The Coffee House Crisis

by Sean Purcell

Real Estate Renaissance Man

Author website

With all the talk lately about the new lending regulations that will apply on April 1st, a similar set of new laws and regulations has been completely overlooked.  I felt it prudent to bring this unsettling situation to light.

As you may or may not be aware, over the past few years there have been quite a few problems “percolating” in the retail coffee business.  It seems that some customers have been over-charged, while others have ordered coffee that was too hot or just plain did not satisfy. This is a serious situation, not only because of the expense involved, but also the very real danger of severe burning.

The House sub-Committee on Agriculture and Imports has been holding hearings into this matter.  They brought a number of new regulations to the full Congress, which were subsequently voted into law and take effect April 1st of this year.  These new regulations govern the coffee purchase transaction within a retail coffee vendor.

I’ve highlighted some of the key components below:

• The server must be paid (or tipped) the same for all beverages and may not earn more based on the time or effort involved.  (E.g. there is no difference between an Iced Cocoa Cappuccino 1 pump mocha, 1 pump white mocha, non-fat milk with a drizzle on top and a plain black coffee.
• Customers must pay by credit card or cash, but never both.  If paying by credit card, they may not leave any cash tip for the server.
• The Coffee House must distinguish between beans grown / brewed in-house and beans that are imported.  With beans grown / brewed in-house, the server must decide what to charge the customer before the customer ever enters the establishment and must then charge ALL customers that exact same amount.  (The server may only change what they charge once per “qualified period”.)
• If a customer orders a beverage from the grown / brewed in-house selection and pays with a credit card, the server may receive no tip. (For purposes of this section, even the owner of the Coffee House is considered a “server”.)  Instead, they must be paid according to a compensation plan the Coffee House has created.  Said compensation plan must apply equally to every server who works there, despite experience or expertise.
• If the customer orders a beverage from the grown / brewed in-house selection and pays with cash, the server shall not be tipped or paid at all!
• If the customer orders a beverage from the imported bean selection, they MUST pay with a credit card.  The server will then be paid according to a pre-arranged compensation plan which differs with each and every particular grower / brewer.  (Customer has no choice but to pay the higher price associated with credit card use.  They are precluded from using cash if they wish to order from the server.)
• The server must offer each customer 3 beverage menus from other coffee houses for comparison purposes.
• The customer must sign a disclosure regarding any sugar, cream, cinnamon, etc. that may be a part of their finished beverage, and then wait 3 hours to actually place their order.  (If the coffee house itself offers these ancillary items, they are prohibited from applying different margins – i.e. they must set prices on these items in such a way that their profits will be the same despite supply or demand.)
• Finally, the Coffee House must separately retain 5% of its profits against any potential future liability stemming from a customer mishandling their coffee cup or otherwise burning themselves.

As clear as all of these new regulations appear, there are still some issues to be decided; Congress will, at a later date, notify Coffee Houses how long they will have to wait before they can enjoy that 5% profit they have been denied.  They will also define what a “qualified period” is at some future time.  Also, Congress has not yet defined what a qualifying cup of coffee is or should be, but will do so soon…

Thank you for your attention to this very serious issue.  With the help provided by our Congressional leaders, I believe we can all feel safer the next time we order a cup of coffee.  Of course it’s quite likely we will pay more due to all the new regulations… and I’m fairly certain I wouldn’t want to be a coffee server… or a lender…