This article was first published on Dollars and Sense
Singapore’s coffee culture has been burgeoning, with artisanal coffee houses and hipster cafés sprouting across the island. A cup of coffee at these places typically cost about $5, of which most people have come to terms with, since specialty coffee comes at a premium price.
What remains a head-scratcher, is how food at cafés can set you back by $20 to $30. Why does a grilled cheese sandwich cost $12 in a café when you can put it together for a fraction of the price at home?
We look at what goes into running a café in Singapore and explore the case for their expensive food.
The cost of coffee and food
While a simple cup of coffee may seem unassumingly cheap to make, the cost of producing your cappuccino adds up. Additional costs (such as equipment, barista training and purchasing quality coffee beans) have to be accounted for. Ingredients for food in the café have to be stored, often in refrigeration. More than often, the ingredients are premium too because of the usage of organic and artisanal provisions that aren’t commonly found in any supermarket.
Overhead costs
Apart from counting costs to serve coffee, more factors come into play when you think about operating a café.
Without question, paying for rent is one of the biggest costs that goes into running a café in Singapore. For starters, rent for a small ground floor shophouse unit (about 1,000 sqft) near the CBD starts at about $10,000 a month. Smaller units (about 500 sqft) in residential neighbourhoods can cost about $6,500 a month, depending on location and size.
Other factors, such as utility bills, insurance and staffing play a large part as well. According to the size of the café, and the type of service provided (counter service and floor staff), cafés need to hire chefs, baristas and floor staff.
These factors add significantly to the cost of running a café, which is passed on to the customer in terms of coffee and food pricing.
Space and experience as commodities
We can get our caffeine fix quite easily and quickly for $1.20 in hawker centres. Most of us would also enjoy spending hours on end at a café (preferably with Wi-Fi), sipping specialty coffee for more than double the price. Why the disparity?
With beautifully designed interiors and homely atmospheres, cafés are known to be very comfortable environments for people to gather and talk. People can spend a lot of time at cafés, to socialise, read, do work or study. People are willing to pay more for their food and drinks to sit down for a longer time in a nice environment.
This means that fewer customers spend longer hours in cafés, leading to lower turnovers compared to hawker stalls. When turnover is low, cafés have to make up for it by pricing its food items such that they will still be able to earn profits.
Held to different standards
Considering rental space, utility bills and staffing, the costs of operating a café is much closer to running a restaurant than it is to running a hawker stall. Cafés are also expected to deliver quality food at a cheaper rate than restaurants. Yet, the pricing in cafés are commonly compared with food courts and hawker centres.
Why do we flinch when we see a cup of coffee going for $6 in a café, yet we pay for a glass of wine for $30 in a restaurant without batting an eyelid?
Cafés seem to be in the unfortunate position of being wedged in between in Singapore’s F&B cultures. They have operating costs that are closer to what restaurants have, yet seem to be “blamed” for pricing their food items much higher than hawker fare.
Perhaps we should take a (coffee) break to realign our perspectives and consider if we’re pegging unrealistic pricing expectations on our favourite cafés.
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