The economics of coffee – The Moncrieff show interview

Susan
By Susan April 23, 2014 08:58

The economics of coffee – The Moncrieff show interview

 

Sean asks me about a fascinating topic: the economics of coffee. Why is coffee priced differently in different places when it costs about the same to produce? And why is it that we’re willing to pay more and stand in line at certain coffee shops?!

 

Listen to the radio clip here (opens in new window; or right-click to “save as”)

 

0:18 If you went to five different European capitals and bought a cappuccino, you’d probably end up paying five different prices. Why?

0:52 How much you value something gives it its real price.

1:31 Two types of inflation: “cost push” inflation – that’s not the case with coffee at the moment, and indeed, on average, there’s an 80% profit margin on coffee.

2:05 The other type of inflation: “demand pull” inflation.

2:21 You don’t have €1500 of disposable income right now – or do you? How small expenses trickle their way past us.

2:54 What elasticity is: if the price of cigarettes increased by 20%, it wouldn’t be 20% of smokers that would stop smoking.

3:08 What’s the competition for coffee? Tea? Orange juice? Water? It’s just not the same thing.

3:36 And then – do we really pay for coffee only? Your reasons for buying coffee at a certain place might not be my reasons. That’s how you create a value proposition to increase the price.

4:26 Sean says he hates himself for standing in line at Brown Thomas just to buy Nespresso pods! Still, he does it… What is the secret behind the success of Nespresso?

And there you have it! A whirlwind tour of crucial economics concepts, all in a cup of steaming coffee…

 

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Susan
By Susan April 23, 2014 08:58