We’ve all heard it before: “Why am I paying $6 for an iced oat milk latte, when I can get a bag of coffee beans at the grocery store for only $12?”.
It appears to be an obvious rip off. Per single coffee a handful of coffee beans, water and milk is maybe $0.50. If you are billed $6, this is an insane markup.
So are cafes fleecing you?
Economically: no. You aren’t paying for the liquid in the cup, you are paying for the gigantic fixed costs needed to deliver that cup into your hand.
1. Property & Expenses
The coffee shop should be located in a prime area with lots of traffic- close to train stations, busy street corners or downtown office buildings. Prime real estate will be rent expensive on a monthly basis.
Include commercial espresso machines (which, for some of us, cost $15,000+ each), electricity, refrigeration, insurance, and waste. Your beverage’s raw materials account for a small part of what the shop has to shell out to get that cup to you.
2. High Labor Intensity
Specialty beverages require human labor. A cashier at a grocery store can quickly scan through dozens of plastic-wrapped products in a minute or two, but a barista will spend 1 to 3 minutes preparing a drink. You’re paying for the labor cost per unit, which is higher for made-by-hand food and drink.
The Verdict: Myth Busted
It’s not that the coffee costs too much. It is that the customer is paying the rent, the wages, the power bills, and the luxury of hanging out in a room where the heat is on and you get free Wi-Fi for two hours.
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