The Sydney Morning Herald radar team takes a critical look at profit margins

Jurriaan Bendien bendien at
Wed Nov 5 00:45:47 MST 2003

Where your wages really go By Kirsty Needham
November 5, 2003
Sydney Morning Herald

You want it. Must have it. But they want how much for it? For something that
cheap to make? Radar raids the cash registers to reveal where our wages go.
Red-eyed office workers lining the ferry wharf each morning for the commute
to city waters will pay almost anything for a cup of coffee. Barista on
wheels Jan Eveleens knows this.

There he is, serving fresh espresso from his yellow VW van at Balmain wharf.
Worker sniffs aroma, needs caffeine hit and will pay. At $2.50 a cup,
Eveleens rakes it in. The physical cost of a cup of coffee is 50c: 10c for
the cup, 20c for the coffee and 20c for the milk, he says. The profit margin
on a takeaway cappuccino in Sydney is typically 200 to 300 per cent, he
Compare that with a muffin, which averages a 70 per cent mark-up.

But it gets better. As Eveleens's coffee van hits festivals and sporting
events at the weekend, the price increases to $3. People are willing to pay
it if they are out in the middle of a field, he says. Canny or greedy? A
study published in the Journal of Consumer Research this year found
consumers almost always think prices are too high and unfair. Ignoring costs
like labour, rent and advertising, we blame price tags on simple
profiteering by retailers, the American university researchers found.

Restaurant wine lists featuring common plonk at three times bottle shop
rates are seized as evidence that restaurateurs gouge consumers. Free music
on the internet, meanwhile, is evidence the music industry puts rapacious
prices on CDs. Sports shoes are churned out cheap in Third World factories
and we think it unfair for big companies to pass on the cost of
million-dollar marketing campaigns that encourage us to pay $100-plus for a
pair of shoes, the report says. Radar went looking at other mark-ups and
tried to figure out why, if it pisses us off so much, we still buy.

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