Preparing your coffee business in the face of rising costs

Nov 15, 2021 | How to

So what should you do?

It seems that just about every cost is rising around us at the moment, fuel, electricity, milk, flour – you name it; it’s going up in price.  It looks like a good dose of inflation is on the cards for everyone but what, if anything, should you do about it?

Dealing with a rising cost base is a little frightening because you’re always left with the niggling feeling that if you raise your own prices then you’ll loose or alienate those loyal customers you try so hard to please.  Unfortunately there is no hard fast rule as to the correct course of action but there are a number of things you can do to help you arrive at a conclusion that suits your business.

  • Your business produces sales data every day, capture this and understand how your margin is performing.  Focus on the higher margin lines but understand the relationship and interdependent items on your menu.
  • Coffee is an inelastic luxury good, we don’t strictly need coffee to survive and we can definitely make it at home more cheaply, but we still choose to buy coffee at a café.  Visiting a café is about lifestyle and experience meaning that the actual price of the coffee is secondary to the experience. So if you need to put up the price of coffee, then do it.
  • Visiting a café is about the customers’ experience not yours as a café owner or your barista.  Beware of faux coolness, trend setting or my pet hate ‘educating the customer’.  The experience should be meaningful to them, understand what this is and you’ll be able to deliver in spades.
  • Quality is key, it doesn’t matter what menu item you’re selling if it doesn’t deliver on quality then you’ve missed a trick.  Continually taste the coffee as this practice will help to make sure the grind is set correctly, the machine is clean or if it needs servicing.  It is our experience that deterioration in coffee quality more often arises due to poor calibration of equipment, pour execution in coffee preparation and equipment in need of a little TLC.
  • If you are looking to put though a price increase, consider a product bundle so that you can soften the blow for the more price sensitive as well as increase your average spend.

My thoughts on whether to put a price up or not: Squeezed margins give rise to poor cashflow in later periods.  Over doing a price increases is not such a good option either as we all know when someone is having a laugh at our expense.  If you choose to do nothing, run your numbers and make a conscious decision to do nothing. Perception matters, it may be abundantly clear to you why you are changing a price just make sure your customers understand your situation too.  There is a balance in determining the right course of action that can be found with a little enquiry.

At Watermark we have years of extensive experience in advising the cafe sector, please drop us a line or all us on 01 4666000 if you would like to have a chat on how we can help you grow your business and make it more resilient.