Will consumers keep paying higher prices for specialty coffee?
Over the past year or so, rising food prices and energy costs have been affecting many people around the world. In fact, in March 2023, the BBC reported that food prices had reached a 45-year high in the UK, with many other major coffee consuming countries also going through similar price increases.
This is a major issue for both coffee businesses and consumers. As many coffee shops and roasters have to absorb some of these rising costs – tightening already slim profit margins – their customers have started paying higher prices, too.
Moreover, with fluctuations in inflation rates and food and energy costs in recent months, is it likely that consumers will have to keep paying higher prices for specialty coffee?
To find out, I spoke to two European roasters. Read on to find out what they had to say.
You may also like our article on whether coffee roasters should add robusta to blends if arabica prices increase again.
The impact of rising costs on coffee businesses
For months now, inflation rates have been rising around the world, driven largely by increases in the cost of two things: food and energy.
This is mainly attributed to the lingering effects of the pandemic and conflict in Ukraine, the latter of which began more than a year ago. As a result of this increased pressure, coffee shops and roasters have been dealing with a sharp increase in prices.
Rob Berghmans is the founder of Caffènation, a specialty coffee roaster which operates several locations in Belgium and one in the Netherlands.
“In recent months, the price of milk increased by 20%, staff wages rose by around 10%, and energy costs went up significantly,” he says. “However, although there have been a lot of price increases recently, not all of them are having such a big impact.
“We had to increase the price of our coffee by an average of €3 (US $3.82) per kilogram,” he adds. “The average increase in the price of our green coffee was higher, but we managed to order larger volumes of coffee and save money on shipping.”
Although a price increase of €3 per kilogram of roasted coffee appears quite high, Rob explains that it’s only a small price increase per cup of coffee.
“Generally speaking, you can make around 100 cups of coffee with 1kg of roasted coffee, which equates to a 3 cent increase per cup,” he tells me.
Price and quality
Scott Tedder is the head roaster and a green coffee buyer at Bonanza Coffee in Berlin, Germany. He tells me that despite prices for green coffee remaining volatile in recent months, higher prices don’t always reflect higher quality.
“We’re used to paying higher premiums for higher-quality coffees, but now it seems as though quality isn’t necessarily going up, while prices increase significantly,” he explains.
Scott adds that it can be difficult to effectively communicate these price increases for both wholesale clients and end consumers.
“We have had to increase both our wholesale and cup prices,” he says. “The price per cup of coffee doesn’t need to be increased so much because of the amount of coffees you can make from 1kg of roasted coffee, however, we had to increase our wholesale and retail prices more significantly.”
How can coffee shops absorb costs?
Consumers are clearly paying more for a number of food and beverage products – including specialty coffee. However, without many coffee businesses (especially smaller chains and independents) absorbing costs, prices would be even higher.
For any business, absorbing costs essentially means that they bear the brunt of a price increase, rather than passing it along to the end consumer.
Scott explains how Bonanza has been able to absorb rising costs.
“Thankfully, we have a fairly large variety of coffees on offer, which range from more high-end lots to larger volume and more affordable lots,” he tells me. “In turn, we can absorb some profit losses in different ways – largely based on the volume of different kinds of coffee we sell.”
However, Scott adds that cost absorption on a more long-term basis isn’t always sustainable.
“Sometimes we do need to raise prices,” he says. “We take the hit where we can, as everyone across the supply chain does, however, the bottleneck lies at the end with the final customer.
“Having to communicate that is an issue, but in comparison to other industries where prices also rise, customers are generally more understanding,” he continues.
How do price increases affect consumer behaviour?
Even with clear and transparent communication with customers about why prices are increasing, coffee businesses can still face difficulties if prices rise too much.
The most important question for specialty coffee shops and roasters is whether price increases will deter customers from purchasing their products and visiting their businesses.
“Any increase in price will surely lead to a change in consumer behaviour,” Rob says. “Maybe they will become more price conscious, which means that coffee shops may need to focus on being more affordable than their competitors.”
However, despite the price of a cup of coffee increasing in recent months, it’s clear that coffee consumption isn’t slowing down. For instance, in its most recent National Coffee Data Trends report, the National Coffee Association found that coffee is the most consumed beverage in the US.
“Around the world, the price of many things is rising, so I think it’s only normal that the price of a cup of coffee is also going up,” Scott says. “For many people in certain countries, coffee is an ‘essential’ purchase, so an extra few cents per cup doesn’t have that much of an impact on them.
“We see a more noticeable change in consumer behaviour in countries where wages aren’t as high, so similar price increases will be more significant for these consumers,” he adds. “In Berlin, for example, [which is a more economically-developed city], some people were surprised that it took us so long to finally raise our prices.”
Are price increases for consumers fair?
Whether or not coffee shops raising prices for consumers is fair isn’t a simple question to answer. Scott believes that first and foremost, businesses need to ensure their customers understand exactly why costs are increasing.
“Communication is key,” he says. “In some cases, consumers have to pay more for coffee, and they need to understand why.
“When you go to larger coffee chains and see the prices that their consumers pay for a single drink, I think the higher prices that specialty coffee shops charge are justified,” he adds.
However, for customers who have lower disposable income, any kind of price increase is sure to make it more difficult to continue buying coffee.
At the same time, roasters need to also ensure that producers receive a fair price, as well as dealing with increasingly complex logistics in the supply chain. Ultimately, it’s about achieving some kind of balance – even if everything is getting more expensive.
Maintaining coffee quality
Scott explains that one of the most important factors for roasters and coffee shops to consider is paying and charging fair prices, as well as ensuring coffee quality is maintained or increased.
“It’s frustrating to see prices of some coffees almost doubling, while the quality doesn’t increase as well,” he says. “We have unfortunately seen some producers who have simply stopped producing high-quality lots we were buying because the costs are too high.
“Instead, they sell their coffee to local co-operatives [because it’s more financially secure for the producers],” he adds. “Being able to pay premium prices so that producers are able to invest more in their coffees is important to specialty coffee.”
For coffee shops and roasters around the world, avoiding price increases has now become impossible. And although the price of a cup of coffee has certainly increased in recent months, it’s not clear how much further it could rise.
At this point in time, interest in specialty coffee remains strong despite inflationary pressure. However, if this upward trend was to continue and outpace other price increases in major consuming markets – things could certainly change.
Enjoyed this? Then read our article on how coffee roasters can reduce costs.
Photo credits: Bonanza Coffee, Bogenna Ivana
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