I stopped an extra second and gave a coffee vendor a tip today. He didn’t much appreciate it.

Little did he know his customer was an off-duty McKinsey strategist and serial entrepreneur with millions raised and global product sensations to his name.

I pointed out he served robusto bean coffee and switching to arabica might lift his sales.

He didn’t know the difference. He showed me what he sells. Surprisingly, his coffee is made from Folgers value sized ground from BJs Wholesale Club. (Pretty amazing that businesses source where you shop.)

A large cost me $2.

At home I make that with 14 grams of ground in a French press. Assume he is similar. A pound of my coffee at home is about $10, so let’s price Folgers as $7/lb and that makes $0.21 per cup as the cost for grounds. Cup is $.10 and napkin $.02. Sugar (his shitty coffee needs milk and sugar!) is $.10 ($5/lb and use 2 spoons/10g). Say $.04 for milk. Total marginal cost per cup is $0.47.

So he makes $1.50 per cup! Criminal.

He probably sells 100-200 cups over 4 hours in the AM. Take is $150-300. Cart rental and travel expense like $50? (Made that up.) Take home of $100-250/day.

This is what taxi drivers tell me they make. Notice the staffing of each trade is similar.

So how about my clever idea? Change the beans.

It would cost him an extra $10-20 per day if he sold the same # of cups.

Would he be able to raise price? Probably not without killing sales while he reinvented himself as “the good coffee cart” and became a destination for such.

On the other hand where is the nearest Starbucks? If his coffee is better than deli coffee he will be the premium guy and take share. Starbucks is $2.67 for a large so he could ask $2.50, earning $0.40 extra per cup. If sales stay flat he takes home 30% more profit. Or, if they fall he only needs to sell 78 cups a day to be even with the takehome he made selling 150 cups at $2/each.

So what’s all this consulting worth to the guy? Now he knows the choice he has.

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