The Economics of a Coffee Shop WiFi
Why do coffee shops offer free WiFi when their customers stay for hours and buy one coffee?
I have been working from coffee shops in Bangalore for years and I keep wondering: how does the math work?
A single coffee costs 200 rupees. I sit for 3-4 hours. I use their electricity, their WiFi, their table, their air conditioning. Even if I buy a second coffee, there is no way that 400 rupees covers the cost of my occupation of that space for half a working day.
And yet coffee shops keep offering WiFi. Some even advertise it as a feature. Why?
Three Theories
Theory 1: I am the marketing. A full coffee shop looks successful. An empty one looks like it is about to close. The laptops-and-headphones crowd fills seats during off-peak hours and makes the place look alive.
Theory 2: The food margin. Coffee has an 80%+ margin. That sandwich I eventually order has a 60% margin. The math works if enough laptop workers eventually order food.
Theory 3: They are not optimizing for revenue per seat. They are optimizing for a certain type of customer. The remote worker crowd brings in other remote workers, who bring in meetings, who bring in groups, who order more.
I do not know which theory is correct. Probably all three. But I keep thinking someone should build a proper economic model of this.
- Mohan
- Mohan