Everyone is aware of the changing scenarios in the business world. People have a perception rather a belief that it’s the age of small business owners and their time to shine because of the flexibility unlike the big companies with large investments with a lot at stake to be profitable and get an ROI ASAP, If you’re the small business entrepreneurs, this your time to shine.
Recently FINNOMENA published an article talking about Starbucks- “Do you Believe Starbucks has a net profit margin per cup lower than local coffee carts in Thailand?”
Starbucks is an American coffee company that is ranked 2nd in the world after McDonald. Currently, Starbucks has around 25,000 branches most of it owned by the company itself and the rest licensed.
In Thailand there are about 273 Starbucks outlets, Thailand is among the three countries where the parent company holds an administrative power over the outlets and also has a distribution center outside U.S.
Surprisingly, the net profit margin of Starbucks is only 13% on an average for a cup of coffee priced 130 Baht that sums up to 17 baht of profit per cup of coffee.
If compared with a street side coffee cart vendor the average price is 30 Baht per cup with a cost price of 10-20 Baht still making more profit margin than Starbucks. Yes, it’s surprisingly true.
So the big question is ‘Why is Starbucks selling expensive, but less profitable product unlike the coffee cart vendors?’
The truth is coffee cart owners save a lot of money unlike Starbucks. The rent of the outlets is exceptionally high. So for every cup of coffee sold 31 baht out of the price of 1 coffee goes for rent. It’s fair as most of the outlets are in good and touristic spots, ironically the price of rent is more than the cost of a local vendor’s coffee.
On a day to day basis, first 100 Starbucks cup of coffee will be paid as rent, another next 200 cups will be paid as income tax, decor and store management. So for Starbucks to have a breakeven point, they have to sell at least 300 cups of coffees per day. This is one of the main reasons why Starbucks don’t want to invest in all sectors. There are only 12 countries where there is a direct investment and rest are licensed.
On the contrary the street side vendors don’t have to pay for rent, décor or any taxes. It’s on them where they want to place their cart and start selling coffee. If one location doesn’t suit there need, they have the liberty to change the location. They start earning profit from the first cup of coffee itself.
Thus it’s proved that the coffee cart vendors can get better margins than Starbucks and it’s less risky once you figure out a good and a busy location.
There is another example of a brand called Extraction Lab which has the most expensive cup of coffee in the US. Now they are planning to price the cup of coffee priced at $18 (about 630 Baht) which will be created by a special machine called Steampunk, the coffee beans come from Ninety plus Gesha Estates, growing an expensive variety of coffee called Gesha. The coffee is famous for attracting extremely high prices at coffee auctions, going as high as $350 (about 12,000 Bath) per pound. Gesha, also sometimes spelled “geisha” is fairly rare for coffee because its grown in very high altitudes, which is not very common making Gesha a luxury item, much like caviar.
To conclude the coffee cart vendors just pay for the raw material, little equipment and their own labor to earn money. Unlike Extraction lab that uses rare raw material for making coffee. It’s not about how big you are but how you actually EXECUTE!!
To be a great entrepreneurs, don’t forget to be a morning person!
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