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Surcharges: A little extra goes a long way |
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Monday, 04 January 2010 |
Extra! Extra! Read all about it! Lisa Dempster reports on the fate of your spare change.
A few weeks ago I took my cup to my local and ordered a soy latté, something I have done more or less daily for the past thirteen months. It had become my favoured haunt for a variety of reasons: proximity to my workplace, the skill of the barista, ambience, the availability of quality soy milk (Bonsoy), and its everyday affordability ($3, including a 50c soy surcharge).
On this particular day I was charged $4.50 for my coffee. The café had done a costing and realised they were losing money on their soy drinks. I thought such a large price jump was unreasonable, and I refused to pay the 50% price increase. Instead, I asked that my cup be filled with $3 worth of coffee.
The next day, the price of soy coffee had returned to $3, but Bonsoy had been replaced by a cheaper brand. So now I pay a 50c surcharge on an inferior soy drink. In the space of two days, I went from being a very happy customer to a less satisfied, even disgruntled, customer.
Putting a surcharge on soy milk is a contentious topic in some circles — namely, among those who work in the café industry, and those who like to purchase non-dairy hot drinks at said cafés. Perhaps not surprisingly, people in those two groups can have very different ideas about whether it's acceptable to charge extra for soy milk.
Vanessa, a management consultant who works in Melbourne's CBD, doesn't like milk surcharges. 'I resent it. I think they should build it into the general costs. Some teas cost more than others but they just average it out.'
She realises that some soys are more costly, like organic or Bonsoy, and she also appreciates that some cafes offer multiple non-dairy options. Her usual café charges her an extra 20c for low-fat soy milk, and she goes there regularly. However, there is a limit to how much she is willing to pay. 'Up to fifty cents - I'll do it, but I'm not happy about it. Any more than that and I just wouldn't get it.'
Vanessa has been dairy-intolerant for over a decade, and notes that baristas have grown much better at working with soy milk, while becoming more knowledgeable about the differences between various products. She attributes this to the general rise in soy drinkers — about a 25% increase in the past five years, according to her barista - but wonders why an increase in uptake hasn't brought costs down.
Glen Morris of Glen's Espresso, a coffee cart in central Brisbane, has considered the issue of surcharges extensively. Charging for extras is a funny business,' he admits. 'I always thought it was a rip off until I got into the game myself, and worked out that soy milk does cost a lot more — and that a double shot of coffee does cost 50c.'
Rather than charging a set price for extras, Glen likes to let his customers decide whether it's worth paying a surcharge, and his unique honesty box payment method allows for that style of tariff.
'I kind of let customers decide the issue. If they ask, I tell them to add 30c or 'whatever your conscience tells you to,'' he explains. 'But most people just pay the regular prices without adding on for the extras. I rarely force the issue. If I'm making coffee then I'm making money. Losing a bit on soy or an extra shot doesn't bother me too much.'
Seemingly quite happy to absorb the cost of extras in order to provide better value, Glen also doesn't put a premium on the organic, fairtrade coffee he uses — beans that might attract a surcharge at other establishments. His coffees are priced at $3 and $3.50 (for small and large respectively).
'This is actually less than I wanted to charge. Initially the prices were $3.30 and $3.80, but I'm in a very competitive spot with the disadvantage of no recognised brand name to trade on, so I dropped the prices down. Although my prices are lower than I wanted, using nice round numbers is easier for me and my customers, and I like that my coffee is not just very good — but very good value.'
Despite his relaxed but savvy approach to pricing, there are limits. For example, Glen uses Vitasoy milk, one of the cheaper brands of soy. 'Bonsoy is really nice, but it's another premium again, and I'm not prepared to subsidise to that extent.'
One surcharge that doesn't seem to attract much attention is an additional cost for mocha, a practice that is widespread. A straw poll of mocha drinkers revealed that they weren't bothered about paying extra for their drinks; on a whole they noted that mocha has an extra ingredient, or that it was something of an extravagance, a special treat.
Steve Barnett of Human Powered Café in Thornbury says that no one comments on his 50c mocha surcharge. However, many soy milk drinkers have been vocal about surcharges — just not in the way you might expect.
Human Powered Café charges 30c a cup extra for local, organic soy milk — yet many of its customers prefer Bonsoy, and have said that they are willing to pay the extra cost it would attract.
Eventually, Barnett sat down and recosted all his hot drinks, discovering that using Bonsoy would mean adding a $1 premium to soy coffees — something he is reluctant to do despite having the support of many customers. 'To put it on at a dollar extra suddenly changes the dynamic,' he reflects, and has not yet decided whether to add Bonsoy to his menu in addition to the soy milk he currently stocks.
A far less common surcharge is decaf, which costs more than regular coffee beans — often up to $4 a kilo. Unlike soy milk, it's a cost that Barnett absorbs. He is unsure about how big a difference it makes to his margins. 'I'd have to do the calculations,' he explains, although it's an item he wouldn't consider putting a surcharge on. 'I haven't seen anyone put a premium on decaf.'
So there is more than simple economics at play when deciding to add surcharges to menu items — retail trends are factored in, too. That is, what a customer might be prepared to pay extra for (such as mocha or soy milk), and what they would consider unreasonable (decaf). This might seem unfair to soy or mocha drinkers, but Barnett gently reminds me that running a café is a business, 'It's all good to say that the long black drinkers will subsidise the soy drinkers, but isn't it important to get good margins on drinks, which are a profitable part of the business?' In the café business, hot drinks play a vital role in generating income, and there are more costs involved than simply the price of ingredients.
'There's an incredible amount of labour involved in getting just one coffee out to a customer,' Steve says. At the end of the day it's about offering value, good service, good coffee and an enjoyable drinking environment. '[As customers] you've got to put a price on how much you enjoy it when the cup of coffee is put in front of you.'
Lisa Dempster
Author profile: About the author
Author website: Unwakeable
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