Research indicates that approximately 57% of American citizens drink coffee daily, which ranging between three to four cups on average. An article titled ‘the real cost of drinking”, highlights the cost of making coffee Americans. Most individuals enjoy their coffee at home in the morning and as such, they incur several costs. The first cost is the cost of a coffeemaker. It costs approximately between $25 -$200 for a good coffee maker and about $200 for an espresso machine. Milk, cream and sugar are additional costs that go into the preparation of homemade coffee. It costs around $4 for a gallon of milk, $5 dollars for a pint of milk and $2 for a pound of sugar. Coffee beans or a pound of coffee cost about $5.10 in the grocery stores where a pound of coffee yields approximately 3.2 gallons of liquid coffee. This means that the average household spends about $16.10 in the preparation of coffee. An example used in the article shows the average cost of coffee in a café. An average cup of coffee is 12 oz, which contains an ounce of cream and 15 grams of sugar. An ounce of cream costs 32cents, sugar six cents and four cents for coffee. This means that a cup of coffee costs about 42cents. This is without including the cost of water, electricity or labor that goes into preparation of a cup of coffee.
Homemade espressos cost around the same in terms of grocery except that a pound of coffee costs between $10 and $20. A pound produces around 22 cups of coffee. Taking an example of a 12 ounce latte, it contains 10 grams of sugar and 10 ounces of milk. Thus the average cost of espresso is about $1.71 excluding electricity, water and labor costs.
For the individuals who don’t make coffee at home, it is somehow expensive as compared to those who make for themselves. For instance, a 12-oz cup of drip costs about $1 and $2. Given the average cost is $1.50, the total cost for preparing becomes $5.25 per day routine. Buying in a café costs more than making at home adding up to $4 per drink or $ 14 per day. This is includes costs such transportation to a coffee shop. The chart in the article gives a comparison between drip coffee and espresso coffee prepared at home and in coffee shops on a daily to yearly basis. It indicates that it costs about one and half times more to for a cup of espresso coffee, whether prepared at home or in coffee shops. The costs of coffee are of great concern several key players in the industry including business owners, consumers and the government. They are much interested in the matter as it affects their consumption patterns of coffee.
Consumers in economics are perceived to be rational beings. They consume goods and services to maximize their utility within their budget constraints. Demand for non-durable goods such as coffee, are dependent on prices and consumers income. When coffee prices increase, consumers’ demand for coffee decreases as they tend to switch to close substitutes of the product. In addition, when consumers’ income increase, their demand for coffee increases. Income is from employment and wages, capital, and remittances from abroad. It also includes dividends and interest on wealth such as bonds and share.
Business owners in this case, coffee shops are also affected by the real cost of making a cup of coffee. Profit-making is the main concern for most private enterprises including coffee shops. Profits in microeconomics refer to the difference between revenues and costs. As such coffee houses are business enterprises which incur input costs such as sugar, coffee, milk, cream etc. In addition it incurs production costs such as labor, capital, electricity, and transport all which are accountable in the production of a cup of coffee. The industry for example is labor intensive with average revenue per being $40,000 (Kauffrau, 2007). Coffee shops are usually dependent on customer traffic and are situated in areas with convenient access for pedestrians or drivers e.g. malls, universities, retail centers etc. therefore their customer base is wide and varied which means different the income levels of the consumers varies greatly. Due to cost volatility of different coffee beans and other input costs, retail prices of coffee often fluctuate. Therefore, when the costs of such inputs are high, it means coffee houses have to increase prices of coffee to cover their production expenses. These prices are relayed to the customers who might forfeit purchase which affects profit margins of coffee shops.
Consumers of coffee whether at home or at school are not only concerned with cost of green coffee, but also the inputs that go into preparing a cup of coffee. It is therefore necessary to have a policy framework that protects consumers against the fluctuating prices, to ensure they maximize their utility. The main objective of any macroeconomic policy is to ensure price stability, full employment and economic growth. Many economies are subject to business cycles which affect the prices of goods and services. The government should provide framework that protects consumers from exploitation by coffee shops who charge who almost charge twice as much for a similar cup brewed at home. They take advantage of consumers’ perceptions on particular brands of coffee to be of higher quality, and charge exorbitant prices. The government should ensure coffee shops charge within acceptable profit, margins to prevent exploitation. The government might also provide incentives in the importation of coffee by reducing the tax on coffee imports. In this case, cost of purchase will be low which will translate to low input costs for consumers and retailers alike.
In conclusion, the cost of a cup of coffee is heavily dependent on input costs. Therefore, when input costs are low, the demand for coffee for coffee is high and coffee shops are able to break even and realize profits. However, it is much for consumers to brew their own coffee at home as it incurs fewer costs compared to buying in coffee shops. Coffee shops use more inputs in coffee preparation compared to home brewed at home.
Joyce, E (2009). The Real Cost of Drinking Coffee. Investopedia. Retrieved from http://www.investopedia.com/financial-edge/0709/the-real-cost-of-drinking-coffee.aspx
Kauffrau, D (2007). Strategic Management: Coffee Shop Industry-A strategic Analysis. Retrieved from http://www.hausarbeiten.de/faecher/vorschau/111348.html
Riley, G (2006). Macroeconomics/Internationational economics. Tutor2u. Retrieved from http://www.tutor2u.net/economics/revision-notes/as-macro-macroeconomic-policy.html