The Economics of a Starbucks Cappuccino Grande

A Starbucks Cappuccino Grande, which is 16 ounces, costs $3.65 at our local Starbucks in Nashville.

Compare that cost to making coffee at home. According to Seacoast Coffee, if a pound of coffee costs $8, then a 16 oz. cup of coffee only costs 31¢. Add in some milk and some price inflation, and the cost is still less than 50¢. Sure you have to buy a machine in order to make the coffee, but there are some very cheap options for that. Here is where we must examine the curious economics of a Starbucks Cappuccino Grande:

If we go to Starbucks and pay $3.65 for a Cappuccino Grande, where does that money go?

How much does Starbucks get, and how much does the farmer who grew the coffee get? As they say, the answer may surprise you.

cappuccino

[As a reminder, a cappuccino is made up of one-third espresso, one-third steamed milk, and one-third frothed milk.]

According to a study by British retail analyst Allegra Strategies*, the cup costs more than the coffee that goes into it. If the drink costs $3.65, the cost for the cup, stirrer, and lid is 32¢, while the cost of the coffee beans is a mere 16¢.

Cost of Coffee: 16¢
Cost of Cup, Stirrer, Lid: 32¢

Understandably, the largest share (36%) of the price goes to the capital cost of running the coffee shop and paying rent, and 30% of the share goes to paying staff.

Shop Overhead and Rent: $1.31
Paying Staff: $1.10

The milk, which makes up 2/3’s of the drink, costs the same as the coffee.

Cost of Milk: 16¢

After all of the costs are added up, that money left over is the profit. According to the study, a coffee shop makes about 60¢ on a $3.65 Cappuccino Grande.

Profit: 60¢

So, who’s getting rich off of the $3.65 Cappuccino Grande?

Coffee Farmer

For all of his work, the coffee farmer makes very little money.

 

Well, it’s definitely not the coffee farmer. Based on the example above, we’re paying 16¢ for the coffee in the Cappuccino Grande. But, according to transcript from the eye-opening documentary Black Gold, after all of the middlemen are paid, a coffee farmer in Ethiopia earns about $0.08 for a kilo of coffee beans, which equates to $.036/lb. According to Green America, a coffee farmer in Guatemala earns about $.30/lb. There are about 60 shots of espresso in a pound of coffee, and the Cappuccino Grande uses 2 shots, so if the Cappuccino Grande sells for $3.65, the farmer gets somewhere between $.036/30 = $.0012 to $.30/30= $.01 out of the $3.65 cup of Cappuccino Grande. Middlemen are getting the difference between the 1¢ and the 16¢ in the above example, so the coffee farmer earns 1¢, the middlemen earn 15¢.

It’s been stated before, but it wouldn’t cost the consumer much more to pay the coffee farmer a decent, living wage. Coffee farming is not easy. It’s hard work, 8 hours/day raising a crop that is susceptible to weather, disease, and volatile prices. According to Black Gold, a coffee farmer in Ethiopia only makes about $.50/day for a full 8 hours of labor.

Barista

Baristas don’t make too much money, either.

The barista is not getting rich either. According to GlassDoor.com, a barista at Starbucks makes about $17,000/year before tips. (This figure does not include tips, but does include bonuses and health care.) It is safe to say the average Starbucks employee is not getting rich working at Starbucks. From the standpoint of the cost of the Cappuccino GrandeSome definite labor does go into making a cappuccino, however, so the above figure of $1.10/cup for labor is probably a decent estimate.

The companies selling the coffee cups, etc., and the suppliers of the milk are likely not getting rich either. There’s plenty of competition for both, which would drive down prices, and, if we are talking about Starbucks and their buying power, there is probably not much margin figured into any of these supplies.

A significant portion of coffee shop money goes to paying rent.

What about overhead and rent? Nobody profits significantly from overhead, so that leaves rent. According to an article in the Houston Chronicle, the average coffee shop sells 230 coffee drinks/day, which amounts to 6,900 drinks/month. That means the overhead and rent are 6,900 X $1.31 = $9,039.  That’s a pretty hefty amount of money. Not all of that is for rent, but the landlords are probably making some good money off of each Cappuccino Grande.

That leaves profit. If the profit for each drink is $.60, the coffee shop is only making $138/day of coffee drink. About 75% of an average coffee shop’s sales come from beverages, so profit is really closer to $184/day. That’s not much, either.

What’s the lesson here? Certainly it’s that you’re paying for a lot more than the coffee when you choose to buy from a coffee shop. Sure, it’s fun and easy to walk up to the counter and order, and then watch as a barista grinds, tamps, extracts, pours, tops, etc. Plus, sitting in a coffee shop can be a relaxing way to spend some time.

But, when you buy a Cappuccino Grande, you’re mostly paying for the privilege of enjoying it in a coffee shop. If you’re buying from a kiosk or cart, you’re paying for the privilege of getting your drink at a convenient location.

starbucks drinker

All photos licensed by CC-BY-2.0.
Starbucks photo by NicolaCappuccino diagram by AdriaanolivierCoffee Farmer photo by CIAT, Barista photo by Chris Brown, Landlord photo by Miguel Pires de Rosa, Starbucks Drinker photo by Bev Sykes.

*The U.K. study included a 17% tax in the cost of the cup, which we have deducted from our calculations.