Australia: Coffee price rises not as harsh as expected, study finds

Coffee price rises not as harsh as expected, study finds

The results of the 2011 September Quarter Gilkatho Cappuccino Price Index are in, and while there has been an average price hike of 15 cents per take away cup, this is better than what the market had predicted.

Hospitality Magazine

December 5, 2011

The Index showed an average price increase of 15 cents per cup for take away coffee and 17 cents per cup for dine-in during the past 12 months across Australia, and while Gilkatho managing director, Wayne Fowler admits that 63.1 per cent of the coffee shops surveyed had increased their prices in the past year, they were not as high as originally predicted.

"2011 has delivered some of the price increases expected by record increases in coffee futures experienced at the start of 2011, but commercial pressures and the continued evolution of a more discerning cafe culture in Australia has kept the expected increases in the cost of take away and dine-in coffees to less than half the expected price hike of between 30 and 35 cents per cup," he said.

Fowler added that although the industry had predicted that 2010's 77 per cent rise in coffee futures would outstrip any gains made by the Aussie dollar, most cafe operators decided to absorb the costs themselves at first, but this became increasingly difficult throughout the year because of "the so-called hidden costs in the price of a cup of coffee such as wages for good baristas and premises as well as other ingredients like milk, sugar and chocolate."

State by state

"The September Quarter saw many of the market conditions unique to each Australian capital city at work. For instance, the Gilkatho Cappuccino Price Index found that 30 cafe operators in Canberra had closed since the March Quarter, that's a 21 per cent failure rate over the quarter, which in large part can be explained by the amount of competition, small population ... and it's irregular urban concentration," said Fowler.

The rate of increase was less for other states including Adelaide, Brisbane and Sydney.

"The most dramatic price change in the September Quarter, a six cent fall in the price of dine-in coffee in Perth, was difficult to interpret with no apparent link to historical data and instead appears to be more the result of growing price awareness on the part of Perth coffee drinkers."

Other trends

Fowler also commented to cafe operators are starting to increase prices of non-core items such as espresso shots and tea to recoup higher operating costs and the absorption of the increased prices for coffee beans.

Looking to 2012, Fowler warned the industry against using coffee futures as a predictor of price, instead saying that continued pressures from increased business costs for cafe operators are more reliable indicators. In terms of production, however, the following could have an impact:

·         In 2011 heavy rain in South America resulted in Colombia failing to meet its expected nine million bag production levels. Production will drop to eight million compared to 8.3 million bags produced last year

·         Brazil will drop its production from 54.5 million a year to 49.2 million for July 2011-2012

·         Futures prove unstable as productions around the world look grim: futures jumped from $3 a pound in August 2011 to $3.50 in September to fall to $2.90 in November

"While these global settings are influential," Fowler said, "commercial business conditions faced by Australian cafe operators are really the most important factors in determining the price of a cup of coffee."