- Large chains are normalising higher-priced matcha, flavoured lattes and cold drinks, potentially raising what consumers consider a reasonable price for a takeaway coffee shop beverage.
- Cold drinks now account for roughly two-thirds of beverages sold at Starbucks’ US company-operated stores, while matcha and rotating drinks represent around 50% of Blank Street’s business.
- As consumers become more accustomed to paying higher prices, independent coffee shops may gain more room to raise the price of coffee drinks.
Coffee shops have always faced a difficult pricing equation. They need staff, equipment and expensive retail space to prepare a product that, compared with much of hospitality, generates relatively little revenue per transaction. As wages, rents, utilities and other operating costs rise, charging enough for coffee to cover those costs is becoming increasingly important.
Yet substantially raising the price of familiar drinks can quickly attract resistance. Consumers have established expectations for what a latte, cappuccino or flat white should cost, making even relatively small increases highly visible. At the same time, major coffee chains are increasingly selling matcha, flavoured lattes and cold-foam drinks at significantly higher price points – and consumers are buying them at scale.
As these prices become more familiar, they could gradually raise what customers consider a reasonable amount to spend on any takeaway coffee shop drink. For businesses that have long struggled to charge more for coffee itself, that shift could be very good news.
Coffee has a pricing problem
Coffee shops have traditionally had less room to move on price than many other hospitality businesses. Familiar drinks such as lattes, cappuccinos and flat whites come with well-established price expectations, making increases easy for customers to notice – and compare.
Maxwell Dashwood is the Founder and Managing Director of Colonna Coffee. He says the relatively low value of the average coffee shop transaction is central to understanding why coffee shops can be difficult businesses to operate.
“The fundamental challenge of the coffee shop is the minimum amount of labour and overhead costs you need to run the shop for the day versus the ticket price of coffee,” he says.
“There are lots of other businesses where the spend per customer, and per interaction with the establishment and the staff and the rent, would be higher. If the spend is lower, you need to sell a lot more.”
The obvious response to those economics would be to charge more for coffee. Yet doing so has not always been straightforward when consumers already have a strong view of what a coffee ought to cost, and can easily compare prices between businesses.
That sensitivity is partly a consequence of comparison. A customer may have little difficulty deciding whether £4.50 – £5 is expensive for a flat white because they can compare it with dozens of similar products nearby. The more established the drink, the stronger that reference point becomes.
What is beginning to change, however, is the wider benchmark against which that coffee is judged. As consumers become accustomed to paying substantially more for matcha, flavoured cold drinks and other coffee shop beverages, the accepted price range for a takeaway drink may be shifting upwards with them.
The price benchmark is moving
Coffee drinkers tend to know approximately what a latte, cappuccino or flat white costs in their market, allowing easy comparisons between regions or other businesses.
Conversely, a seasonal matcha, flavoured iced latte or cold foam drink is harder to compare directly, as they are often customised and can be unique to each venue. As such, consumers have fewer reference points for what they should cost – creating more flexibility around price.
“There’s a challenge here around people expecting a certain drink to cost a certain price and being able to reference it,” Maxwell says. “But if there’s less than a direct reference for it, the price point becomes less keenly analysed or scrutinised.”
That matters because major chains are now selling these less-comparable and complex drinks at enormous scale. Compared to a traditional coffee that most often has three or fewer ingredients – water, coffee and milk – Starbucks’ popular cold drinks can have anywhere from 5 to 15 ingredients.
Starbucks customers can also personalise drinks with extra espresso shots, different milks, syrups, cold foam and sauces – with more than 170,000 possible ways to customise beverages.
These are increasingly layered products rather than direct equivalents to a conventional latte or cappuccino, giving consumers fewer obvious benchmarks for what they should cost. Importantly, they are also being exposed to a higher price point for something purchased from a coffee shop and consumed in much the same way as a conventional cup of coffee.
Starbucks reports that cold drinks now account for roughly two-thirds of beverages sold in its US company-operated stores and around 75% internationally, with products such as Refreshers, matcha and other cold beverages central to its innovation strategy.
Blank Street is pursuing a similarly broad interpretation of the modern coffee-shop menu. Now operating more than 100 stores, the chain has built significant visibility around matcha and rotating drinks, which now represent around 50% of its business.
Maxwell argues that the significance of these businesses goes beyond the individual drinks. Their scale and brand strength allow them to establish higher prices in front of a much broader group of consumers than most independent coffee shops could reach themselves.
“They’re pitching their brands at customer types where they’re not ‘pure coffee’ customers,” he says.
“It’s as much about exploring how to win customer segments and different age groups, and being at the forefront of mainstream coffee shop culture, as it is about just adding an upsell.”
In this way, companies such as Starbucks and Blank Street have an advantage, as they do not need to persuade traditional coffee customers that coffee itself should cost more. By convincing mainstream consumers to regularly spend more on drinks generally, they may be shifting the reference point from another latte or flat white, to the wider category of takeaway beverages.
For independent coffee shops, that could create valuable pricing headroom. A £5 flat white may attract less resistance in a market where consumers have become accustomed to paying more for other drinks from the same type of venue.
In other words, large chains may be doing some of the pricing work for the rest of the market. Independent coffee shops do not necessarily need to sell the same products themselves to benefit from the expectations those products create.
A higher price ceiling for coffee
None of this means coffee shops can suddenly charge the same price for a flat white as Starbucks does for one of its most elaborate cold drinks. Consumers still judge products according to what they receive, and familiar coffees remain easier to compare between businesses.
But reference prices do not exist in isolation. As the upper end of what consumers routinely spend in coffee shops moves higher, the range of prices that customers consider normal for a coffee shop beverage also expands.
This can make incremental increases to coffee prices feel less dramatic than they once did.
“[M]ost coffee shops need this bulk base of the fundamental drinks on the menu, the cappuccinos, flat whites, the long blacks,” Maxwell says. “But there is a genuine risk that you put up [the price] too much and you lose that customer to a competitor.”
That risk will not disappear. But a market in which £6–7 takeaway drinks are increasingly familiar gives operators more room to test where consumers’ resistance actually begins. A £4.50 flat white looks different when the reference point is no longer simply another £3.50 flat white, but a much broader menu of considerably more expensive drinks.
For coffee shops facing higher labour, rent and coffee costs, that shift matters. The industry has spent years debating how much consumers will tolerate paying for a cup of coffee. Large chains may now be helping push that answer upwards – not by convincing customers that coffee should cost more, but by making more expensive drinks feel normal.
For independent coffee shops, this may be the most important consequence of the rise of higher-priced matcha, flavoured lattes and cold drinks. The value lies not necessarily in copying them, but in operating within a market where consumers are increasingly comfortable spending more on a takeaway beverage.
If large chains continue raising what consumers consider a normal price for a takeaway drink, coffee itself may finally have more room to follow.
