Business plan: why espresso is so expensive
(the¬†prices are being updated as¬†well as¬†information till 15th September) Let‚Äôs say, we open a¬†coffee shop on¬†the¬†street, where we sell only espresso. How much should the¬†price be? And¬†what difficulties will we face when opening?
- Coffee machine¬†‚Äď 15000‚ā¨
- furniture¬†‚Äď 5000‚ā¨
- tools and¬†accessories¬†‚Äď 500‚ā¨
- brand development¬†‚Äď 1000‚ā¨
- card terminal¬†‚Äď 50‚ā¨
- certificate and¬†legal procedures
- Rent¬†‚Äď 1000‚ā¨
- Electricity¬†‚Äď 1000‚ā¨
- Employees¬†‚Äď 5700‚ā¨
- cleaning, accountant, lawyer, insurance¬†‚Äď 500‚ā¨
- disposable cup¬†‚Äď 0.1‚ā¨
- coffee beans¬†‚Äď 0.4‚ā¨
- card commission¬†‚Äď 2%
To¬†sell Coffee, you need approval from the¬†state. In¬†Vienna, it is WKO (Wirtschaftskammer Organisation, or¬†economic chamber in¬†English). By¬†the¬†way, you don‚Äôt need it if you sell beverages in¬†cans or¬†bottles and¬†if you sell simple food, like sandwiches, but¬†you can only have max of¬†8 guests inside of¬†a¬†cafe. Not¬†our case.
We rent a¬†coffee shop on¬†the¬†ground floor of¬†the¬†shopping street. Let‚Äôs say we pay 1000‚ā¨¬†for¬†20 m2 and¬†expect to¬†have 15 customers per¬†hour on¬†average. You may also find an¬†already equipped coffee shop and¬†just pay an¬†aufl√∂sung (price for¬†the¬†furniture and¬†equipment).
If only one employee works in¬†a¬†coffee shop, you don‚Äôt need a¬†toilet by¬†the¬†law. Baristas can work at¬†different time and¬†then they will be treated as¬†one employee in¬†WC questions.
The¬†place should have clean water, a¬†sink, air conditioning, heating, and¬†low humidity. If humidity is high, the¬†beans can become bad. If there will not¬†be air conditioning or¬†heating, the¬†employee will not¬†be able to¬†work in¬†a¬†coffee shop by¬†the¬†law. For¬†example, in¬†the¬†UK when the¬†temperature is less than 16 degrees celsius the¬†employee is not¬†allowed to¬†work. In¬†Austria, I found only the¬†maximal allowed temperature of¬†32.5 degrees. And¬†we will have to¬†pay the¬†employee even though that the¬†shop is closed.
We also need to¬†take insurance that covers all the¬†things inside, especially the¬†coffee machine.
Based on¬†https://www.statista.com/statistics/1271527/austria-monthly-wholesale-electricity-price/Statista, the¬†price for¬†1 Megawatt was 359$ on¬†July 2022, while before it was just 30-50‚ā¨. The¬†high prices for¬†electricity are compensated by¬†lower rent prices as¬†well as¬†governmental help.
The¬†coffee machine is the¬†most expensive stuff inside of¬†a¬†coffee shop and¬†is as¬†important as¬†beans. There are two main brands¬†‚Äď La Cimbali, La Marzocco. both of¬†them cost from 10000‚ā¨¬†to¬†15000‚ā¨. La Marzocco is more traditional, while La Cimbali tries to¬†implement new technologies in¬†the¬†coffee machine. La Marzocco attracts coffee lovers, and¬†they are ready to¬†pay a¬†premium for¬†coffee made in¬†this machine.
Why is it so expensive? This is due to¬†the¬†pressing mechanism. By¬†the¬†way, Espresso got the¬†name from ‚Äúpress‚ÄĚ, the¬†process of¬†pressing the¬†ground coffee and¬†water flowing through it. The¬†pressure a¬†coffee machine can do and¬†the¬†boiling process is the¬†most important in¬†coffee brewing. The¬†machines are made out of¬†thick metal, which makes cleaning easy. These machines last for¬†decades (in¬†the¬†museum of¬†Salzburg I have seen the¬†model of¬†the¬†1950th that can still work well).
Therefore, the¬†price of¬†the¬†used coffee machine is still high. For¬†example, a¬†woman sells La Marzocco Ep for¬†5900‚ā¨, that she bought in¬†2017 while the¬†new costs¬†‚ā¨11900. Ps., this model is not¬†produced anymore, and¬†I found only one seller. For¬†such a¬†price, you may buy better models of¬†La Marzocco.
To¬†count the¬†price of¬†usage of¬†a¬†coffee machine or¬†depreciation, we subtract the¬†selling price from buying price, for¬†example, 15000‚ā¨-10000‚ā¨= 5000‚ā¨, and¬†divide the¬†years that we use the¬†machine. Let‚Äôs say, 5 years. 5000‚ā¨/5 years = 1000‚ā¨, or¬†83‚ā¨¬†per¬†month.
additional coffee machines
Some people like Moka, the¬†50$ pot with 2 separate levels: water and¬†ground coffee on¬†the¬†lower level. The¬†pot is boiling on¬†the¬†stove. The¬†brown liquid goes to¬†the¬†higher level, which is Moka coffee. When the¬†higher level of¬†a¬†pot is full, the¬†coffee is ready to¬†be served in¬†cups. I, personally, don‚Äôt like such a¬†coffee due to¬†the¬†lack of¬†foam and¬†too huge amount of¬†water per¬†gram of¬†coffee. Italians love it and¬†drink it every breakfast instead of¬†tea.
- Price of¬†arabica¬†‚Äď 40‚ā¨¬†per¬†kilo
- 10g for¬†each portion, or¬†0.40‚ā¨
For¬†coffee shops, we use the¬†finest coffee beans. Usually, they are not¬†sold to¬†households, but¬†to¬†coffee shops.
For¬†each espresso, we need 10 grams of¬†ground coffee.
Coffee beans can be kept 4 months after roasting, later they lose their taste.
Tip: Portuguese love espresso that is made of¬†ground coffee that is left after making the¬†first espresso. They think that there is less caffeine inside this coffee. They ask to¬†pour the¬†coffee into the¬†second cup. For¬†the¬†barista, it costs just a¬†second cup (0.10‚ā¨) and¬†hot water. The¬†used ground coffee will be anyways in¬†the¬†bin. You may either set a¬†small price for¬†such coffee or¬†even give it for¬†free to¬†get loyal customers.
We don‚Äôt count sugar and¬†cinnamon, they cost just a¬†cent per¬†cup.
We don‚Äôt have sitting places. We could use the¬†bar table as¬†in¬†Italy, but¬†we have only disposable (1-time use) cups for¬†simplicity. The¬†average price of¬†bio cups is 10 cents. If you want to¬†have your cups, use 10 cents as¬†the¬†price for¬†cleaning, and¬†use of¬†a¬†cup, which includes the¬†price of¬†buying the¬†cup (e.¬†g., porcelain espresso cup for¬†9‚ā¨¬†each), the¬†risk of¬†breaking and¬†stealing.
We expect 1 customer every 4 minutes (15 cups per¬†hour). We are open daily from 8 am to¬†9 pm (13 hours per¬†day). 13 hours * 30 calendar days = 390 hours, or¬†5850 cups per¬†month.
Baristas are paid hourly. They come 30 min before opening and¬†leave 30 min after closing. They clean stuff and¬†count the¬†inventory. It is 15 hours per¬†day. A¬†person can‚Äôt work more than 8.5 hours a¬†day in¬†Austria and¬†must not¬†work more than 40 hours per¬†week (I‚Äôll check this information). We need 4 baristas¬†‚Äď 2 for¬†work days and¬†2 for¬†weekends.
Tip: the¬†less a¬†person earns, the¬†less % of¬†taxes are to¬†be paid in¬†Austria. This is due to¬†the¬†progressive taxes.
First, we pay for¬†social contributions, which is nearly 18%. If a¬†person earns 18000‚ā¨¬†of¬†earnings, then an¬†employer pays 3500 of¬†social contributions, you pay 21866$ gross. We pay taxes from income¬†‚Äď contributions, 18000-3500 = 14500. Then we deduct 11000 of¬†non-taxable amount 14500-11000 = 3500 and¬†take 20% of¬†taxes which is 700‚ā¨. But¬†taxes are deducted from the¬†income of¬†a¬†person, not¬†from your payments. The¬†real income of¬†a¬†person will be nearly 17300‚ā¨.
In¬†our example, we pay for¬†7-hour work for¬†each worker. All of¬†them work for¬†the¬†salary for¬†barista, which is 12‚ā¨¬†per¬†hour. It totals 7*12 = 84‚ā¨¬†per¬†day or¬†1680‚ā¨¬†per¬†month for¬†work-day baristas and¬†672‚ā¨¬†for¬†weekend baristas.
Fixed costs per¬†month: Rent (2000‚ā¨) + cost of¬†use of¬†the¬†Coffee machine (83‚ā¨) + Salaries (5712‚ā¨) + other costs (600‚ā¨) = 8400‚ā¨¬†approximately per¬†month
For¬†simplicity, we count furniture in¬†rent, tools, accessories, and¬†payment terminals in¬†other costs
Variable costs per¬†cup = beans (0.4‚ā¨) + cups (0.1‚ā¨) + terminal use.
We also need to¬†pay VAT if we earn more than 30000‚ā¨¬†in¬†profit. The¬†VAT is the¬†tax per¬†selling of¬†an¬†item, which totals 20% of¬†the¬†final price. But¬†we don‚Äôt pay so much. We deduct 20% from the¬†goods that we have bought¬†‚Äď 20% from beans and¬†cups, or¬†10 cents. In¬†the¬†EU the¬†majority of¬†the¬†goods produced and¬†sold over EU are tax-deductible, even the¬†coffee machine is tax-deductible, it is 16.6‚ā¨¬†per¬†month. The¬†same with the¬†rent, however, if you buy a¬†place, it is an¬†investment, that is not¬†tax deductible.
To¬†get the¬†break-even, 5850cups*(price*(1-terminal commission(2%))-variable cost(0.5‚ā¨))¬†‚Äď fixed costs(8400‚ā¨) = 0. To¬†find the¬†price I created an¬†online program:
I found that with the¬†price of¬†2‚ā¨¬†we are break even and¬†even make revenue of¬†141$.
We pay pay taxes from profit, 23.1%. Our profit is 108‚ā¨.
open a¬†program. Change the¬†number and¬†find the¬†best prices and¬†amount of¬†cups to¬†be sold
As¬†you have seen, the¬†coffee shop cannot sell espresso for¬†less than 2‚ā¨. The¬†next time you go to¬†the¬†coffee shop keep it in¬†mind.