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| Ernest Martin, who operates a chain of coffee shops called Chapter Coffee, shares his experience |
Do you know that it costs only about P14.65 to P23.21, depending on the quality of coffee, to make a cup of Café Americano that can be sold for up to P150?
The lowest cost of a cup of coffee
is broken down as follows: P3.14 for the coffee beans, P2 for water, P8 for
packaging (the cup and cover), P0.5 each for sugar, creamer and tissue.
This makes operating a coffee shop
profitable, right?
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| PINDUTIN DITO |
It’s not that simple, said Ernest Martin, owner of a chain of coffee shops called Chapter Coffee in Metro Manila and
Pangasinan. He spoke during a seminar last May 11 at World Trade Center as part
of the IFEX (International Food Exhibition) Manila 2024.
This wide margin between the cost
of product and selling price does not give an accurate picture of profitability
because there are other costs that one has to meet: rent, salaries to the
baristas and waiters/waitresses, maintenance, and utilities such as electricity and water.
These are costs that one pays
monthly, whether the shop sells one or 1,000 cups of coffee a day.
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| TAWAG NA! |
When all these costs are added up,
it would be ideal to limit the cost of coffee (plus other drinks and the
cookies, cakes and other foods served with it) at the ideal level of 15 to 35
per cent of gross sales, Martin said.
This way, he said, profit (or what
is left after expenses are deducted from sales) should reach about 15-25 per
cent of gross sales.
Getting to these ideal levels of
cost and profit is the challenge, he added. Add to this the Filipino expectations
of the food business, which can be summarized in the so-called three Ms: "mura,
masarap, marami." (cheap, tasty, abundant).
If the profit margin goes below 15
per cent, one needs to look into where to cut costs. In many cases, businesses
have resorted to lowering the quality or reducing the quantity of food and beverage
sold, but Martin said this is not ideal.
“I would recommend increasing the
prices instead,” he said. “If people have gotten used to the quality and
quantity of food you serve, it will be more harmful to reduce them instead of
raising your prices, because these customers may never come back.”
An alternative is to increase sales.
Martin said he motivated his staff to help increase sales by declaring that 1.5 per cent of gross sales will be given to the staff as their share of profits if they exceed their daily sales target.
Because they benefit when the business succeeds, the staff keep the shop open beyond operating hours just to meet their quota and upselling customers to convince them to spend more. It becomes a partnership between the company and the employees, he said.
In starting a café, Martin said location
is the biggest factor in one’s success, much bigger than the size at which the
business is started.
That location should be accessible
to the target clientele, he said. If one opens a small place in a mall which has
a huge foot traffic and offers parking, for example, it can grow from there. He
also recommended setting up near transport terminals and other places where
many people congregate.
In these locations, one needs to
observe the people who go there frequently. “Determining their demograpics (to what income
brackets they belong, how they dress, whether they arrive on taxis or cars, and
so on) will help guide us in pricing our products,” Martin said.
“If we choose to set up in a place
frequented by the middle class, for example, our prices should be affordable to
the middle class,” he said.
Once we choose a location, we should also study what
is missing and exciting in the area, he added.
Martin said social media can help a lot in promoting a business. With just one click of a button, one is able to take advantage of social media’s ability to send their message to their target clientele.
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