Business plan: why espresso is so expensive
(the prices are being updated as well as information till 15th September) Let’s 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?
One-time purchase
- Coffee machine – 15000€
- furniture – 5000€
- tools and accessories – 500€
- brand development – 1000€
- card terminal – 50€
- certificate and legal procedures
Monthly purchase
- Rent – 1000€
- Electricity – 1000€
- Employees – 5700€
- cleaning, accountant, lawyer, insurance – 500€
Per-cup purchase
- disposable cup – 0.1€
- coffee beans – 0.4€
- card commission – 2%
Certification
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’t 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.
Rent
We rent a coffee shop on the ground floor of the shopping street. Let’s say we pay 1000€ 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 auflösung (price for the furniture and equipment).
If only one employee works in a coffee shop, you don’t 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.
Electricity
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€. The high prices for electricity are compensated by lower rent prices as well as governmental help.
Coffee machine
The coffee machine is the most expensive stuff inside of a coffee shop and is as important as beans. There are two main brands – La Cimbali, La Marzocco. both of them cost from 10000€ to 15000€. 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.
read about the difference between La Marzocco and La Cimbali
Why is it so expensive? This is due to the pressing mechanism. By the way, Espresso got the name from “press”, 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€, that she bought in 2017 while the new costs €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€-10000€= 5000€, and divide the years that we use the machine. Let’s say, 5 years. 5000€/5 years = 1000€, or 83€ 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’t 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.
Coffee beans
- Price of arabica – 40€ per kilo
- 10g for each portion, or 0.40€
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€) 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’t count sugar and cinnamon, they cost just a cent per cup.
Cups
We don’t 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€ 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.
Employees
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’t work more than 8.5 hours a day in Austria and must not work more than 40 hours per week (I’ll check this information). We need 4 baristas – 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€ of earnings, then an employer pays 3500 of social contributions, you pay 21866$ gross. We pay taxes from income – contributions, 18000-3500 = 14500. Then we deduct 11000 of non-taxable amount 14500-11000 = 3500 and take 20% of taxes which is 700€. But taxes are deducted from the income of a person, not from your payments. The real income of a person will be nearly 17300€.
In our example, we pay for 7-hour work for each worker. All of them work for the salary for barista, which is 12€ per hour. It totals 7*12 = 84€ per day or 1680€ per month for work-day baristas and 672€ for weekend baristas.
We pay 2040€ and 816€ to baristas. In total, it is 2040*2 + 816*2 = 5712€ per month.
Count
Fixed costs per month: Rent (2000€) + cost of use of the Coffee machine (83€) + Salaries (5712€) + other costs (600€) = 8400€ 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€) + cups (0.1€) + terminal use.
We also need to pay VAT if we earn more than 30000€ in profit. The VAT is the tax per selling of an item, which totals 20% of the final price. But we don’t pay so much. We deduct 20% from the goods that we have bought – 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€ 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€)) – fixed costs(8400€) = 0. To find the price I created an online program:
I found that with the price of 2€ we are break even and even make revenue of 141$.
We pay pay taxes from profit, 23.1%. Our profit is 108€.
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€. The next time you go to the coffee shop keep it in mind.