- In recent years, a combination of global economic and geopolitical factors has led to a volatile C-price and higher coffee retail prices
- Between 2021 and 2022, ground coffee prices increased by 20% in the US
- A lack of clear messaging around price increases has left many coffee consumers feeling frustrated and alienated
ON BOTH sides of the coffee bar, people are feeling the effects of years of inflationary pressure and rising costs. In many cases, coffee shops have been forced to increase their prices, and consumers have been left to foot the bill.
Prices have been steadily increasing over the past few years. Factors such as the global pandemic, Russia’s invasion of Ukraine, a sudden frost event in Brazil, and rising inflation across the globe, have created a perfect storm of financial woes for the coffee industry.
In 2021, the closing arabica C price was 76% higher than the previous year, with a high of $2.49/lb. The following year, the C price reached a high of $2.58/lb, the highest price since 2011. During this same period, the average price of coffee increased by more than 11% and 20% in the UK and USA respectively.
In response, many coffee shops have had to increase their prices in order to remain profitable. This has understandably led to disappointment and frustration from some customers.
For specialty coffee shops, the challenge of communicating price increases is incredibly complex. On one hand, it’s important that the reasons behind pricing are communicated in a way that doesn’t further anger or alienate consumers – who are already hearing excuses from multiple other industries.
On the other, it’s important that any communication continues to uphold the values of the sector, with transparency at its core.
At the same time, the combination of factors that lead to higher prices is incredibly complex, especially for customers with no background in the industry. For this to be communicated during an often brief exchange over a coffee shop counter is a significant challenge.
Official reports estimate a median C price of $1.41 USD/lb by the end of the current quarter – a decrease of more than 40% from 2022.
However, there is also predicted to be an overall shortage of coffee this year. The International Coffee Organization (ICO) predicts a global deficit of 7.3 million bags throughout the 2022/2023 harvests, which will likely force global coffee prices to increase.
Uncertainty also goes a long way towards driving the C price up, as do other longstanding supply chain issues. For example, reports claim that the impact of climate change, issues with logistics, continued high shipping costs, and ongoing labour shortages will continue to drive prices up.
In some instances, roasters and coffee shops attribute their price rises to these challenges, in addition to inflation and wage increases.
“I feel the majority of reasons that are communicated currently are the easy-to-understand drivers such as the C price, FX rates, cost of production, labour or transport and even availability or scarcity of product,” says Caleb Holstein, co-founder of SquareX and Greensquare.
Others choose not to engage with this, instead insisting that consumers are paying higher prices because it reflects an increase in income for coffee producers.
In an effort to comprehensively explain their prices while upholding the values of specialty coffee, many brands publish transparency reports or transaction reports. Some coffee shops have integrated this into their service and e-commerce, with green prices and product markups shared alongside the coffee’s information.
“I think these initiatives come from a great place, though I question the value that the vast majority of consumers put on these types of reports or communications at the moment,” says Caleb.
“Sustainability reports are very important and a great thing to share – but I feel presenting this in single-serve scenarios like tasting cards with individual pricing and costs for a product is hard to validate and confirm for consumers, and creates more focus around price rather than value for the product.”
Hard to justify
Transparency has been so central to the specialty coffee sector for such a long time that no one thinks to question it. But is it worth reconsidering how transparent we are with the end consumer?
“I personally think, as an industry, we need to strive to find ways to add value to the final product for a consumer; transparency is an element of that, but not the only thing,” Caleb says.
“I have yet to see another agricultural sector where they have successfully added value to a final consumer by providing them with a detailed report on a per product basis costs through its supply chain.”
For coffee shops, perhaps the most difficult component of explaining the price of coffee is putting it into the context of farmer income. Essentially, explaining that the farmer receives such a tiny percentage of what the customer pays is difficult to justify – especially when you’ve just raised your prices.
With this in mind, it is clear to see why many coffee brands have historically avoided talking about pricing.
“I personally land on the side of compassion here – I think no business can be dictated as to how it must communicate or trade,” says Caleb.
“It is down to the consumer to vote with their dollars, if the market says that they require transparency, then naturally it will migrate through the industry and become a must for sellers to provide.”
As coffee shops continue to navigate what are likely to be continuing economic challenges, the conversation around price isn’t going to disappear. What will change, however, is the customer base. As young people become more prominent in the market, the shift in communication will become increasingly important.
“I personally feel as the majority of global coffee demand and consumption shifts toward Gen Y & Z, we will see new requirements come to the forefront and this will dictate what is required of companies going forward,” Caleb says.
“There will be the early adopters in the space who try new and innovative ways to communicate with consumers about pricing and the value of their product, and they will reap the rewards.”
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