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Coffee Weights:
Downward Trend Continues
(What is the right price to charge when there is no coffee
in the bag at all?)
© 1982 Stuart Daw
I have agreed to serve as Coffee Service
Editor of the TEA & COFFEE TRADE JOURNAL. I have done so because of my
admiration for Jim Quinn as a man who respects the truth and has the courage
to publish it.
TEA & COFFEE TRADE JOURNAL has given me
a mandate to write as I please, but with a focus on coffee, particularly
coffee service. It is my wish to deal with the realities of the business with
intellectual honesty and candor. To keep us from taking ourselves too
seriously, however, I hope to write with a sprinkling of humor as well.
The coffee business, like all others, takes
people to make it tick. In this column from time to time you will read about
those individuals who have impressed me over my 32 years in coffee, and whose
personal character and operating policies have made them unique and important
to the industry.
Because I have a keen interest in philosophy
and how it is so crucial to our everyday lives and how we conduct our
business, you will get the odd shot of philosophical thinking and its
practical application. In return, we welcome any comments or criticisms of the
ideas presented here, as well as suggestions or questions you may have
regarding the coffee industry and this column.
The September issue of TEA & COFFEE
TRADE JOURNAL carried our first item on the issue of bag weights. Below you
will find a "Letter to the Editor" I wrote over three years ago on
pricing coffee kits when there is "no coffee left in the bag at
all." On looking it over it seemed a pretty good time to reprint it, as
the downward trend in weights continues.
The question of proper kit pricing is
always pertinent, especially now that coffee weights have become lighter and
lighter to the point that one might well ask, "What is the right price
to charge when there is no coffee in the bag
at all?"
Far from being an entirely academic,
facetious or rhetorical question, the correct answer might serve as a guide to
all of us for pricing when there is at least a little coffee left in the bag
— whether or not that coffee was over-roasted, ground too fine, flaked, baked,
shaked, extended or otherwise flogged to death.
Costly Factors
First it must be said that a kit with no
coffee in it would not come from the supplier free of charge. The empty
packages of gas-flushed film would be costly, and of course there is always
the carton, tape, and the cost of labor and overhead at the plant level.
Let us arbitrarily say an empty kit would
likely cost around $4.00 including filters which would function much like
buggy whips did on early cars manufactured at the turn of the century.
Then of course we would install a coffee
brewer, and let us again arbitrarily say that the equipment in interest,
depreciation and maintenance would cost $5.00 per month.
Now, we know that the regular cost of doing
business in rent, heat, light, girls, boys, cars, trucks, taxes, ball-point
pens, etc. is high. If you stated total operating costs today as so much per
average sales transaction, that average cost would likely be in the $13.00
range (e.g., if you do 1,000 sales transactions per month, your cost of
operations is probably in the $13,000 area).
Now let's review:
Coffee Kit with Empty Bags
$ 4.00
Equipment
Cost
$ 5.00
Transactional
Cost
$13.00
Total
Cost
$22.00
Oh yes, of course, we forgot profits. Let's
say we deserve at least 10 percent pretax on the sales dollar. That
establishes our selling price to the one kit user of this rather mild blend at
$24.44 per kit with no coffee in it.
Wonder what it oughta be with
some
coffee in it?
The above numbers might be updated for
inflation since 1979. Equipment handling is more expensive today, and the
average transactional cost will be over $16.00.
Next month we will discuss pricing in
general. Some years ago I asked an operator friend of mine, in noting the
large number of customers he was supplying, if he had ever considered using
his ready list of names to generate charter flights to far away places.
"No way," he said. "They'd just get up to cruising altitude and
then with my luck they'd start discussing prices."
So we'll take a look at such titillating
questions as "Can a price ever be too high?" (as viewed by consumers
and governments). "Can a price ever be too low?" (as viewed by your
competitors and your income statement). What if anything is wrong, legally or
morally, with local collusion on prices and should governments ever get
involved?
© 1982 Stuart Daw
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