The price you pay for coffee might not be spiking just yet, but the price roasters pay to get it in your cup is rising. With supply shortages due to extreme frost in Brazil, futures for arabica beans recently reached nearly $2.08 a pound, the highest price since 2014, and surged nearly 30% last month, almost doubling over the past year, per The Wall Street Journal.
Who’s at risk: Not coffee giants. The Starbuckses of the world will be fine for now (big surprise) because of hedged purchasing strategies, like buying beans in advance, according to Carlos Mera, coffee price expert and senior analyst at Rabobank.
“Large companies have much more financial muscle to up-front expenses and to adapt, to change locations,” Mera told Retail Brew. “That requires quite a bit of investment. [Smaller] coffee shops will be facing many more challenges, and labor shortages are a clear example.”
Take, for instance, Counter Culture Coffee, a Durham, NC, specialty coffee roasting company, which sources its beans from 50 supply streams across 18 countries, and supplies coffee to more than 1,000 restaurants, coffee shops, and boutique hotels across the nation.
Katie Carguilo, CCC’s coffee manager, said its retail partners have felt the strain of rising bean prices. “The main way we’ve seen this play out right now is that the base price expectations farmers have for selling coffee is increasing,” she told us. “When things impact our partners, it impacts our business.”
- Carguilo mentioned that some partners won’t be able to maintain their margins and pay these increased price points: “[They’ll] either go out of business or producers [won’t] want to sell us coffee because the price isn't competitive.”
Beyond the bean: Frost is far from the only thing threatening the coffee industry. Extreme weather conditions like heat waves and floods also affect agricultural markets, and these climate issues have created global supply chain issues for coffee growers, according to The WSJ.
“Our costs are increasing,” Carguilo said. “Transportation costs have skyrocketed, and the cost of finding and booking containers. Other costs of doing business are increasing, like packaging. Unless the business can absorb those costs, I think we'll see corrections happen on the sales side.”
The rising C market, or coffee commodity market, is causing internal prices in countries like Colombia and Peru to jump, Carguilo continued. “This means that in order to buy high quality coffees for our contracts, the associations and exporters we work with are having to raise the prices they pay to farmers and pass some of those costs on to us.”
- From March 2020 (when the C market was at $1.07) to now, Colombia’s internal coffee price has increased by 60%, according to Colombian coffee price lists provided by Carguilo.
Retail news that keeps industry pros in the know
Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.
“Our prices are not jumping 60%...but we are needing to make some adjustments now and moving forward, in order to pay competitively and secure the quality coffee we need.”
Even the big names will feel the burn eventually. “It takes time,” Mera added. “A large company might be hedged for one year, but after that, if coffee prices remain high, they'll need to pass it on to consumers.”
- The first place you might notice increased pricing is the lack of discounts, or buy-one-get-one offers, Mera said.
Some supermarket coffee producers are already raising prices. According to The WSJ, J.M. Smucker Co., the company behind Folgers and Dunkin’ ground coffee, said it’s “seeing inflationary costs impacting the entire fiscal year.” Nestlé, which makes Nescafé and Starbucks packaged coffee, is expecting supply chain costs to impact pricing during H2.
“The supermarket brands will have to pass on the increased costs of the coffee bean to the customer,” Mera explained. “The price of the coffee beans can be 50% of the total price.”
Carguilo questions whether companies’ prices will adjust to reflect bean price fluctuation in the future. “[Bigger players] would have a very good reason this year to raise the prices of their coffee because the market has gone up,” she said.
“But do those companies keep paying that same elevated price to producers year after year? If they raised their prices, I don't think they’d lower their prices a couple of years later [if] the prices that they pay to producers go back down.”—JG