Our good friend Coffee Hero recently brought up the topic of coffee prices (again – this was a topic almost exactly one year ago.) While he praises our prices and I agree on some points, there are a couple of things that might benefit from clarification.
There are really three types of coffee prices:
- Roasted whole-bean coffee behaves like a commodity in the consumer market. The price of this commodity is spiking right now for reasons involving seasonal speculation, reduced harvests due to fungus, low levels of coffee reserves in the US, and concerns about hoarding overseas. As a result of this market spike, Folgers raised its prices by 10% earlier this summer. In cafes and grocery stores, the price of whole-bean coffee is going up by $0.50-1.00 per pound on average. This will affect not just the low-end but also higher-end coffees, like Peets. It will also affect Fair Trade certified coffees.
- Super-premium coffees, such as our exclusive Direct-trade coffees from Guatemala (Finca Chicaman, Finca Aurelio y Lorena), cost more than commodity-traded coffees to begin with. Direct-trade coffees are mostly sold at a fixed price; their price will not be affected by the commodities markets this year. Likewise the auction coffees sold through the Cup of Excellence and other such programs. Those coffees are in a class of their own that is decoupled from commodity pricing.
- Coffee drinks. It is true that the cost to produce one very rich espresso shot (23 grams of coffee grounds, that’s a serious triple shot) has gone up by roughly $0.03 because of the recent increase in coffee commodity pricing. Big deal. This should not make anyone raise their prices. But please understand that when you’re buying an Espresso you’re buying a service, not a thing. Most of the cost to provide that service is not contained in what accountants call the Cost of Goods Sold (COGS). What you’re really buying is a nice stopover in a leak-proof, well-lit, comfortable cafe in a location you like, not to mention free WiFi, a comfy chair, free filtered water and clean, fully stocked toilets. And then there’s the barista who keeps the doors open, pours your drink, and maybe even lights up your day. Believe it or not, friendly, super-premium baristi like the ones at Seattle Coffee Works do NOT grow on trees.
So, I think it’s legitimate for roasters to raise the price of whole beans. For Ethiopian coffees, which are even more expensive this year than last, every roaster in town has done that. But increasing drink prices based on the increase in green bean cost is disingenuous. If cafes want to increase their drink prices, they could point to other factors:
- health insurance has gone up 20-30% this year alone;
- aggressive taxation by strapped local governments – we just submitted our paperwork for the personal business property tax of King County, a tax so arcane that in good times the government wasn’t even trying to collect it. It cost us hundreds of dollars in filing costs, probably more than the actual amount of the tax;
- increased difficulty of raising capital (the bailed-out, subsidized big banks are even more tight-fisted now than last year!);
- increased price of milk.
For us here at Seattle Coffee Works, the current coffee commodity market provides one more reason to move toward more direct-trade and to ditch a system of price discovery that just doesn’t fit gourmet foods like super-premium coffee.
In the meantime, thanks for the kudos on our $1.82 espresso ($2 including tax). That hasn’t changed in the nearly four years of our existence – hey, we just had an anniversary! We’re not planning to change prices anytime soon. Especially not during a recession. So come on in, let’s drink some super-premium “cof” – that’s coffee, without the added “fee.”
Post Scriptum (Oct. 3, 2010): A friend sent along this link to an article I’d missed. A bunch of coffee commodity analysts seem to think that coffee prices are peaking this year with no basis in supply. It’s mainly about the fungus infection in Colombia and some other speculative reasons. In 2011, they’re predicting a hefty surplus of Arabica coffee. All those coffee chains raising their drinks prices pointing to green-coffee price increases? Not funny, not in a recession. Check out the article I missed.