Expensive Coffee Anyone?
Expensive coffee shops have been blossoming all over Colombo. They serve as a much needed place for affluent people with refined tastes to sit and relax. Colombo is notoriously boring in the daytime and not so interesting in the night either. That is, once you’ve had your fill of its meager decent entertainment and realise that variety is rare indeed. Coffee shops serve as a convenient place for the entertainment starved. A convenient excuse for them to meet and enjoy the company of friends.
A new shop called Java Lounge just opened up in Colombo. Ordinarily this would not have caused much comment. The burgeoning perceived demand for high priced coffee causes all sorts of coffee shops to periodically pop up, only some survive. But the difference with this new place is that it serves Starbucks coffee. This got the attention of ‘coffee lovers’ (yes, there is a whole subset of people that identify themselves thus) really excited. A post i wrote on my humble blog together with pictures got thousands of hits, together with some good natured snarky comments about my ‘lack of understanding’ of what motivates coffee lovers. The overpriced coffee market indeed seems to be booming.
It is funny, that the thing about overpriced coffee is well, it is overpriced. But the advent of an affluent upper middle class and the lack of any other alternative places to time kill is contributing to a growing market for high priced kopi. In the West where the concept first developed in busy cities where coffee is considered a necessity, its different. The dynamics are driven by an actual desperation for caffeine and near price blind consumers.
In Sri Lanka Prices are unusually high given our income levels. Coffee in most upmarket shops here cost the same as they do in Singapore or the US. In other words, what is a slightly overpriced mass market operation elsewhere is definitely a luxury brand here.
Quite a few studies have been done on the subject. Tim Harford says in The Undercover Economist that overpriced coffee is usually a result of a coffee shop picking a strategic location near a subway station for example. The high rent drives away competition, and coffee starved customers pay extra for the convenience of a cup of latte enroute to work. The actual cost of the ingredients and overheads per cup is minuscule in comparison to the prices charged, put the premium location enables the shop to do this due to having little or no competition.
Expensive coffee shops in Sri Lanka and other parts of the developing world however, justify high prices by virtue of prestige. The prices keep the rabble out. So housewives can chill and gossip, expats can come in to escape from the heat, office workers can take the occasional break and MBA students can discuss course assignments. Coffee shops do fill a much needed niche in the city. But the costing causes my eyebrows to move upwards. A friend of mine, Raashid Riza, who lives in the UK, had this to say:
“My flatmate in London used to work part time in a prominent coffee shop in London, a latte costs £ 1.99 to take away and £2.20 to have in. But what is not known to the consumer is that the combined cost of materials, production and labour is only £0.17, so one cup of latte brings in a profit of 1170%. All coffee shops around the world work on such a large profit margin for a single cup of latte.
However, in London the price of a latte is relatively in fair proportion to the average income. I used to have a latte almost everyday before I went to work, at the Pret a Manger close to my workplace. But directly translate that amount to rupees and we are talking of Rs.400 to have a latte when it costs about Rs 30 to make it.”
But coffee shops continue to attract large numbers who don’t seem to mind the prices in the least. This points to the simple fact that the actual payment is not for the coffee, but for the ambiance and exclusive environment that the coffee shops create. The increasing demand for coffee is also indicative of rising incomes in the affluent classes of the city.
A funny thing, just up the street from the new Starbucks is a little kadey called ‘Eat cabin’ that will serve up some nice hot hot Harischandra for a fraction of the price, there’s even a little bench outside to sit and put a chat.
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