Words: Shamim de Brún
Images: cover – James O’Connor. Stock image/Getty
This week The Journal reported a sighting of the once-lost coffee cart on the Dublin to Cork train and noticed they were charging €3.40 for a cup of Barry’s tea. This prompts the question: how much is too much for a tea?
€3.40 is a staggering number, especially considering that there was nothing extraordinary about this cup of tea. It was a brand name, sure, but it wasn’t a premium tea. The cuppa didn’t come from a hipster coffee shop where they get their leaves straight from a fair trade farm in India. It wasn’t diffused in a Japanese style by a hippie with a nose ring. There wasn’t even fresh milk.
The only thing decadent about this tea is the price. Alongside six-euro chicken fillet rolls and coffee that inexplicably hovers around a fiver, tea has become inexplicably expensive.
According to Statistica, the Irish tea market is worth about three hundred and ten million euro per year. But will people stop buying tea if it costs more than the perceived sum of its parts? By looking at the decline in tea drinking since 2012, the answer is yes.
Unlike coffee, tea is generally much more affordable to order, store, and make even when you factor in increased staffing and rent in line with inflation. People know this. Literally, everyone in Ireland makes their own tea. Most do it daily, some do it multiple times a day. We know spending a fiver on a box of tea bags goes much further than the equivalent for coffee. Tea is supposed to be cheap. You get it.
Depending on who your wholesalers are, a single tea bag costs between two and five cent. That’s without bulk or loyalty discounts. Maybe if I’m being ridiculously liberal with inflation, the particularly excellent brand of Barry’s or a very good speciality tea might cost around ten cent per bag.
What prices do they incur on the train? First, there is the speciality equipment to boil water on the train, and then there is the staff. Do they have to pay rates to Iarnród Éireann to operate on it? This is unclear.
Now the cost of electricity is obnoxious at the moment. We can thank both Russia and Governmental inaction for that. But let’s be kind here, give them the benefit of the doubt and assume that the trolly on the train is paying premium electric rates. That rate is 40c per Kilowatt hour. Boiling a full kettle takes about 3 minutes and will cost them around 12 cent. There are 330ml in each cuppa and 5L in each full kettle. That gives you fifteen cups of tea for that price. So boiling that six times a day would cost them under two euro. If we adjust for a busier day, this works out at about twenty euros a week. Even if we double it and, say, half of it goes to waste, that’s still only forty quid.
But what you’re really paying for when you buy something on the train trolley is convenience. A recent study from Numerator found that 82 per cent of shoppers say convenience is essential to them. For millennials, this number jumps to 87 per cent, according to the study entitled Mythbusters: Convenience. So what does convenience cost? Can It really be three euro forty?
Let’s factor the staff in. You have two staff members, maybe (generously) on thirty thousand a year. Then the business needs to make five thousand euro a month to cover all expenses. That’s 1470 cups of tea at three euros forty. When you add up the whole season that the train to Cork is available from Dublin, that’s 756 seats per trip. So if they were only selling tea (which they’re not) they could make their monthly requirements in, let’s say, three days if there are a minimum of four trains per day and only one in every three people gets a tea. Those are pretty good profit margins. Unless, of course, you price out a subsection of the train population – students, OAPs, and unwaged – by making your entry-level drinks too expensive.
The coming ‘latte levy‘ should start to push up the price further. That will add another twenty-cent to your cup, making your culturally mandatory cuppa almost hit the four euro mark – without sustainable milk. That said, the cups on the trolley look sponsored by Barry’s Tea, so the cost of these shouldn’t be incorporated as part of the cost. As with branded glassware in pubs, this sort of brand-recognisable advertising is usually gifted to the businesses in question. Sometimes companies can even make a profit on this advertising space.
Tea used to be two quid. A token price to cover the expense of tea, staff, and utilities. And at that price, we revelled in our quick cuppa – especially on the train. It was so broadly indulged in it that it became culturally entrenched. While I can’t Mystic Meg it and prognosticate, if the tea were affordable at all income rates, they could make more money in bulk. Everyone would return to getting their cuppa on the train to entertain themselves when the trolly passes. Those who could go all in on a spenny KitKat, and boom, you have made your margin.
Ireland is a value-oriented country. We love a deal, and we know value when we see it. According to Retail Dive, an industry publication – Appealing to value-oriented consumers is straightforward: “Provide a good deal on a quality product”. They say, “It’s essential to eliminate customer friction”. This is a fancy way of saying remove the outlandish prices, and you’ll stop your staff having to put up with sassy customers asking how they could be charging three forty for a cup of tea.
Sure, inflation can be blamed here, but there is a difference between upping your prices to keep pace with rising costs and extorting customers. Many economists are speaking out about a persistently omitted factor when we talk about inflation – corporate greed. Theoretically, to be a successful company, your profit must grow infinitely. This is inherently difficult but is predominantly done by hiking prices. Price hikes, even necessary ones, rarely go down well. But during times of ‘inflation,’ there are companies that use the mass hysteria around inflation to over-inflate their prices and increase their profit margins. This has been dubbed Excuse-flation or Greed-flation.
Not to go too tinfoil-hat on you, but this is only possible because monopolies exist. While we theoretically live in a free market, when you deep dive into who actually owns what company, you come to notice that most suppliers of everyday corporate bits are the same few companies. This allows a few lads in the board room to tack on a couple extra per cent to every legit price increase so that their bonus will be larger in line with profits at the end of the year. That skews the margins.
Without getting too deep into the nitty gritty of business economics, margin and markup are two different ways of looking at the profit on a sale. A markup tells you how much you bump up the prices of the things you sell. A margin tells you what percentage of income is gross profit. If a company is simply passing along its inflated expenses to the customer, there isn’t really much of a reason for their margins to increase. The fact that they are is a sign that some extra cash is being extracted. So what is an acceptable margin?
According to Shopify, “As a general rule of thumb, a 10 per cent net profit margin is deemed average, while a 20 per cent margin is deemed high and 5 per cent low”. There are now more and more retailers hitting 40 per cent. In restaurants, particularly on wine, these skew much higher. In fact, where there were once standardised margins for industries, these days, a lot of people chance their arm at higher prices to see if they sell. Which, to loop back to my OG outrage, is what it feels like they’ve done with this three euro forty tea.
While this isn’t always well talked about, there is something in us that knows this when we see it, particularly with necessities. Through osmosis or the internet or some other intangible force, we are generally in touch with how much things cost. We can perceive when the price of something is out of line. The public reaction to this overly inflated tea price was one of outrage. It shows that we instinctively know when we are being ripped off, even if we can’t articulate the hows and whys.
The long and the short of it is tea is supposed to be cheap, and the numbers don’t stack up here to justify three euros forty a cup.
Elsewhere on Char: Guide to Dublin 7