I had an eye test appointment last week in Eastleigh. This was the only reason I needed to go to the town centre, but while I was there I visited one of the many coffee shops for refreshment.
As I sipped my Americano I wondered why. Why had I decided to spend over £2 on a coffee that I didn’t really need when I was only a five-minute walk from home where I could have one for nothing. Why is a coffee stop now regularly included in a routine shopping trip? Why do we need so many coffee shops?
Years back (and not that many years back) we might have gone for a coffee during a long Saturday shopping expedition, but not during regular trips to town. Even if we’d wanted to, we couldn’t have done so – there weren’t such places. There might have been a “greasy spoon” café, and most department stores had restaurants (waitress-served, never self-service) where you could get a coffee and cake. But visiting these was a treat rather than routine. I used to be taken to the restaurant in Elliston’s in Oxford with my grandmother for a milk shake and Danish pastry. I can still remember the distinctive smell of the place.
The choice was simple too. Tea or coffee; black or white. And one cup size. Take it or leave it. No difficult decisions between Americanos, lattes, Cappuccinos, and flat whites; we didn’t worry whether vente was larger or smaller than primo; we didn’t end up with a bucket of coffee when all we wanted was a small drink.
How many coffee shops are there in Eastleigh?
I’ve lost count of the number of coffee shops there are in Eastleigh town centre – though Bill Bryson has commented on their abundance. But is this so different from any other town centre? Is the number of coffee shops a result of our need for coffee, or is our need for coffee a result of the number of coffee shops?
It’s not just the number of coffee shops that has increased. A whole industry has developed to meet our willingness to pay for leisure time: ice cream parlours, restaurants, bowling alleys, cinemas. All new to Eastleigh in the last ten years. Aren’t we supposed to be suffering financial austerity? Aren’t we supposed to be tightening our belts? How come we have money to spend on pursuits that used to be called “luxury”?
But it’s not all about spending money we don’t really need to; there’s another side of the coin. An opposite industry has, like the coffee shops, emerged from almost nowhere.
Discount stores are booming in Eastleigh
Discount stores are booming. Have you seen the queues for the car park outside Matalan and Home Bargains? It seems that as well as an endless supply of places to spend more money, we have welcomed a plethora of stores where we can spend less. And we’re not ashamed to use them; a few years ago, a Lidl bag marked you out as a cheapskate. Nowadays it shows that you are a canny shopper.
What causes this dichotomy? Why are we prepared to spend more on non-essentials but less on essentials? Why do we eschew spending £10 on groceries at Tesco when we can get the same for £7 at Lidl – only to spend the £3 saved at Costa?
What did economists tell us?
Economists tell us that we buy goods when the price is no higher than the satisfaction we get from them. In other words, we subconsciously put our own value on goods – the value that it is to us. That, in a nutshell, is how trade works. Find someone who values something more highly than you do (or more highly than it costs you to produce) and sell it to them. The premise is that there is always someone in the world who will pay more for something than you will.
But economics isn’t about prices. It’s about the allocation of resources (of which pricing is a small part). In the dilemma I posed above, we have £10 to share between groceries and leisure. The objective is to spend an amount on each where we don’t want to have more of one if I means having less of the other. We could spend all £10 at Tesco, but that wouldn’t allow us any leisure. We could buy two coffees, but that would leave us only £4 for groceries. So the acceptable compromise is to go to Lidl, where we can spend what we think the goods are worth, and then have the £3 left for our leisurely coffee at Costa.
Why don’t we just save the £3 for a rainy day? Well, here the financial austerity helps the coffee shops. Interest rates are so low that there is no point in saving.
Should you feel guilty drinking expensive coffee?
When I studied economic A-level and degree, the interest rate was generally described as “the cost of money”. That always struck me as a bit of a rubbish explanation that didn’t really mean a lot. A better explanation I came across more recently is “the cost of current consumption”.
Let me run that past you again. You want to buy a car for £10,000 but can only afford £2,000 a year. You have two options: either save £2,000 a year and buy the car in five years’ time; or borrow the money now and pay it back over the next five years. The interest on the loan is the cost of having the car now – the cost of current consumption.
Similarly with our £3 coffee. We could put the money in the bank where it will earn a miniscule amount of interest. Or we could enjoy it now. The valuation we are making isn’t “how much is a cup of coffee worth”; it’s “how much is a cup of coffee worth right now”. And if that valuation comes out as “more than anything else I could do with the money”, we go to the coffee shop.
So feel free to drink your coffee without feeling guilty. There really is nothing better.
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