Cold snaps, endless shipping delays, and a global pandemic. Caring about anything these days feels like juggling plates.
Why are coffee prices up? Well, the Brazilian cold snap compromised millions of tons of coffee bags earlier this year, setting a record for the coldest harvest in over two decades and cranking up prices to almost double what they usually are. With the pandemic causing shipping delays and the food and beverage industry struggling to retain workers, it’s small wonder coffee prices have skyrocketed.
Roasters, cafes, and roaster-cafe hybrids are understandably concerned about customer retention. Raising prices on an already expensive daily commodity is a surefire way to drive the end consumer into the arms of the competition, right?
The question isn’t whether prices should stay raised: it’s whether or not the end consumer will be willing to pay them.
As someone who has been on both sides of the fence as a coffee buyer and a coffee worker, now’s the best time to get used to what will be a new standard. Roasters and cafes should not just raise their coffee prices, but keep them that way.
Here’s why.
Do Customers Care About The Prices Or The Coffee?
This is the question that has businessowners pulling their hair out. Are customers willing to shore up the difference?
Competition in the coffee industry has been extremely stiff for a while, with over 2,000 roasters and a staggering 37,000 cafes in the United States alone. With homebrewing set to become the new normal in a world carved out by social distancing and remote work, it feels like a geometry session trying to keep track of aaall the reasons people are switching coffee habits.
These reasons include (and aren’t limited to):
- Safety
- Price
- Convenience
- Personal values
- Peace of mind
- Energy boost
Convenience is one of the most consistent throughlines. Instant coffee has seen a spike in sales lately, averaging $31 billion worldwide. Specialty coffee, to compare, has been lagging behind for a few years, being the daily choice of 42% of Millennials in 2014 to 35% in 2015. (That’s not even touching on the RTD market, which I’ll explore more below).
In a short…yes. Some customers do care about the price tag more than the coffee. Details like flavor, origin, or supporting the brand come second to a quick chug and a caffeine spike.
The keyword is some.
#1: Coffee Price Problems Will Return Again…And Again
I’m going to start off this list with the least discussed element of the coffee price conversation: normal isn’t coming back anytime soon.
It might not even come back at all.
I want so badly to be wrong about this. I dream of hearing a town crier rushing through the streets proclaiming that climate change damage is reversing and the supply chain is running as smooth as butter again, but nothing supports this fantasy coming to life.
If anything, all signs point toward more soggy misery. The core of these coffee price issues are:
Climate Change
The recent climate change report by the IPCC has sent many people into a tailspin, and rightfully so. It’s a haunting reminder of just how little time we have to get our act together.
Raising coffee prices in the short term and ‘lowering them later’ sounds nice on paper, but doesn’t line up with ongoing climate change statistics. Floods are more frequent. Droughts are more frequent. Even once Brazil bounces back from its cold snap, what happens when another one hits?
Then another?
Shipping Delays
Following hot on the heels of climate change and the pandemic, shipping delays are making it hard for roasters and cafes to stay properly stocked. When green coffee supply finally comes in, it’s after an expensive price hike that usually compensates for lost harvests.
The pandemic has made this phenomenon more frequent, but it was already a problem due to climate change and…
Labor Shortages
The future looks bleak for coffee production.
The next generation of coffee farmers is much smaller than what the industry needs to keep up with demand. Commonly cited reasons for circumventing a career in coffee farming include low pay, brutal working conditions, and little room for growth. The ongoing protests in major coffee-producing countries like Colombia are even more fuel on the fire.
You don’t have to take my word for it. I’ll have to write on this topic more, because whew.
Conclusion: High coffee prices aren’t here because of temporary setbacks: it’s a trend that has a high likelihood of getting worse.
While there is more than one way for a roaster or cafe to make up a price difference (such as cutting corners on investments and supplies), higher price norms are inevitable. It’s unsurprising why coffee without coffee is becoming a popular start-up niche.
#2: Some Customers Will Be Driven Off By High Coffee Prices
Now for the main thrust: at the sight of higher prices, some customers will turn on one heel and march to the cafe across the street.
I’m sympathetic to all parties.
Convenience is the glue holding many people’s sanity together these days. I really can’t fault buyers sticking to grocery store instant coffee when the States is facing yet another housing, employment, and health crisis. Likewise, I feel awful for roasters and cafes being faced with another pricing conundrum on top of reduced foot traffic and supply delays.
(when I worked as a barista, even a minor fifty cent price hike would have customers debate their order and hold up the line)
Coffee purchases are such a consistent drain on the bank they’re as much of a monthly bill as an Internet plan. While I’ve clung to my freshly roasted monthly coffee bag, I understand why it’s being crossed off many Americans’ lists. It’s small wonder the ready-to-drink market has filled in this growing gap, hitting a high note at a $23 billion market value. RTD adds a dash of fun to a cheap purchase, from eclectic cocktails to yogurt blends.
Conclusion: Some customers will ask, “Why are coffee prices so high?” and look elsewhere. There will be a drop in sales when roasters and cafes raise their prices. Constantly shifting around prices doesn’t generate goodwill, but frustration for customers and workers.
Instead of trying to stave off the inevitable, this is a prime opportunity to focus on customers that will stay. With so many businesses in a revolving door of opening and shutting throughout the pandemic, the wishy-washy approach isn’t cutting it.
#3: Some Customers Won’t Be Driven Away By Higher Prices
Now for the good news: some customers won’t be driven away. When given the right incentive? They might even appreciate the price hike.
I know I do. Speaking as a proudly filthy Millennial that likes to ask questions instead of passively accepting the way things ‘have always been done’, I’m regularly scrutinizing where my dollar is going. Millennials and Gen Z are consistently value-driven demographics, regularly leading the charge on conversations of ethics and sustainability.
Today’s roasters and cafes have a chance to cultivate long-term and emotionally invested customers at the expense of some short-term losses. The reason why I don’t exclusively switch to instant coffee is because I care about putting money back into businesses I love. (that said, I still have a can of instant for the mornings I’m too sleepy to grind whole beans)
When nearly 75% of Millennials are willing to pay more for a sustainable product, it’s clear there’s a silver lining to this cloud.
Conclusion: Who cafes and roasters connect with will define which customer sticks around and which doesn’t.
Ecstatic promises and pretty certifications slapped on the front of coffee bags aren’t cutting it anymore. The coffee industry isn’t exactly inviting good faith these days.
#4: Transparent, Value-Driven Coffee Marketing Is Essential
Echoing point #3, I’ve seen a few coffee roasters being honest about the challenges they’re facing. They use the difficulty they’re going through as a springboard for creativity and fresh conversations.
Ruby Coffee Roasters recently turned to more simplistic, biodegradable bags to make up for the costs of constant shipping delays. Nirvana Soul has shared in past interviews the difficulties of opening up a cafe during the pandemic, aware that foot traffic makes up the bulk of a business model that didn’t account for social distancing measures.
These details absolutely affect who I want to buy from. Transparency — in other words, sincerity — is difficult to fake. If you want to know what separates authentic businesses from shallow copycats, I have one word:
Consistency.
Conclusion: People can’t support what they don’t know about.
Many roaster and cafe blogs are stuffed with discounts, recipes, and behind-the-scenes production details. Perhaps it’s time to ask what else could be shared with the end consumer to bring more value to the purchase.
When you’ve seen one ‘we pay competitive prices for green coffee!’, you’ve seen them all…and today’s customers have, too.
#5: Wishful Thinking Will Doom A Business
“We’ll raise prices to stay afloat now, then lower them later.”
“We’ll focus on e-commerce, then switch back to foot traffic.”
“When things go back to normal...”
I’m worried.
The lust to return to normal has muddied the business waters and god, I’m sympathetic. I miss the days where my paranoia didn’t flare up at the mere sight of unmasked faces. The days I didn’t wake up from a dream wondering if I contracted COVID. I’m feeling the accumulation of emotional cuts from second-guessing every single thing I do, from wiping down my groceries to anticipating a winter check-up at the dentist.
The food and beverage industry is one of the hardest-hit sectors in the States right now. The climate change contributing to coffee loss is already at apocalyptic levels. As I type this the United States is recovering from the weight of endless wildfires on one coast and mass flooding on the other. As much as I wish things were different with every last cell in my body…
…this is our normal, and it will be for a while.
Conclusion: Why are coffee prices soaring? Because our problems are soaring.
Prices have to change for the long-term. Pushing away some customers and facing down uncertainty are the growing pains of a coffee business that will hold sturdy for the next several years.
Conclusion
Thinking in the long-term right now is tough. Roasters, cafes, and roaster-cafe hybrids don’t have a ton of wiggle room to do otherwise.
To conclude:
- Roasters and cafes don’t have much of an option to keep prices low, in the short-term and in the long-term
- Customers will pay higher coffee prices, but this is heavily dependent on demographics and subversive, proactive marketing that stands apart from the crowd.
- Normal is very far away and won’t return anytime soon (and frankly, it wasn’t very good to begin with)
I’m personally more than willing to shell out a few extra dollars for a business I care about, and I know I’m not the only one. Finding customers that care beyond convenience is going to be up to the business. Raising coffee prices and sticking with them makes more sense with today’s dismal projections than an overly optimistic revolving door approach.
The way I see it?
Wishful thinking is a bigger threat to cafes and roasters than a price hike.
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Are you a cafe owner, a roaster and/or a regular coffee drinker? Leave a comment below: I’d love to hear your thoughts.
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