While regular inflation was at just 2.7% for July, the price of coffee rose a whopping 14.5% over last year.
Specifically, the price of a pound of ground coffee rose to $8.41. That’s double what it was five years ago.
What’s going on?
The factors may seem like a perfect storm, but it’s the opposite: droughts in major coffee-growing areas like Brazil and Vietnam have been raising prices in recent years. For context, Brazil and Vietnam are the two biggest coffee exporters in the world.
So supply has been constrained. Meanwhile, if you haven’t noticed, demand for coffee has been growing.
And then tariffs threaten a huge increase to coffee prices. The new 50% US tariffs on Brazilian products, including coffee, didn’t go into effect until August. So that 14.5% rise in July was before the tariffs went into effect.
How Coffee Shops Will React
Coffee shops can try tactical things like switching its coffee sourcing to cheaper options and larger outfits like Starbucks can try squeezing suppliers. Or they could play games like smaller sizing.
But for the most part, coffee shops either need to raise prices or deal with smaller margins.
In its most recent quarter, Starbucks’ operating margin already shrunk from 21.0% to 13.3%. That’s not all because of inflation but it hightlights the plight of smaller coffee shops and chains that don’t have Starbucks’ amazing size and profitability to fall back on.
And the problem may be worse for higher-end coffees. Data by Toast shows that the price of premium coffee has been rising more than the average cup of coffee.
As they say, the cure to high prices is high prices, so perhaps less demand will ultimately help moderate prices. And better crops in years ahead could help on the supply side.
But in the near term, it looks like we’re going to see just how addictive coffee is and how much we value our small luxuries.
Links on this page may be affiliate links, for which the site earns a small commission, but the price for you is the same
Leave a Comment