Coffee drinkers will get a taste of rising prices soon
Rich Westerfield, co-owner of Mt. Lebanon's Aldo Coffee, buys directly from suppliers and does not expect that the speculation in coffee prices should affect his costs too much.
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Some retail prices at the Coffee Tree Roasters shops around town are set to go up today for the first time in at least two years, an unpleasant wake-up for those who count on their daily dose of caffeine. But retailers are finding it increasingly difficult to hold the line as rising commodities prices percolate through the system.
"We held out to try to see where the market was going to settle out," said Bill Swoope, co-owner of the five-coffee shop operation as well as Iron Star Roasting Co., a wholesale roaster in West Mifflin.
In the past year, the price of a pound of coffee beans has more than doubled on the commodities market in New York. Roiled by everything from changes in the Brazilian crop to the cost of transportation from Africa to increasing demand from a growing middle class in China and India, the fuel of choice for many has become so precious there are reports of thieves stealing containers of beans at ports or even stripping trees in the fields.
No matter where restaurants, cafes or grocers source their coffee, they're all bound to feel the impact. "The market pushes prices even for fixed contracts," said Mr. Swoope, who plans to raise his wholesale prices in June.
Americans may or may not be aware of what's been going on. Unlike rising gas prices, coffee prices aren't visible on big signs on every street corner. And those who sell coffee have dealt with the spike differently.
The J.M. Smucker Co. has announced three rounds of price hikes -- a 4 percent increase followed by a 9 percent increase and then a 10 percent increase -- on its Folgers and Dunkin' Donuts packaged coffee products since last May, even as Kraft has been raising prices on its Maxwell House brand.
The bean counters at the Eat'n Park restaurant chain in Homestead limited themselves to a 10-cent increase on a cup of coffee earlier this year. The company's purchasing team is betting that supplies will ease and costs will return to more reasonable territory; and, indeed, this week's trading prices have backed off slightly from the highs.
Besides, coffee is just too important to consumers, and to the restaurant's image.
"If you raise your price a lot, people notice and they think you're more expensive [on everything]," said Kevin O'Connell, senior vice president of marketing for Eat'n Park. At a time when the economy's hurting and consumers are watching every dime, there's no way they'd just swallow a big coffee price hike, he said.
"If you raise prices on coffee, everybody notices."
Eat'n Park serves nearly 7 million cups of coffee each year, not including those free refills. Almost one-third of its guests order coffee with their meal, a number that jumps to almost 60 percent at breakfast.
While the Eat'n Park team is counting on coffee bean prices to drop, others are not so sure.
Rich Westerfield, co-owner of specialty coffee shop Aldo Coffee in Mt. Lebanon, buys directly from suppliers who have been cultivating relationships with farmers for years, so he doesn't feel as though speculation in the markets affects him too much. He's been paying above-market prices anyway in return for product that meets his shop's quality specifications, a decision that he believes produces a better cup of coffee even if it costs a bit more.
In his view, coffee has been underpriced for a long time, and increasing demand from other markets along with global crop limitations may mean prices will not fall. "It's really caught the attention of investors," he said.
It's not just the price of coffee beans that's been going up either. Milk, sugar, cocoa and fuel costs are also higher, and it all adds up.
Mr. Swoope, at Coffee Tree Roasters, said inflationary trends in the economy have not escaped his clientele's notice. "Most customers are surprised we haven't raised [prices] already," he said.
Mr. Westerfield is getting ready to pass along some of the higher costs. For example, the Aldo menu had not calculated the price for 20 ounces of coffee as almost double that for a 12-ounce cup, so customers were sort of getting a volume discount. That will be adjusted.
But sorting out the impact of changing coffee prices on sales from the overall economic slump may be difficult, he said. Many people who used to get a big latte have already downsized to the small in the past couple of years.
It doesn't help that coffee has become a bit of a poster child for unnecessary expenditures.
"You have every financial analyst out there saying, 'If you want to save money, cut out the latte,'" Mr. Westerfield pointed out. It seems a little unfair to him. "Why not cut out a bottle of water?"
If supply does grow as a result of the high coffee prices, it will take awhile to see the benefits of that, said Mr. Swoope. The last time there was a spike in prices, back in the mid-1990s, he said excess inventory was available to help ease demand; but that's not the case this time.
Even if Americans dislike higher prices, cutting back on caffeine might be even harder than cutting back on gas. Coffee ranks as the top hot beverage among convenience store customers, according to 2008 data from the National Association of Convenience Stores, which also quotes data from major coffee associations indicating more than 150 million Americans drink it daily.
The coffee category accounted for more than $3.9 billion in sales in the 52 weeks ended in mid-April, according to SymphonyIRI Group, a Chicago-based market research firm that tracks sales from U.S. supermarkets, drugstores and mass market retailers. The numbers do not include sales through Wal-Mart, warehouse stores or convenience stores.
Prices are having an impact. That total sales figure represented an 8 percent increase in dollar sales over the previous year, but a mere 2.3 percent gain in unit sales.
First Published May 20, 2011 12:00 am