When Starbucks opened its first location in New York City on Broadway and 87th Street in 1994, it charged $1.25 for a small cup of coffee, and those were considered premium prices. Most other coffee bars and bodegas charged 75 cents or a buck. Those were the days.
787 Coffee (787 is the area code for Puerto Rico where it owns a coffee farm that supplies its beans) has 17 locations in New York City, and used to charge $3.80 for small cup of coffee, and offered a discount for local residents. Then the price rose to $4.25. I hadn’t been there in three months or so, and now the price for a small cup of coffee is $5, without any discounts (it didn’t respond to a reporter’s emails).
And they’re not alone. $5 for a small cup isn’t considered expensive anymore; just another day in a costly metropolis. Kobrick Coffee in the trendy Meatpacking district also charges $5 as does Bedford Studio (
a co- working membership shop in the West Village, for non-members.
Since so many people now work from home, and use their local coffee spot as a semi-office, spending much of the day there, maybe $5 for renting a space for much of the day is a reasonable price. Some fast-growing chains like Blank Street Coffee charge about $3.75, undercutting the premium coffee houses, and Matto Express undersells all of them for about $2.50.
Jason Kaplan is CEO of JK Consulting, a restaurant consulting firm, who has worked for The Smith & Wollensky Group, Restaurant Associates and Le Meridien Hotel Group. Here’s what Kaplan said about the $5 New York City cup of coffee:
Forbes.com: We’re seeing a number of coffee chains that are now charging $5 for a small cup of coffee. Why has the price risen?
Kaplan: There are a multitude of factors. Up until Starbucks, coffee was a cheap item and no one gave it much thought. Starbucks changed it by slow-roasting boutique coffee out of Seattle. About the price increase, it’s due to rising costs including rent, food costs, and overall inflation. And now you have many smaller coffee chains that don’t have the power of Starbucks to negotiate rent and, because the consumer is more quality-focused, they have to charge more because their costs are higher.
Forbes.com: How much of that price spike is attributable to more people working remotely and spending much of their working days at these coffee chains?
Kaplan: I don’t think that’s affecting the price hike. The coffee chains have tried to combat this by only offering wi-fi for an hour or asking people to buy something else.
Forbes.com: From the coffee chain’s viewpoint, why is it necessary for them to charge $5 to stay in business?
Kaplan: They’re paying more for their beans because they have more discerning customers.
Forbes.com: A chain called Matto Espresso, which has over 30 locations in New York City, was charging $2.50 for a cup of coffee and Blank Street Coffee $3. Who are they after?
Kaplan: It could be a combination of appealing to price-conscious consumers. But their customers might be pairing up coffee with a pastry, which increases the average check. If people get a bargain, they order more because they’ve saved on other areas.
Forbes.com: We’re also seeing an increase in upselling, where the barista says, would you like to add a pastry to your order? Why is that on the increase?
Kaplan: If customers are on the fence and you ask them a question directly, they’ll reconsider ordering it or order an item they weren’t intending to buy in the first place. It’s psychological.
Forbes.com: What are the positives and negatives of upselling?
Kaplan: It’s no different when you go to a restaurant and a server is upselling bottled water versus tap water. It can be too aggressive, but not in a coffee shop where it’s a cashier not a server.
Forbes.com: Starbucks charges more at its Starbucks Roastery, a bit less at its Starbucks Reserve and then a bit less at local branches. Why?
Kaplan: They’re trying to figure out who their market is for the different shops. It’s a different experience at the Roastery because if you see coffee roasting, it’s a higher-end place. That Roastery is an experience. The average person is more willing to pay more for an experience than something run of the mill.
Forbes.com: Is $5 the maximum for a small cup of coffee at a local shop, or could you see the price rising?
Kaplan: The way things are going right now; I could see prices rising. Prices typically go up, not down, and what has been going on with inflation, people are testing what the market will bare.
Forbes.com: Should there be two prices: one for people who drink their coffee and leave, and another who spend the bulk of the day on the premises working.
Kaplan: I don’t think so. It goes against the nature of hospitality, in which you welcome everyone into your shop.
Forbes.com: When coffee rises to $5 for a small cup in New York City, what are the societal implications?
Kaplan: The people who continue to buy a $5 cup of coffee, will do what they will do. For some people, buying a $5 cup of coffee is a necessity. It’s part of their budget.