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Yeah. If small businesses want to compete, they have to do better than "we're a small business but we still charge you the same price or more."
Fuck that, lol. If they care so much, why can't they take the hit? Why does it always have the be the customer? Lol.
I would imagine economies of scale comes into it heavily. Smaller, independent cafes cannot get nearly the same low costs as huge corporations. They could easily be paying two, three times the price for supplies and don’t have the financial cushions to eat losses.
I'm glad I found someone who is knowledgeable about this.
How much does coffee supplies cost local cafes vs. big chains? Do you have exact figures?
Starbucks doesn’t publish their bulk prices for obvious reasons, unfortunately. You can find people making guesses online (such as this guy) but for instance he uses Costco bulk coffee prices to calculate and I highly doubt Starbucks is paying that much. Your average small independent cafe is going to be getting their supplies from generic wholesale stores and sites, where you can view prices for cups and things. Hell, I know some places that legit just buy their milk for their cafe at places like Aldi. So they’re paying consumer prices for milk versus the bulk discount a mega corp would get.
Edit for missing period which made an odd sentence.
Thanks for the useful information. I wonder if we can find how much Starbucks pays because they're publicly traded and the amount of money they spent on product should be available to investors.
Their fillings are freely available on their website and will give you some insights, but they don't get anywhere close to their unit price for coffee.
That said, their most recent 10-Q says things like
They do the same for other commodities. It would probably be difficult for a small scale player to participate effectively, if at all, in reading commodities to try to minimize commodity cost.
https://investor.starbucks.com/financial-data/sec-filings/default.aspx
Of course I do. Do you? Lol.
Most businesses try to maximize profit. This intrinsically involves giving people the least they're willing to accept while charging them the most they're willing to pay.
If the 'local' option doesn't give me a better deal than the big chains, I'm gonna go with the big chains. If they care so much about providing their service to their community, then they can make less profit. But they won't because, like most businesses, their goal is to maximize profit.
I eagerly await for you to tell me why everything I just said was wrong, lol.
I'm not the one you responded to, but here are a few notes.
Larger stores generally have higher profit margins for the same priced item because they can negotiate lower prices with distributors. So if we're talking about coffee shops, the flavorings, machines, etc will all be way more expensive for smaller shops.
Larger shops also have a higher throughout per employee, so they also get more total sales, which means they can offer lower prices for the same amount of profit. So if they get competition, they can usually cut prices to bring customers back in, at least until the competition is forced to raise prices again to stay afloat.
So smaller shops rarely compete on price, they generally try to compete on quality, either on service, products, or both. So if you value either of those more than price, you'll probably get a better deal at a local shop. But if price is your main issue, it's unlikely to happen because the economies of scale just don't work like that.
Thankfully I found someone knowledgeable about this.
What are the exact numbers for how much more expensive coffee supplies is for small shops vs. big chains? You can just give an average because it probably varies from place to place.
Heh, a great way to do a service to the community then would be to open local coffee shops just to force big chains to lower their prices. But they won't do that, lol.
In my experience, local coffee shops have been identical in quality to big chains. The only difference would be the run-down atmosphere a lot of them like to employ.
Getting numbers for these kinds of things is quite difficult, since a lot of it is negotiated with a salesperson and is based on a mix of the quantity you're looking to buy and the value you present as a long term contract to work with (i.e. how much other stuff do you buy, and how regularly).
But let's look at examples to demonstrate the point. This article claims Costco sells 25lb flour for $13 and that matches my local experience (mine is actually milled and bagged like 5 miles from my house, which rocks). That works out to 3.3¢/oz. If I order the same brand (King Arthur from the article) for pickup from Walmart, a 5lb bag will cost $5.24, or 6.6¢/oz, or roughly double. Walmart's store brand is actually a little cheaper at $4.34 for 10lb bag, or 2.7¢/oz, but that's going to be a bit different in terms of quality. If you go to your local grocery instead (not Walmart), prices will be another 10-30% higher in my experience (like $7-8 for the same 5lb bag of King Arthur flour at my local grocery). If you're a bakery, you'll be able to get even better prices on flour.
Your local coffee shop isn't going to be buying their beans from Walmart or Costco (though they may get their milk/creamers from there), but I'd expect the cost difference to look similar for low volume vs high volume shops. So something like 10-50% cost difference, depending on the item.
But that's a pretty small percentage of the overall profit margin equation, especially for coffee where costs are more dominated by labor than ingredients. And in this case, larger orgs win again, here are some examples:
And so on. Larger orgs have lower base costs, their marketing dollars go further, and they get higher volume of customers. So the only way for a smaller business to compete is to offer something different, so they usually focus on overall experience (quality of service, interesting branding, etc) instead of cost. If they tried to compete on cost, they'd lose.