Pricing

Price is something that pops up in most discussions in the specialty coffee industry. Not a big surprise, given the fact that we’re selling a premium product that people often still see as a commodity. This journal entry won’t cover prices paid to coffee producers, but rather prices paid by the end consumers.

With a background in hotel management, I have seen numerous different pricing models. Most coffee roasters that I know use a simple multiplier over their purchasing price. This ensures a set profit margin that covers risks properly and looks good on the books. I myself am not a fan of this method. I would rather see roasters use an absolute profit margin so that coffees with a higher purchasing price will still be affordable.

Let’s compare two coffees, the first being 8 Euros per kilo and the second an exclusive nanolot that’s 40 Euros per kilo. Using a multiplier would give sales prices of respectively 32 Euros and 160 Euros. That means a gross profit on these coffees of respectively 24 Euros and 120 Euros.

Obviously some of the more expensive coffees’ costs are not covered sufficiently this way. Dialling in a roast profile can take a few batches, which gets very costly with the more expensive of the two coffees. However, the multiplier still seems unfair to me. A set profit margin on each coffee would make the more expensive coffee more affordable. This would also help people make the switch to specialty coffee.

I myself thought of a new way to determine prices, based on our value of transparency. We charge the final purchasing price per kilo for 250 grams of coffee to consumers. 500 grams and kilograms packaging are relatively cheaper, so increasing the size of the bag decreased the price by 5%. Wholesale clients get a 30% discount due to their order quantities, and to ensure that they can sell the coffee to consumers for the same price as we do while still making enough profit. This is something we do not change in, making it in a way easier for ourselves to run our business: we cannot increase revenue with the prices, only with what we actually do.

I found that this gives enough gross profit to keep a roastery operational, and it is an understandable mindset for consumers. The goal of the specialty coffee community is to attract more and more people to our coffees and our producers. I believe the difficulty in this does not lie in price, but in communication. We first need to make people understand why our coffee is more expensive that the supermarkets’ commodity counterparts. Once people understand, they will be much more willing to pay for it. Communication and transparency are key; this is what we try to say with the Shokunin Coffee Collective.