My Industry Analysis of Coffee Shops and Milk Tea Shops
As a student, I was living with the modest allowance provided by my parents. I always felt that having coffee or tea from establishments like Bo's Coffee Club, Starbucks, and The Tinder Box were overpriced. I guess it was because I had to make use of the lower allowance I was given. I had to learn to budget the food daily such as eating less than a PHP 100.00 meal in Jollibee. Going to a coffee shop was a luxury and I felt it was overpriced. However, to be overpriced is when the prices don't match the quality like selling a broken bootleg toy for USD 300.00.
Later, I became an MBA student in the same place where I got my bachelor's degree in business administration--the University of San Carlos. I could remember how it was a wide gap between me and those who were studying. I was slowly enjoying some trips to Chatime to get some fruit tea. It was pretty much near Starbucks and there was also Bo's Coffee Club in IT Park. I could also remember going to Starbucks in Ayala for the MBA review class. I ended up writing an essay about coffee and tea as substitutes during my comprehensive exam in my MBA class.
The reason why coffee shops and tea shops sell their wares at a higher price
Maybe, I was too used to how my parents never gave me an allowance increase no matter how much I begged. I had to manage my allowance and if it was gone--it was gone. I was pretty much a spendthrift person in high school buying stuff I didn't really need. I even had to endure having only PHP 100.00+ money as a high schooler for the whole summer. It was a heavy lesson that I had to learn. That made me think that spending at coffee shops can be painful for a student--except for the occasional gathering. That's why I preferred the meeting places were places like Dunkin' Donuts where the food items were more student-friendly.
I considered a lot of factors as to why coffee shops and tea shops sold their wares higher than usual. In accounting, you have both cost accounting and management accounting to consider why the prices are higher than usual. The cost of production and operations will ultimately affect the price of the product. A coffee shop or tea shop tends to be airconditioned, offers Wifi to customers, uses premium ingredients in many of its products, operates for longer hours, and they have a higher cost of rent in places such as shopping malls. Shopping malls open for longer than eight hours. All those will be accounted for under operating costs which include production costs. A higher overhead is necessary for all of those. The cookie sold in a coffee shop is justifiably higher due to the richer taste than the cookie found in a bakery. Brewed coffee takes longer to make than instant coffee. Airconditioning and Wifi plans don't come cheap either. So, selling their wares cheap is just plain selling at a loss and will force them to shut down. You're actually paying not just for the ingredients but for also the ambiance.
Going to Chatime, I remembered how I had Wifi while I wait. During my MBA days, meeting with MBA mates in Ayala Center Cebu to finish our group report had us use the Wifi of that place. So, the prices of the coffee and snacks didn't matter if I got a good ambiance along with the delicious meal. Though, it was quite a relief to buy some cheaper sweets though they didn't taste as good. I remembered ordering matcha at The Tinder Box. Granted, matcha doesn't come cheap either. So, I can't say those places were overpriced judging by the food served mixed with good ambiance. So, I was paying for both the food and not just the ambiance. Not bad really when I consider the comfort of good service getting the value for my money.
How both of them are substitutes and competition for each other
Coffee and tea tend to be substituted for each other. It's pretty much called the law of substitutes in business. Tea tends to be used as a substitute for coffee for its lower caffeine content. However, they are still complementary to each other. I was reminded of how milk tea shops and coffee shops are pretty much in competition with each other. It's almost like coffee and tea are inseparable.
I could remember how I preferred Chatime over Bo's Coffee Club even if prices are more or less at the same level. I think I still prefer milk tea shops over coffee shops. However, what can't be denied is that you might get coffee products in a milk tea shop or tea products in a coffee shop. I remembered how I ordered some tea products in a coffee shop during our MBA group study. Pretty much, they're trying to compete with each other in getting as many customers as possible. Chatime offers delicious coffee milk tea. Bo's Coffee Club offers tea latte and shaken iced tea. Jolly Bubble in Cebu City also offers some meals which are near coffee shop levels and coffee products as well. Basically, they're in competition with each other.
The competition would cause the prices to go up or down. Sometimes, sales happen for a reason such as an anniversary event or when the operating costs may be lower to a certain extent. The cost of production such as the cost of ingredients, labor wage laws (such as an increase in the minimum wage), transportation costs (which gasoline is key), and the like will determine the overhead of the product. There's also the supply and demand factor. When the demand for either premium coffee or premium milk tea goes up--it's only natural that prices must go up. If the demand is lower then they will do a discount while being careful not to operate at a loss either.
The target market is more or less alike. Coffee shops and milk tea shops pop up in IT Park Cebu. Those that operate 24/7 are aiming toward professional workers. Some of these target customers are actually the call center agents who are paid higher wages due to the demanding shifts. Call center agents to have higher pay so they can afford more than college students. Basically, ITealicious, Chatime, Bo's Coffee Club, and Starbucks are competing with each other to sell their beverages (their main product). Call center agents and other working professionals would want to try one after the other. So, think that you may be jumping in between Starbucks and Chatime.
The competition also drives the creative force. Jolly Bubble selling meals along with coffee or tea is similar to what Starbucks and Bo's Coffee Club do. Though, Jolly Bubble doesn't sell cookies like a coffee shop. Jolly Bubble ended up selling the Filipino favorite called sisig. Milk tea shops and coffee shops may end up blending coffee and tea together to make a more different experience.
References
"Why Are Cafés So Expensive: The Untold Truth Revealed"
"Why Is Coffee at Cafes So Expensive?" by Mary McMahon (Last Modified Date: March 17, 2022)
