Coffee pricing at Bangalore airport

I had what I thought was a neat theory on coffee pricing at the Bangalore International Airport. However, on second thoughts, I think the theory is bunk. On third thoughts, however, I think I should publish it, even though I don’t believe it is true. So here goes.

There are two places where you get great filter coffee outside the terminal of the Kempegowda International Airport near Bangalore. At the Western edge, close to the departure gates, there is Maiya’s, which also sells South Indian snacks and food items apart from pre-mixed filter coffee (without sugar). The coffee here is priced at Rs. 30 per cup. At the Eastern edge, close to the arrival gates, there is an outlet of Hatti Kaapi. Now, this outlet has started selling snacks, too, and now sells coffee in cups and pots of various sizes. However, the “basic” filter coffee, which is mixed fresh on the spot (you can choose the level of sweetness, and strength) and is available in a paper cup the same size of that at Maiya’s, is priced at Rs. 15.

The argument I had in mind for this differential pricing was that the clientele of Maiya’s, it being at the departure gate, is mostly passengers on their way to board flights. Given that they can afford to fly, they can afford to pay a premium for good coffee. Hence it is good economics to charge a high price for the coffee. Also, given that departing passengers are usually short on time, it is unlikely that they will pay the additional time cost of walking down to the Hatti Kaapi outlet in order to save the Rs. 15 per cup monetary cost of coffee there.

At the other end, Hatti Kaapi is at the arrival gate, and its major clientele consists of drivers. Given the distance of the airport from Bangalore city, it has become almost unheard of for relatives and friends to go all the way to the airport to pick up people. So people waiting at the arrival gate are mostly drivers. And given that drivers are not particularly rich (not rich on an average as airline travellers at least), they are much more price-sensitive when it comes to their coffee. And so the coffee at this end of the airport is priced at a much more reasonable Rs. 15 per cup. This makes for a nice economic theory, right?

The theory falls apart, however, if you compare the prices at Maiya and Hatti kaapi outlets at the airport to their prices elsewhere in the city. A good parallel is in Jayanagar, where the same two establishments have outlets across the road from each other (intersection of 7th Main and 30th Cross).

The kind of service in the two establishments is similar. You stand in line, take a token and stand in line again to get your cup of coffee. Hatti serves its coffee in a paper cup while Maiya serves in a ceramic cup-and-saucer. Like at the airport, Hatti’s kaapi is mixed on the spot and you can set your sugar level. Unlike at the airport, Maiya also mixes coffee fresh on the spot, but like at the airport no sugar is added and you need to add it yourself. It must be mentioned here that the Maiya in question has been there for several years while the Hatti outlet across the road started only a few months back.

And how do Maiya and Hatti price their coffee in Jayanagar? Maiya is at Rs. 18 per cup, and Hatti at Rs. 10 per cup. So the ratio of prices of a cup of coffee between Maiya and Hatti at the airport (2:1) is not very different from the ratio of prices of a cup of coffee between Maiya and Hatti in the city (1.8:1). So the theory I mentioned above falls flat on its head.

Where the theory stands, perhaps, is in explaining why Maiya and Hatti are located at the airport at the ends where they are located – Maiya being a more premium brand in general captures the passenger crowd at the departure gate, while Hatti being a more price-sensitive brand captures the driver crowd at the arrival gate.

And regarding the coffee itself I’ve had coffee at all four outlets and can confirm that both in the city and the airport, the quality of Maiya’s coffee is much superior to Hatti’s. In fact in Jayanagar, where the two outlets are a 5-minute walk from where I live, I prefer to pay the price and time (the lines at Maiya are generally longer than at Hatti) premium to drink coffee at Maiya rather than to drink the more “reasonably priced” stuff at Hatti.

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