Response: The Sprudge Barista Pay Survey

Like many people, I was intrigued by the results of the Sprudge barista pay survey. Mostly people are talking about how high the wages are in Australia, and there was some comment about the low wages in London/UK.

A few concerns about the survey – I’m generally not blindly trusting of self reporting of wages (in any industry). I saw numerous tweets from Australian coffee people stating that the numbers looked somewhat inflated, and that fits with the discussions I’ve had with various people over the years. I’m glad Sprudge are investigating this further too. There may well be high outliers, but I don’t believe it is representative of the industry there. I do hope Sprudge keep these sorts of polls coming and I’d love to see a future poll talking to cafe owners about this, and having them submit anonymous data would be super informative. The incentive for the cafe is they get to see how they do compared to their competitors, something almost all would find valuable.

Secondly – these numbers are both gross wages (before taxes are taken out) and converted to US dollars. (Currency exchange therefore playing a role). In the case of places like Norway the tax rates are very high, while a barista’s paycheck in London will have a little less tax taken out than one in NYC (though the undeclared and substantial portion of tips may make up for this). Finally, there is no factoring for cost of living. Numerous articles recently have highlighted the increasingly high cost of living in Australia, fuelled by a mining driven economy that didn’t suffer particularly in the global financial crisis.

These criticisms are not particularly relevant to the point that I want to make: there is no magic Australian bullet. I would wager (and please shoot me down if I am miles away) that the financial model of an Australian cafe looks very similar to a London one or San Francisco one. This seems like a confusing statement at first, considering the apparent vast differences in wages, but I really think it is true.

If we consider wage cost as a percentage of turnover (which we should) then I would be astonished to find that cafes in Australia are outside of the 25-35% range, which I believe most healthy cafes operate within. Higher than this and the cafe will likely lack sustainable profitability, lower than this and you’ve likely got an owner (or owners) working way too many hours on the floor.

If we put wage costs of 25-35% another way – if a staff member earns $12.50/hr, then you need to bank approx $35-50 for every single hour they are paid. ($280-$400 per 8 hour day, per employee.) If you have 4 full time people on each day then you need to be pretty busy – and this is counting every staff member, not just those making coffee.

For an Australian barista to earn double this then they simply need to bank double the cash per hour/day. This may be possible in places where drinks are expensive – $5 to $7 flat whites seem to be popping up in the Australian media more and more. The other option when trying to find more cash to pay staff is that you could sell higher margin products, allowing the staff cost to come up to the mid thirties, without damaging the bottom line. However, I don’t think margins in most cafes are enough to allow a staff cost of even 40% to be viable long term.  I think of things like $1 refills on drinks, and get depressed about how this affects a cafe’s ability to pay its staff more.

The challenge and frustration of coffee is that espresso isn’t hugely scalable. To do more drinks quickly requires more people, more labour, more wage cost. Baristas could earn more if they were (in traditional terms) more productive. When designing a bar it is worth bearing in mind how it will scale from a labour perspective. How many staff to do 200, 350, 700 or over 1000 drinks? Cafe owners ought to be interested in technology that allows a barista to make more drinks per hour, as this could have a huge impact on their profitability.

I think what is likely is that Australian cafes are typically a combination of productivity and better margins overall. Many people comment on the amount of food sold in Australian cafes, and with a good head chef you can have low wastage, and good cash and percentage margins on the food. Coffee, on paper, looks like it has great margins. In reality this doesn’t turn out to be true, and even when a super tight ship is being run – it is still a low cash margin product. You often need to make hundreds of drinks to pay the rent, overheads and staff before you start making any money.

Lots of cafes in London don’t do a lot of food, and what they do sell is often relatively low margin food. (Items bought in each day for example). New York cafes also typically do minimal food.

This isn’t a plea that we all return to food heavy cafe models, but I did want to highlight the fact that pay is typically constricted by the financial model of the cafe. The higher the costs of goods – typically through uncontrolled or unmeasured wastage (something baristas are typically directly responsible for) – the less money left over to pay them with.

Increasing drinks prices to create better margins is another option – though the pressure does ultimately fall back on baristas to deliver more value due to the higher price point.

I’m not really trying to offer a solution. I just thought that the Sprudge post merited some discussion and, I hope, a little explanation. I think the instances where owners are paying staff a pittance and then going home to roll around on a bed of money are incredibly rare. I want baristas/coffee people to earn more.  I want owners to have successful businesses.  We face a challenge as an industry, to work towards models (because there are more than one) that pays sustainably for both the payer and the payee.

I hope more people throw in some thoughts on this, and I hope my explanations above make sense to people.  Either way – feel free to let me know on twitter.