Higher coffee prices are brewing

Posted June 19, 2011, at 11:39 a.m.

LOS ANGELES — The price of your morning buzz is about to get even higher.

Hit with wildly increasing costs for beans from growers, coffee roasters are charging more to supermarkets and other retailers — and those folks are passing the higher prices on to consumers.

J.M. Smucker Co., which distributes the Folgers and Dunkin’ Donuts coffee sold at stores, said recently it was hiking prices for a pound by 11 percent — the company’s fourth and biggest increase in a year. A few days later, Starbucks — which had already raised prices on some coffee drinks in the fall — said it would raise prices for bags of coffee beans sold at its cafes by 17 percent.

Prices for coffee have been rising steadily. According to the U.S. Department of Labor, a 1-pound can of ground coffee sold for an average of $5.10 in the United States in April, up from $3.64 the year before.

Over the last 12 months, the price of green, unroasted coffee on the big commodities exchanges has gone up nearly 92 percent.

“These are big increases — and I don’t think we’re done with it,” said food industry expert Phil Lempert, who edits the blog SupermarketGuru.com. “We’re going to see higher prices on coffee for a very, very long time.”

Spurring the run-up in bean prices is a combination of bad weather in coffee-growing regions, increased demand from developing countries such as China and intense speculation in the commodities markets, experts said.

Chuck Jones, co-owner of Jones Coffee Roasters in Pasadena, said his costs for high-grade beans have nearly doubled.

“At this time last year I was paying $1.85 for coffee that I’m now paying $3.60 for,” Jones said. His company sells gourmet green beans to roasters around the world, including Starbucks.

The company also roasts beans it sells to retailers, restaurants and coffee shops. Prices for those beans are up 30 percent over last year, Jones said.

The rising prices, with no end in sight, could have long-term repercussions for the industry. But don’t expect people to give up something as addictive as caffeine, said Harry Balzer, chief food industry analyst for NPD Group.

“The question is not whether you will have that cup of coffee,” Balzer said. It’s more about buying cheaper brands or finding other ways to compensate. Balzer’s own mother has started brewing weaker coffee at home.

“Nothing will get you to change your behavior faster than money,” he said.

So far, consumers have not significantly slowed their buying habits or switched to cheaper brands at Ralph’s Grocery Co. stores, said spokeswoman Kendra Doyel.

“We have not seen a huge shift in consumer buying habits away from their favorite coffee brands over the past few months,” she said.

One reason for that, Doyel said, could be that it’s far cheaper to buy coffee to brew at home than it is to purchase it by the cup.

People who do drink their coffee in cafes, however, may not face price hikes as big as consumers who buy by the pound, said Tim Castle, a coffee importer and industry expert who has written several books on coffee. That’s because the markup in a restaurant is extremely high — as much as 400 percent. The shops can therefore absorb more of the increasing costs.

But cafes are feeling the pinch to nudge counter prices upward. Like Starbucks, Peet’s Coffee & Tea raised prices on coffee drinks in the fall.

At a Peet’s in Studio City, Calif., on a recent morning, Stuart Rigby said he still buys his morning brew every day in a cafe, but he’s compensated for the cost by cutting way down on pastries. “It’s a tossup,” he said. “Buy coffee and not as many pastries, or cut down on the coffee.”

Rigby has also started bringing in his used cup from the day before, because the chain cuts a dime off the price for customers who bring in their own containers.

Shallom Berkman, co-owner of the small L.A. chain Urth Caffe, said the operation has been absorbing the wholesale price increases, so far. Because the upscale cafe’s sustainably grown fair-trade organic coffee sells at luxury prices to start with, Berkman is convinced that a price hike would turn customers off.

He may soon have to raise prices anyway.

“If prices rise 10 percent more, we probably will have to make a small increase,” Berkman said. “But we will definitely lose customers if that happens. Ours is already more expensive, and the first thing that gets cut back is the luxury items.”

 

SEE COMMENTS →

ADVERTISEMENT | Grow your business
ADVERTISEMENT | Grow your business