The Rise and Fall of LuxeBrew: A Story of Income Elasticity of Demand

In the heart of Mumbai, LuxeBrew, an ultra-premium coffee brand, was making waves. Unlike regular cafés, LuxeBrew didn’t just sell coffee—it sold an experience. Handpicked beans from Colombia, gold-plated cups, and a café ambiance that felt like a luxury retreat—all for ₹800 a cup.

At first, business boomed. High-income professionals, CEOs, and influencers flocked to LuxeBrew, making it a status symbol.

But what LuxeBrew’s founder, Aarav Mehta, didn’t realize was that his business was riding the wave of economic prosperity.

The Boom: When Incomes Rise, Demand Soars

In 2019, India’s economy was growing, corporate salaries were rising, and disposable income was at an all-time high. LuxeBrew expanded rapidly, opening outlets in Delhi, Bangalore, and Hyderabad.

Aarav was confident. “People will always love premium coffee,” he told investors.

But then, in 2020, the economic tide turned.

The Recession: When Incomes Drop, Demand Crashes

A global slowdown and a pandemic slashed salaries, job opportunities, and spending power. Suddenly, LuxeBrew saw something alarming:

📉 Sales plummeted by 60%
📉 Footfall dropped as people switched to regular cafés
📉 Customers who once bought daily now came only on special occasions

The same professionals who once sipped LuxeBrew’s gold-plated cappuccinos were now opting for a ₹150 Starbucks coffee or even a ₹20 roadside chai.

Understanding Income Elasticity of Demand

Aarav’s investors explained:

💡 Luxury goods have high income elasticity—when people earn more, demand for luxury products rises sharply. But when incomes fall, demand shrinks dramatically.

💡 Necessities have low income elasticity—people always buy rice, milk, or basic coffee, even in recessions.

LuxeBrew had positioned itself as a high-income elastic product—a risky bet in economic downturns.

The Pivot: Adapting to Changing Incomes

To survive, Aarav did something unexpected. He launched a budget-friendly coffee line, LuxeLite, offering high-quality coffee at ₹250 per cup. He also introduced homebrew packs for ₹500 so people could enjoy LuxeBrew at home, even on a tighter budget.

By adapting to changing income levels, LuxeBrew stabilized its revenue and ensured long-term survival.

The Lesson?

📌 If you sell luxury goods, remember—your sales depend on economic conditions. When incomes rise, demand booms. When they fall, demand crashes.

📌 If you sell essential goods, recessions won’t hurt you as much because demand stays stable.

So, is your product income elastic? And if the economy shifts, are you prepared to adapt? 🤔💰

[Economics]