I am ambivalent about the positive and negative aspects of manual brewing other than it's value as a profit centre which meets a consumer demand. I am concerned that many of those who advocate manual brewing are supplying a product in the hope customers buy, instead of producing a product the customers demand. That being said, I want to examine the unique costing that applies to manual brewing so that coffee shop owners might determine whether it is right for them.
For this costing, I will use a tool that many of you are using, the excellent Intelligentsia app for iphone, and focus on the pour over method.
For this we need:
28g of whole bean coffee which I will assume $10/lb wholesale cost
V60 Dripper
V60 filter Cost $0.065
Hario Kettle or Similar
Burr Grinder
Digital Scale
Vessel to brew into
While the prescribed brew time is 2.5 minutes, I am assuming a total prep and brew time of 7.5 mins. Prep time includes water boil, coffee weighing and grinding, filter pre wash, and brew.
The costing looks something like this:
Bean Cost
454g/28g =16.21
$10 (bean cost)/ 16.21 = $0.62
Filter Cost
= $0.065
Labour Cost (Using my local minimum wage for barista's $10.25)
$10.25 x 1.15(payroll tax) = $11.78
7.5 mins/ 60mins = .125
$11.78 x .125 = $1.47
Cup and Lid (if needed)
$0.25
Cost of Goods Sold (COGS)
$0.62 + $0.065 + $0.25 = $0.935
Total Cost
0.62 + 0.065 + 1.47 + 0.25 = $2.405
I am going to try to work out a retail price using a couple of different methods.
First Method:
I have stated a couple of times in this blog that an excellent target for labour is 20-30% of revenue. I am going to ignore the fact that while one person is preparing the pour over, that revenue also needs to partially cover the cost of the labour required to take the order and only focus on the single barista. If I use the 20-30% guideline, then the retail cost should be between $1.47 X 3.33= $4.90 and $1.47 x 5 = $7.35
If we back out cost we can figure out the contribution each pour over makes to General and Administration by doing the following:
$4.90 - 2.405 = $2.495
$7.35 - 2.405 = $4.945
Second Method:
If we use a typical gross profit margin of .70 to calculate a retail price
$0.935 / 30 x 100 = $3.11
If we subtract labour cost from this number we get,
$3.11 - $1.47 = $0.707
From this calculation $0.707 represents the contribution each pour over would make to G&A costs and hopefully some profit.
Third Method:
Using a guideline for labour productivity and revenue per employee hour of $50, and the fact that a barista can do 8 pour overs per hour at 7.5mins per pour, we can calculate how much money we need to charge to hit the target.
$50 / 8 = $6.25
Contribution G&A = $6.25 - $2.405 = $3.845
While I don't profess to know all of the variables present in anyone else's coffee shop, I definitely think that these figures represent an excellent guideline for pricing your pour over. Remember that my labour calculation does not include labour required to take the order, or any management/back office labour. Given the increased labour cost associated with manual brewing, calculating based on gross margin is likely a mistake. Conversely, because labour is so high, applying high labour ratios to manual brewing likely prices it beyond any demand curve. A calculation based on overall labour productivity seems to yield more predictable pricing, and permits increased profit or more approachable pricing by increasing the efficiency of the barista.
In general, I think it's safe to conclude that if you are pricing your pour over coffee under the $4.00 mark, you should take a very hard look at your numbers.
I am including a quote from a recent article in Esquire Magazine by Todd Carmichael "375 cents (n) — An insane amount to pay for any single cup of coffee, unless of course one is at the foot of the Spanish Steps and in the company of a potential sexual partner above one's standing. If in Brooklyn, however, see also: Nigeria scam; bridge for sale."
While I acknowledge the article causes a great deal of negative reactions from those prone to comment, it is none the less valid and typical of most coffee consuming public. The problem is, price your pour over under $4 and you risk losing money, price it higher and you risk offending customers.
Try using some of the methods I've suggested and plug in your own numbers to determine whether pour overs are contributing to your profitability or even covering costs.
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Hey Richard
ReplyDeleteKeep the blog posts coming. Interesting reading. Amazing how the concepts apply across other service based businesses.
Aarron
Hi Richard,
ReplyDeleteThanks for the blog -- I think you're absolutely right to question the value of pour-overs however I'd like to play devil's advocate on a few of your points.
Firstly, I'd like to propose that most shops will not be very busy on their pour-over bars. Essentially there will be threshold of pour-over orders beyond which additional labour is required, however most shops will be able to effectively deploy for pour-over orders throughout the day without needing to add labour in order to maintain status-quo service levels. In this case pour-overs increase revenue and have no impact on %COGS or %labour, making them a pretty good deal.
In the case that there are sufficient pour-over orders in an hour to necessitate bringing in an extra 3 hour shift at minimum, naturally the value of that labour would be subject to review.
I do think the labour cost would be much more modest than the above. The labour involved in weighing the dose if a shop is above the "labour required" threshold of number of pour-overs ordered would still be negligible as this would all be done at the beginning of the day or during transition when there is necessary labour that is not 100% deployed (ever our busiest shops could handle 10-15 minutes in the early morning and at transition of weighing out doses on a good scale without needing to add hours).
The critical factor is the actual brew time, which would be equal to:
Time to fill the kettle from the hot water tour (~5 seconds) +
Grind pre-dosed coffee (~5 seconds) +
Pre-wet and pour (~2 minutes) +
Serve and replace the used filter with a new, washed one (~15 seconds)
So our marginal "barista attention" per order is around 2:30.
Regardless, I think the appropriate calculation involves taking the actual number of labour hours added (minimum 3 to perhaps 8 if your pour-over bar is busy all day) and set a targeted retail price based on the number of pour-over you sell during these hours. Assuming only 3 hours:
labour cost = 3 * 11.78 = 35.34
revenue required if labour is 25% of revenue = 35.34/.25 = 141.36
If (# of pour-overs sold * retail price) < 141.36 then we are not using labour as productively as if we were just selling filter coffee.
This is all assuming pour-overs don't effect COGS as % of sales, and they shouldn't as they should be the same as a filter coffee).
Of course, one shouldn't underestimate the impact pour-over service can have on brand and goodwill!!
Let me know if any of this sounds crazy -- I'm not trained in financials.
Ian, thanks for the comments. I was beginning to think no one was reading. Your experience is particularly valuable because your stores would definitely be on the upper end of the volume spectrum. Some of the assumptions I made were an average of brew times polled from others,(some as high as 5 mins) and being a little liberal with the times helped me compensate for the order taker's labour. While employing "spare" labour to weigh out portions is a great efficiency tool, it is still employed to produce a single cup and should be accounted for that single beverage. A great comparison on labour efficiency is the fact it takes the same time to weigh out a single pour over as it does to weigh out a gallon batch. The reason I felt I needed to post some numbers is I recently ordered a siphon and observed the barista prepare the cup over the course of about 10 minutes. It was lovely, but nothing more than a promotional tool for the company. In a less than busy location, maybe they have other problems to deal with, for a hopping shop, the opportunity cost of having staff engaged in a less than profitable enterprise is a mistake.
ReplyDeleteLast, I also would like to point out that there are many in the SCAA ,SCAE etc leadership who feel manual brewing is an alternative to batch brewers in all shops, busy and slow, citing cost savings related to not throwing out old coffee as an argument. This is absolute foolishness of course, but the recent development of Brewers Cup Championships leads me to believe that there are many like minded people in high places who have never costed out a cup.
By the way, a great waste reducer tip. When weighing out the portions don't weigh one sample at a time which multiplies the real variance ie +- 1 g, in the scale by the number of portions weighed. If you decide to weigh out 25 portions do it as follows: 25 x 28 g =700g +- 1g Then subtract 28g for each portion until you reach zero. That way the margin is not +- 1g for each portion, but +-1/25= +-0.04g/portion
Hi -
ReplyDeleteWe have very busy shops deploying a 100% manual brew service, and profitability is a very high virtue for us.
Your labor calculation is extremely high for a busy bar, where we are able to layer multiple simultaneous brews on top of each other. I would say under heavy load, the calculation is closer to 4 cups per person every 6 minutes. Of course, the time for brewing just one cup alone remains at 4 minutes. But still, no more than 90 seconds could be described as "active". In between the barista could be expediting and barbacking for the other folks on bar.
That doesn't change the fact that manual brewing does, in fact, add some significant cost. Anyone looking to dive in should certainly be careful with their labor numbers
Kyle Glanville
Intelligentsia Coffee
Kyle, I'm really pleased to have your perspective. Ian brings a similar view in that you both represent the highest strata of busy shops. Your experience with the manual brew bar is beyond reproach and of course every aspect of costing was vetted and argued within your company. My goal was to shed some perspective for the hundreds of shops that see what Intelligentsia is doing and believe they can do the same things. Intelli is a special place that we all admire, but if I attempt to copy what you are doing, I will fail miserably. I think I'm a good operator, but I'm sure I'd fail to make it profitable. Efficiency is only possible in a busy shop, and if the orders are sporadic, there is no chance of producing at speed and therefore the math changes. It is with these shops in mind that I wrote the post. The key is to achieve a manual brew rate which surpasses the marginal rate of substitution for a batch brew, where customers perceive the wait is worth it. I am working on an equation which captures the profitability taking into account the rate of substitution once the brew time exceeds 3 minutes. I'll post some thoughts soon, and hopefully an equation which will help small shops decide whether it is a viable option. Please let me know your thoughts once I get the math done. Cheers.
ReplyDelete