August 24, 2005
Why Wealthy Neighborhoods Have No Good Cafes
The reason why wealthy neighborhoods have so few cafes--or even corner stores--is so obvious I should have figured it out years ago. Here is the explanation in case it's not obvious to you, either:
If you owned or rented a storefront in a wealthy neighborhood, would you make more money selling to the wealthy people $1 coke cans or $4 coffees... or $10,000 dresses and $5,000 necklaces? Clearly the later--it's not even a close call. Therefore, of course the nicer the neighorhood, the more expensive retail items they will sell and since retail storefronts are limited, the stores with the cheapest items--and what's cheaper than a canned drink?--vanish.
One possible solution to this is that, if you think there's enough demand for, say, a nice cafe in a nice neighborhood, you can just raise your prices to compensate for this. To a degree, this is what happens (and why, every once in a while, I buy a $7 coffee). But there is a natural ceiling price to certain products. People are willing to pay thousands of dollars for a bottle of wine--but they just won't pay more than a few dollars at most for a can of Coke. If a local cafe in an expensive neighborhood tried to charge $35 for a cup of coffee, then everyone would go elsewhere -- despite the fact that every single one of the potential customers could easily afford the extra $30 on the price tag. So it's not about charging too much to price out your customres; but it's that, when something is much more expensive than we expect, we feel cheated, and if we feel cheated, we won't make the purchase. Therefore: cafes in fancy neighborhoods have difficulty sustaining themselves and as areas gentrify, they will at first propagate (as the area becomes "cool") but then diminish in number (as it becomes too expensive).
Posted by Morgan at 01:36 AM | Comments (1) | TrackBack (0)
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a lovely argument for tax incentives for lower-priced housing in ritzy areas, morgan. you're a good socialist!
Posted by: the marauder at August 27, 2005 03:47 PM
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