Coffee jolt gets pricer as cost of beans, labor, transport rise

Fox Business Flash top headlines for August 12

Check out what’s clicking on

Many coffee drinkers can expect to pay more for their cup of joe at supermarkets and cafe registers, as producers grapple with higher coffee bean prices, constrained supplies and other costs.

Retail brands like Folgers, as well as independent coffee chains, are raising prices or plan to soon, executives said. Starbucks Corp.SBUX -0.45% and Nestlé SA NSRGY -0.21% have said they could increase prices, while other coffee sellers try to hold prices steady, aiming to capture more business.

Coffee roasters and cafe operators are responding to poor harvests in major coffee-growing regions and logistics snarls that executives said have constrained bean supplies, delayed shipments and boosted costs. Companies are also raising wages to recruit and retain workers.


The supply chain issues are likely to worsen as a cold snap in Brazil, the world’s biggest coffee producer, is expected to reduce next year’s crop. The price of coffee futures traded on Intercontinental ExchangeInc. markets this year has averaged about $1.43 per pound, the highest it has been since 2014, according to Macrotrends LLC.

FairWave Holdings LLC, a Kansas City company that operates 20 cafes and sells packaged coffee, has raised menu prices and slowed hiring in response to escalating costs, executives said.

"In my 35-plus years of experience, this is one of the most rapidly rising cost environments that I’ve seen," Dan Trott, the company’s chief executive said.

Nestlé, which produces Nescafé instant coffee as well as Starbucks-branded packaged coffee, said that while it has hedged coffee costs, it may raise prices as supply-chain costs are set to have a bigger impact in the second half of the year. NuZee Inc., a co-packer that works with Caribou Coffee, said it has enough coffee to last until the next quarter, but NuZee expects to pay higher prices once that inventory runs out.

J.M. Smucker Co. , which owns Folgers and produces Dunkin’ ground coffee, said it is trying to trim costs in its supply chain and has raised prices too. "We are seeing inflationary costs impacting the entire fiscal year," said Tucker Marshall, the company’s chief financial officer, on a June conference call.

In addition to coffee, Americans are paying more for many things—including hotel stays, other groceries and gasoline—as the economy rebounds from Covid-19’s impact over the past year. Companies are facing higher costs for labor, commodities and shipping, and they are passing them on to consumers in many cases. Consumer prices rose 5.4% in July from a year earlier, the same pace as in June, the highest 12-month rate since 2008, the Labor Department reported Wednesday.

Supermarket sales of coffee have stayed high even as consumers go out more. Retail sales of coffee jumped from roughly $10 billion in 2019 to around $11 billion in 2020, according to market research firm IRI, and totaled almost $11 billion for the 52-week period ended July 11, the firm estimated. After major coffee chains’ sales dropped to about $30 billion in 2020 from around $34 billion in 2019, sales this year are on pace to approach 2019 levels, according to data from food-service consulting firm Technomic Inc.

Some coffee companies hope to take advantage of inflation to attract new customers. David Kovalevski, chief executive of instant coffee company Waka Coffee, said the coffee beans he buys from India and Colombia have gone up in price. Waka is trying to purchase coffee and other raw materials in bulk to negotiate lower prices and minimize freight costs, Mr. Kovalevski said.

Despite inflationary pressures, Waka hasn’t increased prices. Instead, Mr. Kovalevski said he hopes to lower prices and offer a cheaper alternative to other companies’ brews. "Consumers will be looking for more affordable options," he said.

Defensive strategies have helped insulate some major buyers from rising coffee costs. Executives of Starbucks said last month that the company has more than one year’s worth of coffee on hand, with favorable prices locked in. JDE Peet’s NV, an Amsterdam-based coffee supplier, has hedged its own supplies this year, CEO Fabien Simon said last week.

Starbucks executives said the Seattle-based chain plans to promote premium beverages such as cold coffee to help compensate, and could lift prices in some areas, as the company faces higher labor and supply costs.

In Flushing, Mich., coffee shop chain Coffee Beanery has shielded itself from rising coffee prices by purchasing its supplies in advance, said Laurie Shaw, the company’s chief operating officer. But rising shipping and labor costs led the company to increase prices by an average of around 7%. As coffee costs have risen further, the company is considering another 10% increase, Ms. Shaw said.

Coffee companies say customers have been understanding of price increases because they are seeing higher costs everywhere.

Lisa Bee, chief executive of cafe chain Sweetwaters Coffee & Tea, said that because buying a cup of coffee tends to be a minor expense, her customers haven’t minded the price hike. Sweetwaters sells specialty coffee and recently increased its prices by around 5% to 10%.


"Even if there is a 10%, 15%, even 20% increase, you’re not talking about a lot," she said.

Source: Read Full Article