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Permalink Reply by The Barista Formerly Known As JavaJ on January 4, 2009 at 12:55pm

Normally, it would be a good thing to raise your prices to reflect your real costs. However, as we are currently in a deflationary cycle, and consumers are looking for value and watching what they spend, I would highly recommend you not raise your prices now. These costs all went up last year due to higher commodity, fuel and labor costs. As all these costs are now down, your customers may question why you are raising them now. Instead, I would recommend you try and get some concessions from your suppliers, as price decreases move down the line. However, if you really haven't raised your prices in 2 years at all, and you find your prices are undervalued, you may okay. Just make sure you communicate your value to your customers clearly.

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Permalink Reply by Alun Evans on January 4, 2009 at 6:27pm

You know, this is a much more difficult question than perhaps it should be. We are all professionals, offering in most cases top quality coffee prepared by top quality barista...or top quality technical advice. Suppliers, government regulators (local and central) have no quarms passing costs down to us... but for some reason we collectively are hesitant to pass these costs on to our customers. I know of this reluctance because I am also in the same boat with roasted product and machines to customers.

In most cases I think the reluctance is based on a belief that customers will turn their backs on us because, as mentioned, times are tough. I think the reality of the situation is the regular customer base would understand a 5% increase in the cost of their drink.

I remember 10 years ago (in NZ) McDonalds needed to increase the cost of their $0.99 hamburger they had been selling for years. Because they (McD's) had been so reluctant to increase prices for years when the crunch came and they HAD to do it, the publics view of their product was it was a low quality, $0.99 maximum priced item. My point is that none of us are low cost operators, we need to have price increases inoline with increased costs to be able to employ the quality staff and sell the quality coffee that we all sell...

I understand the reluctance, I embody that reluctance... but it must be done and I guess communicated to customers why.

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Permalink Reply by The Barista Formerly Known As JavaJ on January 4, 2009 at 9:26pm

Alun,

I respect your opinion, and frankly you are preaching to the choir. We raised our prices 3 times in 2 years to very little complaint in a shop that was obsessively focused on quality. That is not what we are talking about here. Times are different. I was just talking to one of the roasters I used to buy coffee from last night about this. He is one of the biggest advocates of truly high end coffee, and I regularly used to buy extremely high priced coffees from him ($50-250/Lb.) We both agreed that the market has changed, and businesses need to be focusing on value. That is not to say that customers won't throw down for a high ticket coffee anymore, but it better represent a better value than it did last year. I know another roaster, who raised his prices a little after the price of C went so high, and has subsequently lost several customers. I know others still, who have not raised their prices, but have used the opportunity to pick up business on a higher value proposition. Take from that what you will, but as sound as your advice is normally, I personally would not recommend any independent shop to raise their prices right now unless they are seriously undervalued. This is not a commodity vs. artisan argument. This is about a severe recession and deflationary pressures.

Another point I would like to make is that the supply chain doesn't flow in one direction. You properly note that suppliers have no qualms about passing price increases down to us. So then why not price decreases? Don't wait for your supplier to offer you a discount, call them up and ask them how they are going to keep your business.

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Permalink Reply by comforteagle1965 on January 4, 2009 at 9:37pm

All good stuff guys. a lively discussion. We are known for quality. I have a few dutch bros around with cheaper coffee, they have that covered. I have just seen so many increases in the past 2 plus years but I have held on pricing for competition sake. I am afraid with this mandated labor increase I have no choice. I treat my Baristas and staff well and this just makes it more expensive. This will place us up with Starbucks on pricing. Little cheaper here, a little higher there.

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Permalink Reply by John P on January 5, 2009 at 3:21pm

We raised our prices in November -- we were about six months late in doing so. We usually raise prices once a year, but we were trying to coordinate with our remodel and that was a bit behind. We're still underpriced for what we do, but there's always next year. :)
The average raise was about fifty cents on smaller drinks and 70 cents on the 24 iced. Only one customer whined, no one else even noticed. ($2.75 espresso to $5.05 24 iced White Velvet)

I imagine that all of us here are here to provide something special to the customer, and with that, you can't justify not raising prices. As Alun mentioned, everything down the line has been raised, and if we want to continue to give the customer something exceptional, we need to charge accordingly. As long as you contine to deliver what you've promised, customers will do nothing more than smile.

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Permalink Reply by Vincent Iatesta on January 6, 2009 at 8:23am

We are in the same boat. We have not raised prices in two years & have absorbed all the cost increases. We are a high quality, 3rd wave shop, with the best quality espresso in town, higher paid & better trained baristas with the lowest prices. Has this resulted in significant market share gains - no. I have conducted a regional retail price comparison and found that our prices were significantly lower (20 - 50 cents on average). So now, at the height of the recession, in the post holiday withdrawal, we must raise prices to more accurately reflect the value of the product that we provide.

We are going to move forward with this, but be sure to have a good communications plan in place as we do. As Alun alluded to, a cheaper priced product suggests lower quality to the consumer. We have a premium product & should therefore be charging a premium price. The misalignment of quality & price dilutes the perception of the brand for the consumer. You can charge a premium price and still provide value for the customer. The key here is "value", not price. Don't loose site of providing a value to your customer.

Value is created with the quality of the beans, freshness, brewing ratios, brewing methods, holding standards, skill of staff, consumer relationships, environs, equipment, maintenance policies, cleanliness, water filtration, etc. - in general, your overall commitment to quality in every aspect of your business.

Move forward with your price increase (or market adjustment, if you will). But do so in confidence that you are pricing your product fairly and retaining "value" for your customer. Communicate it honestly & your attrition should be minimal.

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