?
- kanamekun 11y ago
  << Says a habitual coffee drinker who came to the habit late in life, and who is very happy he's moderately dependent on a substance which is highly unlikely to kill him >> Coffee will do more than not kill you; it was recently found to confer a "reduced risk of dying from heart disease and certain other causes"! << Compared with abstainers, nonsmokers who drank a cup of coffee a day had a 6 percent reduced risk of death, one to three cups an 8 percent reduced risk, three to five cups a 15 percent reduced risk, and more than five cups a 12 percent reduced risk. There was little difference whether they drank caffeinated or decaffeinated coffee. The association persisted after controlling for age, alcohol consumption, B.M.I. and other health and diet factors. >> http://well.blogs.nytimes.com/2015/11/18/coffee-tied-to-lower-risk-of-dying/ http://well.blogs.nytimes.com/2015/11/18/coffee-tied-to-lowe...
- specialist 11y ago
  There was a toast bar around the corner from our office. Bread supplied by a bakery two blocks down. It was frikkin delicious. Swedish toast, with some nordic cheese and jam. Garlic cream cheese with fresh cherry tomatoes. Avocado. But it doesn't scale. The long queue and wait time deterred customers, with the over flow going to other cafes. The owners tried all sorts of gear to make toast reliably, consistently, and faster rate. (I have no idea why that's a hard problem.) They finally ran out of energy (will to live) and closed shop.
douche 11y ago
Movie theater popcorn is still the gold standard, right? 900-1900% markup, according to this[1] [1] http://www.businessinsider.com/movie-theater-concession-prices-markups-popcorn-2015-4 http://www.businessinsider.com/movie-theater-concession-pric...
- shalmanese 11y ago
  Fountain soda. The cost of the cup is greater than the cost of the liquid inside.
shas3 11y ago
400 percent mark up, yes, but you have to meet volume targets if you have to break even given rent and other fixed costs. Let's say, you pay $5000 rent, another $200 a month for equipment like espresso machines, around $600 for utilities, another $600 for supplies, then you need to sell, 6400/0.16 = 40,000 cups of coffee. That is around a thousand per day. Let's relax the constraints and say, expenses are between $1000-$6400/month between 200-1000 coffee cups a day. That doesn't seem like a very easy target to achieve.
- jasonkester 11y ago
  You accidentally sold your coffee for $0.16 a cup in your example. Try marking it up to $4.00 and your same math leads you to a nice easy profit selling 50 cups per day.
  - shas3 11y ago
    Right, thanks! Ugh.
  - sogen 11y ago
    53.3 wow
arbuge 11y ago
You get much better value from Starbucks or any coffee ship if you use it as an office and hang around for a few hours working off the wifi. When you think about rent savings combined with a decent working environment, the equation shifts. Not all locations are equally amenable to this of course.
bunderbunder 11y ago
At a nice coffee shop, most of what you're paying for is not the coffee. You're paying for the place to sit down, the convenient access to Internet service, the atmosphere, etc. If there were more price transparency in the whole situation, it wouldn't be a flat $3 for a basic cuppa. It'd be more like $1 for a to-go coffee and $5 for sitting in. Or maybe a flat low price for the coffee plus an hourly charge for a chair.
- pconner 11y ago
  At what I consider a "nice" coffee place, I'm paying for a better cup of coffee (preferably roasted in-house or nearby, and a few days ago rather than months ago). What you said is true, but there is some coffee that's priced with a lower relative markup for the drink you actually get. Starbucks bulk-roasts their coffee, and they use darker roasts than most independent roasters (ensuring consistency across locations), which allows their beans to have a much lower per-unit cost.
  - bunderbunder 11y ago
    I was counting Starbucks in the group of "nice" coffee shops. Their markup on coffee might be somewhat higher (though I doubt it; they may have lower materials cost but they also charge half to 2/3 as much as the indie places I tend to frequent do for a regular cuppa), but I bet any difference is still tiny compared to the facilities and staffing costs. I was meaning it more as opposed to places that more-or-less just serve coffee out of a window.
api_or_ipa 11y ago
It certainly costs me more than $0.16 to make a cup of coffee at home. My most recent coffee purchase was for 400g and was ~$14 (so not a super expensive brand). I use ~20g per serving, so my bag of beans gets me ~20 servings. That works out to $0.70/serving in coffee. To be fair, I drink black coffee, with no steamed milk. It's more fair to compare my at home coffee to a regular, $2.00 cup of Starbucks coffee (which is vastly inferior to my at home coffee in quality).

by alanh 11y ago

gibblz 11y ago

Those margins don't hold a candle to bottled water.

ironsides 11y ago
The reality of bottled water profit is that unless you are a retailer, the only way you can make any money is based on insane volume. That requires cash to cover production, machines, warehousing, transportation (this is huge) and terms for your customers. Big box loves to pay in 60-90 days. Try that on for size when you are making pennies on the dollar. Similar to many other categories, the bottled water industry is experiencing a transition into automated manufacturing. This is putting a ton of the mom and pop bottling businesses out. Its become too difficult for them to compete against 24/7 automated production lines that the big dogs are running. The margins continue to be driven further and further into bare minimum/cost threshold by the buyers as they leverage it to drive in customers(door busters). There is a ton of pressure here and its not letting up. The smaller guys can't afford to put the cash up to secure the new hardware and are closing up shop left and right. Costco sells bottled water at near break even as a door buster. This strategy is very similar to what you see in traditional grocery stores where Arrowhead or semi-generic brand is selling for $3.50 a case of 24 bottles. Don't get me wrong - folks like Nestle, Fiji, Smart Water etc. all do well but there is serious cash invested in those efforts. The small and mid size players basically struggle to carve out an existence.

patio11 11y ago

$4 toast isn't nearly as good a business as $4 coffee unless they succeed in making the toast literally, medically habit-forming. That's Starbucks' entire business model: ensure that a caffeinated beverage is part of your morning ritual (afternoon is a nice bonus, but they make a stupendous portion of revenue before 9 AM), get you to do it with the same regularity as brushing your teeth, and ensure that there is a pleasant green priestess very physically convenient when you feel the need to make your obeisance to the caffeine gods. (Says a habitual coffee drinker who came to the habit late in life, and who is very happy he's moderately dependent on a substance which is highly unlikely to kill him, as opposed to being more-than-moderately dependent on any of the number of substances which would stand substantial risk of killing him.)

th0ma5 11y ago
Carbohydrate addiction (and sugar) are a thing, right?
kanamekun 11y ago
<< Says a habitual coffee drinker who came to the habit late in life, and who is very happy he's moderately dependent on a substance which is highly unlikely to kill him >> Coffee will do more than not kill you; it was recently found to confer a "reduced risk of dying from heart disease and certain other causes"! << Compared with abstainers, nonsmokers who drank a cup of coffee a day had a 6 percent reduced risk of death, one to three cups an 8 percent reduced risk, three to five cups a 15 percent reduced risk, and more than five cups a 12 percent reduced risk. There was little difference whether they drank caffeinated or decaffeinated coffee. The association persisted after controlling for age, alcohol consumption, B.M.I. and other health and diet factors. >> http://well.blogs.nytimes.com/2015/11/18/coffee-tied-to-lower-risk-of-dying/ http://well.blogs.nytimes.com/2015/11/18/coffee-tied-to-lowe...
specialist 11y ago
There was a toast bar around the corner from our office. Bread supplied by a bakery two blocks down. It was frikkin delicious. Swedish toast, with some nordic cheese and jam. Garlic cream cheese with fresh cherry tomatoes. Avocado. But it doesn't scale. The long queue and wait time deterred customers, with the over flow going to other cafes. The owners tried all sorts of gear to make toast reliably, consistently, and faster rate. (I have no idea why that's a hard problem.) They finally ran out of energy (will to live) and closed shop.

douche 11y ago

Movie theater popcorn is still the gold standard, right? 900-1900% markup, according to this[1] [1] http://www.businessinsider.com/movie-theater-concession-prices-markups-popcorn-2015-4 http://www.businessinsider.com/movie-theater-concession-pric...

shalmanese 11y ago
Fountain soda. The cost of the cup is greater than the cost of the liquid inside.

shas3 11y ago

400 percent mark up, yes, but you have to meet volume targets if you have to break even given rent and other fixed costs. Let's say, you pay $5000 rent, another $200 a month for equipment like espresso machines, around $600 for utilities, another $600 for supplies, then you need to sell, 6400/0.16 = 40,000 cups of coffee. That is around a thousand per day. Let's relax the constraints and say, expenses are between $1000-$6400/month between 200-1000 coffee cups a day. That doesn't seem like a very easy target to achieve.

jasonkester 11y ago
You accidentally sold your coffee for $0.16 a cup in your example. Try marking it up to $4.00 and your same math leads you to a nice easy profit selling 50 cups per day.
- shas3 11y ago
  Right, thanks! Ugh.
- sogen 11y ago
  53.3 wow

arbuge 11y ago

You get much better value from Starbucks or any coffee ship if you use it as an office and hang around for a few hours working off the wifi. When you think about rent savings combined with a decent working environment, the equation shifts. Not all locations are equally amenable to this of course.

bunderbunder 11y ago

At a nice coffee shop, most of what you're paying for is not the coffee. You're paying for the place to sit down, the convenient access to Internet service, the atmosphere, etc. If there were more price transparency in the whole situation, it wouldn't be a flat $3 for a basic cuppa. It'd be more like $1 for a to-go coffee and $5 for sitting in. Or maybe a flat low price for the coffee plus an hourly charge for a chair.

pconner 11y ago
At what I consider a "nice" coffee place, I'm paying for a better cup of coffee (preferably roasted in-house or nearby, and a few days ago rather than months ago). What you said is true, but there is some coffee that's priced with a lower relative markup for the drink you actually get. Starbucks bulk-roasts their coffee, and they use darker roasts than most independent roasters (ensuring consistency across locations), which allows their beans to have a much lower per-unit cost.
- bunderbunder 11y ago
  I was counting Starbucks in the group of "nice" coffee shops. Their markup on coffee might be somewhat higher (though I doubt it; they may have lower materials cost but they also charge half to 2/3 as much as the indie places I tend to frequent do for a regular cuppa), but I bet any difference is still tiny compared to the facilities and staffing costs. I was meaning it more as opposed to places that more-or-less just serve coffee out of a window.

api_or_ipa 11y ago

It certainly costs me more than $0.16 to make a cup of coffee at home. My most recent coffee purchase was for 400g and was ~$14 (so not a super expensive brand). I use ~20g per serving, so my bag of beans gets me ~20 servings. That works out to $0.70/serving in coffee. To be fair, I drink black coffee, with no steamed milk. It's more fair to compare my at home coffee to a regular, $2.00 cup of Starbucks coffee (which is vastly inferior to my at home coffee in quality).