The Cost of a Cup of Coffee
VAT 13.5%
In September 2023 the government raised VAT from 9% to 13.5%.
This adds 20 cent to every cup of coffee.
While there is currently lobbying for a new reduced rate in hospitality, the customer expects this saving to be passed back. If the VAT rate is to be reduced, it would be under the clear understanding that hospitality will use the headroom to contribute towards costs.
In 2023, we collected €369,636 on behalf of the revenue. The new VAT takes an additional €62,400 out of customers pockets and is paid directly to the revenue.
RAW MATERIALS
We have noticed a huge cost in the rise of coffee beans from speciality farms going from €11.76 to €14.48 per kg FOB.
Industry averages for cost of goods also has risen from 25% to 30% over the past 3 years since covid.
Lots of factors have influenced this, for example fuel surcharges, refusal to use UK as landbridge and the complications of importing from or through UK has meant we now source from other parts of the world and more expense.
In addition it is argueable that great coffees have been undervalued and we are seeing some very strong prices now for coffees which we have been buying year after year. In some cases the quality is as good if not better than ever. In other cases, whether has affected supply, and this has reduced supply but still pushes prices as supply is low, but demand is high. Buying really good coffees at fair market prices is proving difficult.
LABOUR
Typical labour cost in hospitality was under 30% before 2018 its now running above 40% and in restaurants above 45%. In our business, we are paying every member of the team above minimum wage. Our hourly rates will increase from on average,€13.12 to €14.26 across the team.
RENT RATES AND UTILITIES
It is no secret that rents are increasing, be it domestic or commercial buildings. The key to understanding a fair affordable rent value if if you are able to keep the cost of rent below 8%. Utility bills are typically 3-5% of turnover and although rates reductions have been provided by government, they are capped at 10K.
SOCIAL MEDIA AND MARKETING
Lots of businesses have to drive marketing, social media and engagement, this is a real cost that is usually forgotten but we have split it out so it can be quantified. Everyone loves watching the social media but forget there is time and money gone into it.
Our marketing department consists of 3 full time equivalent roles. Graphic design, social media content creator and marketing administration. Ignoring hidden costs for website design, maintenance or editing etc. Currently we run monthly marketing campaigns, consisting of printed ads in papers, printed ads on streets (adshel), digital ads (insta/facebook), newsletters to our database, managed on a CRM system, monthly events and radio sponsorship.
GENERAL EXPENSES
Bankcharges, loans leases, insurances.
It might surprise you to know that last year we paid 1.87% on average on every transaction.
That’s €18,700 in bank fees per million. It’s a staggering amount. And it costs even more to lodge cash.
Most businesses will have loans and assets that are financed through leasing. We are a low leveraged company in this regard.
PROFIT
The goal every year is to make a profit and re-invest this money into the business.