stairway2evan t1_jaect6e wrote
When we talk about markup like that, we're only including the cost of the raw ingredients - beans and water. We're not talking about the other costs of running a business.
Paying rent on the location, building and maintaining the cafe, keeping utilities on, paying employees, advertising, insurance etc. all add up to significantly more than the cost of the raw ingredients. Add all of that stuff together, and it's not like your local coffee place is running an 80% profit margin. They're managing a few percent. And if they run a profit of more than a few percent, then someone else will come in and undercut them - either taking a share of their customers, or forcing them to drop prices back down. It happens all the time.
That's why if you ever tell them "hey, I didn't like this coffee," they'll make you a new one, no questions asked. The cup of coffee is pennies lost for them; all of the other costs stay the same. They'd rather have a happy customer and lose those pennies than risk their future profit.
CreativeGPX t1_jaehfjq wrote
Also worth noting that because of everything you said, you actually DO see companies coming in and dramatically undercutting if they have a different business model.
- Dunkin and Starbucks have a similar business model so they have (roughly) the same markup which is relatively high.
- If you go to a diner, you'll find that not only is their coffee cheaper, but it often has free refills which makes it much cheaper. This is because their business model is even more skewed toward higher priced meals being where the money is made rather than coffee.
- Even farther along the spectrum, if you go to a car dealership to get your car serviced, you'll often find they'll give you free coffee because their business model is so heavily skewed toward the service fees for the car.
True_to_you t1_jaeioep wrote
My old car dealership used to have a masseuse and snacks!
imakenosensetopeople t1_jaf4ya5 wrote
For me that would be worth getting another car from them lol. Or at least returning there for service.
Joaquin_Portland t1_jaez47a wrote
My first job was across the street from a hospital (early 1990s). The cafeteria coffee was 29 cents if you brought your own mug (any size)
I brought a quart mug and stayed buzzed on high test health care worker coffee all day.
Many good reasons why the hospital offered that deal.
True_to_you t1_jaeipvg wrote
My old car dealership used to have a masseuse and snacks!
New_Acanthaceae709 t1_jaerbtu wrote
Diners use cheaper ingredients, and don't throw any coffee out, while paying their staff much less than minimum wage.
Diners make their money on turnover; more customers across more of the day.
Car dealerships use the same cheaper ingredients as the diners, but yeah, the coffee is subsidized entirely as a perk, not a for-sale-item.
police-ical t1_jaeq6fe wrote
Coffeeshops are a striking example of this, as they have a very long history of functioning as a semi-public gathering space where people spend long periods of time relaxing, talking, working, reading, and so on. The price of a cup of coffee is really more like the price of entrance and the fee to stay there.
supergooduser t1_jaem253 wrote
Good description, but to add:
I have a business degree.
You're asking a good question. But generally there's less money to be made in cheaper products.
Compare a Dollar General to an Apple Store, it's pretty obvious which company is more successful.
Krispy Kreme and Five Guys come to mind as businesses that were focused initially on one singular product. But they weren't necessarily focused on being cheaper. They used the savings of focusing on singular products to increase their overall growth.
Also... when it comes to coffee the cost savings you're describing aren't necessarily enough to motivate a consumer.
A small cup of coffee at starbucks is $1.55, at McDonalds $1... at this point it's kind of like driving out of your way to save a few cents on gas. Some people do, but not necessarily enough to motivate an entire new business model.
SpaceAngel2001 t1_jaeyhj0 wrote
>generally there's less money to be made in cheaper products. Compare a Dollar General to an Apple Store, it's pretty obvious which company is more successful.
Ummm...Dollar Gen will open more stores this year than Apple has in total. You used a Really bad example. See Walmart. There's lots of money to be made in high volume low markup sales.
weinerpretzel t1_jaf0uhm wrote
Dollar General has a Market Cap of 48.36 Billion, Apple’s is 2.33 Trillion, roughly 48 times more. Safe to say Apple is a bit more successful
Mayor__Defacto t1_jaf06oe wrote
Apple has billions and billions in net profit running a ~24% margin on their flagship products. Dollar General nets about $29k per store per year. Apple makes that selling 100 phones.
SpaceAngel2001 t1_jaf0mhq wrote
You moved the goal posts. It was about comparing stores. DG is one of USA's most successful retailers.
XsNR t1_jaenr1b wrote
McD's have some free coffee offers in some markets too, to try and incentivise people to come buy McBreakfast. That's probably more like what u/Educational_Sir3783 was thinking.
virgilreality t1_jaen3s8 wrote
The better model would be to attract a lot of customers with cheaper coffee, but also offer premium options.
SpaceAngel2001 t1_jaexqzm wrote
>The better model would be to attract a lot of customers with cheaper coffee, but also offer premium options.
So you’re smarter about running a coffee biz than Starbucks? Any advice you want to give to astrophysicists about figuring out that whole big bang thingy?
Sidneymcdanger t1_jaf3ywg wrote
That man's name? Devon Starbucks.
LastChristian t1_jaetl5l wrote
People who have a marketing degree commonly say they have a “business degree” so people assume they’re educated in something smart, like finance or economics, rather than marketing.
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