Hacker News Reader

Or, to put that another way: the true cost is real estate. Don’t try to run a cafe. Find a pretty outdoor area where some property developer kindly built commons seating on their own dime, and drive a coffee food truck up to it.

> Find a pretty outdoor area where some property developer kindly built commons seating on their own dime, and drive a coffee food truck up to it.

Most places with high demand like this also have prohibitions (or limited parking/operating permits) on things like coffee trucks, in my experience. Another issue with our prohibitive land use practices in north america.

I don't know about other cities, but in Washington, DC, the pandemic lockdown essentially destroyed the food truck business. A few operate along the edges of the National Mall, where the customers must be tourists. But McPherson Square, Farragut Square, and L St. NW used to have a lot of food trucks and have none now.

So maybe find a pretty outdoor area where there are lots of tourists.

> (so as with most issues regarding our spaces in north america, what we need to make them better is more density. :)

Then we raise the problem that this is not longer some simple, happy little shack where I get my coffee and relax. Higher density, higher volume means I wait in a potentially long line, have my personal space violated both considerately and inconsiderately by total strangers, feel the anxiety of being in a potential fire hazard area, etc. Arguably, none of this is better. I am more willing to pay a premium on the coffee than to deal with all of that.

The longest lines I've ever been in for coffee have been at suburban Starbucks drive-thrus, which are far from dense. My experience is small coffee shops in cities don't really get that crowded. There's plenty of room for those small coffee shops where you can get your coffee and relax in a nice little lounge spot. (I've seen more of them by far in cities than outside, honestly.)

> Higher density, higher volume means I wait in a potentially long line

The better bargain is to decrease shop area and worker count, and increase number of shops.

Tokyo seems to do just fine with 5-seat places...

Starbucks can negotiate way better deals on rent than mom and pops.

IIRC McDonalds even went as far as to become a landlord many of its franchisees, so it pays rent to itself.

For many small businesses - especially mom and pops, the majority of the surplus value is captured by property owners, and the amount has increased over the years. This is partly how Piketty's r > g came about.

> Starbucks can negotiate way better deals on rent than mom and pops.

On coffee too, they're big enough to go straight to the farmers and set their prices

https://www.thecommonscafe.com/starbucks-criticized-for-low-...

> IIRC McDonalds even went as far as to become a landlord many of its franchisees, so it pays rent to itself.

I read somewhere that McDonald's makes more money from their real estate holdings than anything else they do. Can't vouch for how accurate that is, but it seems very plausible.

https://qz.com/965779/mcdonalds-isnt-really-a-fast-food-chai...

> About 85% of the company in 2016 was represented by franchisee-run locations—people who agree to operate individual McDonald’s restaurants with a licensed privilege to the branding. But rather than collect a lot in royalties or sell its franchisees cooking equipment, McDonald’s makes much of its revenue by buying the physical properties and then leasing them to franchisees, often at large mark-ups.

https://www.wallstreetsurvivor.com/mcdonalds-beyond-the-burg...

> Today McDonald’s makes its money on real estate through two methods. Its real estate subsidiary will buy and sell hot properties while also collecting rents on each of its franchised locations. McDonald’s restaurants are in over 100 countries and have probably served over 100 billion hamburgers. There are over 36,000 locations worldwide, of which only 15% are owned and operated by the McDonald’s corporation directly. The rest are franchisee-operated.

Yes, and historically, mom-n-pop style shops (not specifically coffee) made the property costs work by living in the same building or property. But if you own a house and want to turn the ground floor into a cafe: surprise, modern zoning laws don't allow it. Which brings it around to a similar issue as my original comment: strict zoning is holding back what our cities could be.

It's the city councils...ours is criminal. All of them.

Planning decisions tend to be made by municipal staff not by elected Council. Regardless, if every city council/staff is causing the same issue, then I think that's a pretty reductive argument. We need to look at places that are doing planning/zoning "right", figure out what we're doing wrong, and improve it.

(And actually, all that has been done, but action isn't being taken, so now we have to solve that problem)

Don’t try to understand how a company works by looking at the loss leaders. A cafe despite the name is not making its money off of coffee. Drip is probably selling at cost, especially once you include the cream and sugar. It’s probably not the pancakes either, with whipped butter and syrup. It’ll be the orange juice, the bacon, or omelettes.

Just an anecdote; I spoke to a manager at a small coffee shop and he said that they make all their money on coffee alone by 9am (and surprisingly, they licensed Starbucks coffee). Everything else was a pain and barely covered costs because of time, equipment, and effort. But coffee was cheap and easy.

How much are they charging for coffee?

Around 2 dollars US for a medium coffee that cost them pennies. According to him, the other things they sold were there just to bring people in. Money was in the coffee because it was cheap and easy.

Medium is what, 12 ounces? Yeah I could see that. You're mostly paying for cup.

But I think you/he should look around. If you're not a fast food restaurant coffee costs a bit more than that these days, and charging 'a bit less' craters your profit margins.

Yep. For all cafe-like spaces I’ve been involved with, drip coffee == free money.

From the places I've worked, drip coffee is essentially free, but the cup it's served in .. less so.

Even for "speciality coffee" it went lid, cup, sleeve, milk, (syrup,) coffee.

You have that exactly backwards. All the money is in coffee, which is so cheap it might as well be free. It's just like a restaurant which makes all its money on diluted caramel-colored sugar syrup. Or 12 dollar mixed drinks.

(Of course, the real money is in laundering.)

I can’t recall the last time I saw $2 coffee. I don’t drink drip except my own, probably not for decades, and the last time I remember looking it was more like $2.50, and in towns with lower standard of living. If you’re charging $2 for coffee today you should probably raise the prices if you can’t work out how to make a profit. Fifty cents on two dollars is a 25% profit margin.

Edit: I just looked up the local 50’s diner. $2.79 for what is probably bottomless but burned drip coffee. That definitely makes them money. But That’s 39% more than $2.

To reiterate: if someone tells me they’re planning to sell coffee for $2 I believe them. And then ask where they think they’re making their money because it’s not going to be on the coffee.

> If you’re charging $2 for coffee today you should probably raise the prices [..]

Just for everyone's interest, (and based on 2022 pricing) you can get an espresso in an Italian bar for $1.33 (Trento) all way way down to $0.96 (Naples).

Having tried the US and the Italian versions, I'd take the latter every single day of the week and twice on Sundays over the US version.

https://www.statista.com/statistics/717413/average-price-of-...

I’ve been watching that British coffee critic whose name I can’t recall looking at different coffee making means.

I’ve watched just enough of his stuff for him to sell me on the idea that maybe manual espresso presses produce a more consistent cup with just a little practice. Also they seem to be cheaper. Is that what they were using in Italy?

> Is that what they were using in Italy?

They're using the big industrial-looking espresso machines, since throughput is everything.

You pay at the (separate) till first, then take your paper receipt to the bar, hand it over, and 90s later you're handed your drink.

I've ordered a lot of coffee in Italy and have never ever heard a discussion about drink size, flavours, soy, or skim milk. That stuff is apparently irrelevant.

If you are being paid to launder money, isn't the fee about 20%? My source on that is the Netflix series Ozark. Assuming that 20% is within the realm of reality, I assume that the margin on drip-coffee is substantially higher. Maybe 60% margin on coffee?

How can you possibly come the the conclusion that 12oz of drip coffee is a loss-leader? That’s like saying soda is a loss leader at McDonald’s.

> what we need to make them better is more density

I'd love to hear more about this, and how one defines "better", because it doesn't sound like this is going to work for everyone.

Full disclosure: I've spent the pandemic being amazingly grateful that - by chance - I happen to live in a low-density part of the world. It has its downsides, but on the plus side, from my home I can walk to open countryside in pretty much any direction in a few minutes.

(Increased) density doesn’t have to mean an absolute lack of any open fields, does it? Doesn’t density offer a probability that countryside can be closer to one’s home?

> Doesn’t density offer a probability that countryside can be closer to one’s home?

I was responding to someone suggesting that increased density would help with retail profitability.

If we were to make housing more dense but use the extra space as countryside that's not going to provide any more customers within the catchment area of the OP's coffee shop, is it?

> If we were to make housing more dense but use the extra space as countryside that's not going to provide any more customers within the catchment area of the OP's coffee shop, is it?

If your current area has 400 residents but you can still easily walk to open fields, increasing that to 1200 residents in the same area would triple potential coffee customers while maintaining the same access to countryside.

> I'd love to hear more about this, and how one defines "better"

Sure! The discussion was about enjoying small independent coffee shops, and how to run one profitably, so my description of "better" is w.r.t. that issue - for persons who want to run such a coffee shop, or who want to visit one. The identified issue is that per-purchase margins are fairly small, and to sustain a business it requires a lot of these small purchases. As property (mortgage/rental) costs are also high, having a small space is also important. So to get a lot of customers despite being a small space, you want to be either near a natural attraction (park, beach, etc), or near a lot of people (office building, metro station). Density helps with the latter.

> I happen to live in a low-density part of the world. It has its downsides, but on the plus side, from my home I can walk to open countryside in pretty much any direction in a few minutes.

And how many independent coffee shops can you walk to in a couple minutes?

They also ruthlessly overwork employees with just in time scheduling. And the urban starbucks that have cafe-like atmospheres are subsidized by the suburban ones that do all or most of their business through the more-labor-efficient-but-enjoyed-by-no-one drive thru.

The Starbucks near ex-urban me always has a line of cars wrapped around the building for the drive-through--something I've never really understood. If I go to a coffeeshop except maybe when I'm traveling it's to hangout with a coffee and maybe grab some food.

Think of all the parents taking their kids to soccer, football, whatever. Many of them grab a coffee on the way.

I guess. If it's in the morning, I'll make some coffee at home and put it in a go cup. Otherwise I mostly don't drink coffee during the day unless it's on a long drive and I certainly won't wait in a 10-15 minute line of cars.

But I think it's something that becomes a habit/ritual for a lot of people.

The simple answer is that caffeine and refined sugar are both minor but addictive drugs, particularly in combination.

I think it's about convenience. You can have a cup of reasonable coffee in your hands in just a few minutes.

You can also have even faster at home or at work - and at no cost. It amazes me that people "grab Starbucks on their way to work".

Yes, but that's less convenient. At home, anyway, you have to make it. That's more effort at a time when many are in a rush to begin with. You can have it at work, but many prefer to have some coffee a bit sooner than that and not have to make a trip to the break room.

Convenience is a very powerful motivator, and these people are prioritizing it over minimizing monetary expense.