I guess that most people know this, but I heard about an interesting talk given by Bobby Kerr of the Insomnia Coffee chain recently that gave great insight into how much coffee chains actually make on selling a cup of coffee.
We all (should) know that we can buy a jar of coffee in the supermarket for the same price as we’d pay for one coffee in a coffee shop. Yet we’ll still sometimes (maybe frequently) spend that money.
Mr. Kerr was talking about the success and failure of the special offers they’ve been offering recently. I’ve mentioned them here in the past.
The first offer was their “coffee and a sandwich” for €5 which at the time was pretty successful. Insomnia then moved on to offer “3 for the price of 2” in all their stores, and according to Mr. Kerr they got hammered.
When you think about it, it makes sense. So much so, that you’d wonder why they actually went ahead with that offer.
If most people go into coffee shops on their own, offering a 3 for 2 deal means that they’ll most likely get an extra piece of food or snack rather than a second coffee.
When your profit margin is mostly on the coffee rather than the foods and snacks, you’d rather that they take the coffee where the loss can be more easily absorbed. But to their cost, Insomnia hadn’t considered the reality, and the offer didn’t last very long.
Hence you’re seeing the 3 new offers offering a “coffee plus….” deal instead where the large markup on the coffee can absorb some of the losses more comfortably, but also increasing appeal to customers. According to Mr. Kerr, these offers are likely to go on for some time given their success.