You’re probably familiar with this setting: you have an early flight and just got through security. You even have a few minutes extra before you flight boards! Time to get some coffee and brighten your morning. You find the nearest Starbucks or Dunkin and get in line. Then you see that everything is over $5! Are you kidding me? Why is airport coffee so expensive?
The answer is more complex than you might think. Airport coffee is so expensive due to multiple reasons, including high retail leasing rates at airports, extra logistics to get items through security, and a captive audience that has a high willingness to pay.
But what does that all mean? Glad you asked! In this article, we’ll go over all of the reasons why airport coffee is so expensive – from how customer price elasticity works to why retailers are charged more for renting spaces in airports. After you’re done with this article, you’ll not only be well versed in basic economics, but you’ll also know why you’re paying over $5 for a cup of joe at the airport.
Let’s dive in!
Airport Retail Economics 101
To best understand why airport coffee is so expensive, we first need to understand why all retail items at airports are pricey. That’s right – you’ve probably noticed that airport coffee isn’t the only thing that feels overpriced at the airport.
Author Note: Almost everything at airports is 1.5 to 2 times more expensive than at a normal store. If you look at the research The Hustle did, almost all the items you can pick up at that convenient news store next to your gate are much more expensive than normal.
Water, magazines, snacks, and (yep) coffee are all much more expensive. So are the vendors just raking in cash then? No, they actually aren’t. In fact, it’s quite the opposite. Some of the retailers are barely making it even with their upsized prices.
That’s because running a retail store at an airport has tons of hidden costs that force the retailers to pump their prices up.
The Hidden Costs of Running an Airport Retailer
There are several big reasons why airport retailers have to charge more to even break a profit. All of the following fees take a big chunk out of the revenues an airport coffee shop can make.
Airports Take a Commission of Sales
First and foremost, almost all airport retail space lease agreements have a commission structure built in that seriously bites into profits. It’s a lot like how a franchising system works, or for some retailers on top of franchising costs too.
Most airport retail leases take 5% to 15% of all sales depending on how much the retailer is making. This includes coffee shops, restaurants, newsstands, everything. The fee structure is usually tiered with higher commission rates for larger retailers.
Most airports use this fee structure as opposed to normal rent fees, or even sometimes on top of normal rent fees. At first glance only taking 10% of your gross sales doesn’t seem that bad, but for most retailers where their entire margin is between 10% and 20%, this is brutal.
Retailers Have to Pay Higher Wages
On top of that, most airports require their retailers to pay their employees higher than market rates. This is because they need to be trained to work in an airport and often have to spend more on logistics/training for the employees to certified to work there.
Author Note: This includes more expensive workplace parking, getting a security clearance, and a much higher turnover rate. Airports are often in undesirable parts of cities and are not the nicest environments to go work at in general.
The extra turnover requires more time from management to bring on resources, which digs into their productivity and eventually the bottom line. All of these factors contribute to an increase in wage expenses in order to get employees to work at your coffee shop.
Airport Construction Costs are High
Another big reason why airport coffee is so expensive and retailers have to jack their prices up on everything is that building and opening a shop in an airport is much more expensive than normal too.
Getting the construction materials through security, higher airport-cleared construction workers, and much more all factor into an expensive construction bill even to get off the ground. Airports also are often notoriously hard to get construction permits for, and always take much longer to build in. This means more time sinking capital into the business before there is any cashflow.
Due to this big increase in upfront costs and delays in cashflow, retailers have to increase their prices to help offset the costs of even starting the business. Without the increase in prices, it wouldn’t even make sense to start the coffee shop venture.
Day-to-day Logisitcs are More Expensive
Besides the up-front costs being much higher, the day-to-day costs of bringing supplies into the retailer are much more expensive. Everything has to go through security every day, which makes it much more expensive than normal supply chains.
Retailers also have to take extra precautions with potentially dangerous items, like recounting knives every day and chemical/dangerous items audits. All of this requires extra more specialized labor, which in turn costs more.
Customer’s Willingness to Pay is Elastic
Now that we’ve gone over the additional costs of running a retailer in an airport, let’s go over why customers are willing to pay more than normal too. That’s right, it’s not just that everything costs more to make your coffee – it’s also because on average you are willing to pay more too!
Consumers are a Captive Audience at Airports
If you didn’t figure it out already, the mindset of consumers at airports is very different than at other locations. Consumers are often forced to buy food on the run, and therefore are more desperate and willing to pay more.
You’re already uncomfortable at the airport, so having a nicely like a cup of coffee sounds really nice. You also only have a few options for coffee once you get past security, so the shops can charge you more. It’s really as simple as that.
The Vacation Mindset
Another factor as to why consumers are willing to pay more and why coffee is so expensive at airports is because of the vacation mindset? What is the vacation mindset? Glad you asked!
Author Note: The vacation mindset is the idea that consumers in airports are somewhere foreign and more willing to treat themselves/make one-off purchases. The psychology is that being at the airport is special and that it’s ok to spend a little more on coffee. Coffee shops know this so they charge more.
Business Travelers Don’t Care
You might notice that a lot of people at the airport aren’t there for fun – it’s due to their jobs. And most businesses give their workers expense accounts to pay for food while they are traveling. This means that many of the people buying coffee at the airport aren’t actually paying with their own money.
What do consumers do when they get an expense account? They stop caring nearly as much about prices! Retailers and coffee shops know this, so they are ok with pumping up their prices. They know that a decently large segment of their consumer base won’t care at all, because it’s not even their own money.
This All Amounts to More Expensive Coffee
Combine all the added costs of running a coffee shop in an airport with the added bonus of consumers that are more price elastic means higher prices all around. Including your cup of joe, you so desperately want before your flight.
But at least now you know that it’s not because the coffee shops are trying to rip you off. It’s actually because they have to in order to turn a profit.
How Can You Offset Paying for Expensive Coffee?
Sick of paying a ton for coffee at airports? We recommend either drinking some before or bucking up and having the free coffee they serve in flight. Or justify the high prices by packing your own food for breakfast/lunch (this is what we do). We usually pack plenty of snacks in our backpack to avoid costly (and usually not very good) breakfast or lunch.
Another option is to check if your credit card gives you access to any lounges at the airport. Some of Chase’s credit cards give you a free Priority Pass membership which gives you lounge access.
Author Note: Every lounge we have ever been to has free coffee and is worth checking out if you have access. Some of the higher end lounges (like American Express’s Centurion Lounge) even have a self serve barista bar.
Another option is to use instant coffee and add it to the water you get after going through security. You can almost always find a station to fill up your water bottle or ask for ice water once you’ve boarded your flight.
Instant coffee isn’t the best, but it works in a pinch.
Dealing with expensive coffee at airports is something many of us have gotten used to. Most people think it’s purely because the coffee shops are taking advantage of you, but now you know it’s much more complicated than that.
We hope you enjoyed learning why coffee shops are more expensive as well as how retail economics work in airports. If you have additional thoughts you would like to add, feel free to hit us up in the comments below.
Stay caffeinated friends!