Monthly Archives: June 2012

Pricing

Is the price we charge for a cup of coffee a fair one?

Not really. We have always been a bit partial to undercharging.

However if what you’re looking at is perceived expectation and value of a “cup of coffee” then the idea of a fair and correct price becomes more complicated.

This is a problem within speciality coffee that needs to be addressed on a larger scale.  To serve speciality coffee without compromise in a commercial environment costs much more money than the existing larger commercial approach.  Many people question the economic viability of pursuing speciality coffee full stop.  The only way forward is to differentiate and present speciality coffee as the premium product that it is along with prices that match.

Like elsewhere in pursuing speciality coffee, pricing is tied up with expectation.  Many of my blogs have covered the journey we have taken since we opened our little shop around the corner and how we are now in a very different place to where we began.

We were so excited to serve great coffee and felt that there was enough to explain and communicate to the customer that the less hurdles the better.  We chose to sacrifice a significant percentage of our margins with expensive raw ingredients, the best equipment etc. and put ourselves in a position where we could say, “Hey, I know an espresso with notes of raspberry and cocoa sounds odd but why not give it a go, it’s no more expensive than anywhere else.”

Our first property had very reasonable rent and rates.  We lived above and we only had one member of staff.  We were under the VAT threshold and it all worked pretty well.

Two things were considered but their impact was not fully realised until later:-

1. The price you charge says a lot about your product and what goes into it.  Basically, a cheap price for an expensive product is misleading on many levels.
2. As we grew our costs and logistics would change.  It would no longer just be about serving a product we loved – we would need a better pricing structure to make sure we didn’t go out of business.  Pretty naïve really.

I have become aware that it can actually even be irresponsible to charge a price that’s not relative to what goes into a certain cup of coffee.  It means consumers don’t learn about all of the pricing factors that go into offering this product – paying the farmers to take more care over what they grow, roasters investing in these farmers, their own equipment and staff and committing to showcasing these coffees characters, coffee shops then investing in these roasters, in their staff, equipment and so forth.  You are in danger of becoming a coffee martyr.  You may run a renowned shop but you are not proving the economic viability of your pursuit.  There are hoards of people passing through your doors but you are not making any money.  To benefit speciality coffee on a wider scale we need to have a transparent product that proves its own economic worth.

What are the solutions?

Just pricing the product properly is not very helpful to us unless we think about how we can frame the product for the customer.  As with all customer related discussions we come back to communication and the management of expectation.

Most people are used to having an up-sell gently forced upon them in many coffee shops and have quite rightly become resilient to the efforts of the till person.  A wine-like approach to serving coffee in the mind’s eye of the public has not yet been widely established.

This is why having an interesting coffee on which costs more and then a cheaper house coffee option can fail dramatically.  Most people will always go for the cheaper house option, as soon as an up-sell comes into the equation a barrier comes up.

We pay varying amounts per kilo for our coffee based on what the farmer was paid (which depends on other factors, country to country, past history, markets etc.) But we do not pass this on to the customer as otherwise the idea of exploring taste is less likely to be undertaken, the immediate reaction to a coffee shop up-sell kicks in and dialogue doesn’t get a look in.

We have charged extra when we have bought very expensive Cup of Excellence coffees, which come in at around double the £15per kilo which we base our pricing on.  We have done the same for lots from famous and pricey farms like Esmeralda in Panama for example.  For these we have had to add an extra cost to each cup, but because we so often suck up the price differences in other coffees that we buy in, when we do buy at the extreme end of the spectrum our customers are eager to try, they are more than happy to pay a little extra for the experience of one of the world’s most expensive and highly regarded coffees.

As the concept of the store becomes established the different costs seem to be more immediately understood. I wonder if something closer to a wine list with different pricings per coffee that reflect its origin and production would be more or less beneficial based on the problems I have just discussed?

A lot of the larger costs within our model are elsewhere.  The nature of espresso means that if you want to commit to making sure that every cup that goes out is of the highest quality, there will then be much more wastage than in a regular commercial setting. The same goes for not twice heating milk, the purchasing and maintenance of the best equipment and experienced trained staff that are well paid. The model also requires a higher number of staff on shift at any one time to keep up with and deliver the dialogue and explanation that you have promised. This all starts to really add up.

Once the costs are explained in depth the price of the product can be very easily justified, often people are then surprised at how reasonable the prices are all things considered, but it would be silly to believe in the truth and fairness of your pricing without considering the fact that the majority of customers will not know the inner workings of your pricing structure. They will be quickly putting a few bits of data and market perceptions together in their head to garner an idea of what they think is a good price for the product they are about to buy. You are being compared whether you like it or not.

You can influence this comparison with your design and communication, giving the customer a clearer idea of what your product is and what this then means about price from the moment they walk through the door.

Our menu changes (taking the choice away from the usual espresso, cappuccino etc. and only displaying the different farms we have on accompanied with method and flavour notes) were originally aimed to alter the way a customer would immediately view our approach to coffee, and to the kind of experience we were offering. I didn’t really think about how useful this would also be for price. With this menu approach, most customers are then focusing on experience first and show little interest in the price, at other times the experience indicates a more valuable product, expectation immediately changes and the question is then ‘can I see a price list please’ when presented with one the comment often goes along the lines of, ‘ooh how reasonable. I thought this was going to be much more expensive’.

Our prices will still need to increase by between 5 and 10 per cent before we are at an appropriate price. I would say we will then be at a point that proves the economic viability of pursuing speciality coffee. Not to be misleading – this could do with stretching further as there are issues that still need to be tackled such as rewarding all the staff with increased wages for what is expected of them.  At the moment we pay all of our staff well above the average wage for similar front of house work.  But the point is it’s not really similar, as I have mentioned in my “staff” post previously the environment requires coffee professionals.  Currently the reward really lies in the type of environment they get to work in and the unique coffee experience they can gain.

For this to be achieved the product needs to be recognized as a carefully crafted valuable item that’s worth that extra cash. I think we are achieving this goal. It will be interesting to see where the commercial nature of speciality coffee can go in the future – much like a great cup of coffee it’s all about a certain kind of balance.

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Sugar

I touched on the relationship between speciality coffee and the addition of other ingredients in my “coffee as a cocktail post”, but one ingredient needs specific exploration. That ingredient is sugar.

Sugar is seen around the globe as a natural addition to coffee and, for many people, it’s half of what constitutes an espresso. This is a well-earned association. My wife and I were driving back to England last week through Germany and we stopped off at a service station. Like many of the weary drivers, I needed a little pick me up. I bought myself a Segafredo espresso. It had been a long time since I had sampled this kind of commercial coffee. I had a sip without sugar and struggled with the overwhelming acrid and bitter flavours. The addition of sugar transformed the cup. It reigned in the spiky edges and presented me with a dark sweet liquid. It was still nothing like the speciality single origin espressos packed with complex flavour and acidity that raise the cup, but my Segafredo did combine very positively with the sugar. I knew this was the case but I had forgotten how starkly this compared to the negative impact the addition of sugar has on the speciality coffee we brew back in our shop. It reassured me that the advice we compliment our coffee with is absolutely necessary.

Our advice is as follows “As we mentioned at the till, our coffee is very different to commercial coffee and, a little warning is that our coffee can react very strangely to the addition of sugar. The espresso seem to become very sharp and sour with an increased perception of bitterness whereas the 6oz milk drinks seem to become dry, woody and sharp. The brewed coffee gets very dry and flat.”

We arrived at this point through much time and development based on customer feedback. We never used to talk about the best way our coffees would work. We served them up tailored to customer request and prided ourselves on this. Without fail there would be many complaints about to how sharp, strong or odd tasting the espresso coffees were and that they didn’t taste like the taste descriptors noted on the board enticing them to buy the product in the first place.

It would be at this point we would ask, “Have you put sugar in the coffee?”  The customer would say, “Yes, I always do!”  We would then embark on an explanation of how much our coffee differed from continental, traditional coffee or even from a lot of Antipodean-style coffee and so forth. We would explain that the aim is to pursue variety and provenance of flavour, rather than roast, etc. What seems to happen is that as you go down this route the drinks stop working positively with sugar. When we brew and taste the coffee there is no sugar added.

Customer rightly says, “ Why didn’t you tell me any of this? You just have sugar out on the table even though you know it doesn’t work!”

This was an extremely common occurrence in the old shop. We realised that although it is obviously the customers’ choice to add what ever they wish to their coffee, it was also bad service not to inform them that this coffee was probably not at all close to what they expected it to be based on all of their previous experiences. The addition of sugar is an attempt to sweeten and smoothen a drink, in this case the opposite is being achieved.

After all, as service and coffee professionals, we should know the most about our product and how it works as it’s specific to us, and therefore, it is our responsibility to be the guide. When serving speciality coffee one also needs to think about how their business’s approach fits into the marketplace.

We began to figure out the most concise and positive way we could deliver this information. We have tried many ways and we now have a lot of communication throughout the shop, at the till and on tables, in order to frame the product differently, in turn changing the expectation of what our coffee may be and how it may work. This then means the sugar advice is less of a shock. The table menus outline the advice in more detail.

We still have sugar behind the bar. We don’t want it to be a restriction but rather helpful friendly advice. This way many people will try with and without, which is important as the proof is always in the pudding. People will comment that they didn’t really see what we meant at first and thought we were being funny until they tried our coffee with and without sugar.

The adverse effect of sugar doesn’t seem to be as pronounced in our largest milk drink (9.5 ounce latte- double shot). This makes sense as there is softer flavour to be affected by the sugar, a less complex balance to tip over if you will. Although, weirdly, the filters change quite drastically even though they have a more elegant and less intense flavour. This leads me to think acidity is one of the main components that clashes with sugar.

There are exceptions to the rule such as decaf and soy based drinks that seem to combine much more positively.

We have since amended the menu to explain that the advice is product specific, that the most adverse effect occurs in the espresso and shorter milk drinks whist the Latte, soy and decaf work well with sugar.

On the whole, our customer’s responses are really positive and people are very thankful for the advice and thoughtful service. There are still occasions when we have a negative response to the sugar advice. Comments such as, “oh, but you don’t understand I have a sweet tooth” or, “I always put sugar in my drink. Who are you to tell me how to drink my coffee?”, etc.

All of these responses mean that the individual has not fully understood the purpose and meaning of the advice. They have not recognized that we are offering a different product, essentially.  A defensive mechanism cuts in and a dialogue regarding the product ceases. The strong likelihood here is that our attempt to communicate through shop design, menus, etc. – our attempt to reframe the customer’s expectations from going to a “coffee shop” to having a speciality coffee tasting experience – has not worked on these occasions.  We are constantly trying to improve our communication with our customers, to be a guide for speciality coffee.

There seems to be a syndrome here directly related to modern service culture – rather than understand how a product works, the customer demands that the product work how they want it to, to the point of attempting to achieve the impossible. It’s the idea that if the customer asks for a speciality coffee that works with sugar, you ought to find one for the customer.   Yet, there is a complete failure to understand that we are describing the reality of the product we serve and, that what they are requesting is unachievable. At the same time if you do not mind the sharpness or dryness that can occur and enjoy the coffee with the addition of sugar, that is great! The advice is there and the customer can move forward from that point.

If sugar is an important part of what coffee means to a customer and what they enjoy about it, then the product we serve may not be what they are looking for. Rather than trying to force it to fit like a square through a circle, there is a choice.

There are many roasty blends that work a treat with sugar just like the Segafredo I picked up in Germany last week. Once again the choice for the consumer isn’t necessarily within the shop but within the market place.

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