Are arabica coffee bean shortages behind chain price hikes?
Starbucks, Luckin Coffee and Tim Hortons all raised prices, and the market blamed poor Brazilian harvests that tightened ICE arabica coffee bean inventories and pushed prices up. But Cecafe head Nicolas Rueda said Brazil still holds enough beans to supply the market. Container shortages, higher freight, inflation and rising labor and rent costs are the deeper drivers of retail price increases.
On February 2, Starbucks CEO Kevin Johnson forecast multiple rounds of price increases in the coming months. Starbucks drink prices in China were already nearly twice US levels, so the Chinese market adjustment surprised observers. How far coffee futures actually pass through to retail menus depends on logistics and operating costs, not only on the size of the Brazilian arabica crop.
Recently, chain coffee brands such as Starbucks, Luckin Coffee, and Tim Hortons have successively raised their prices, sparking widespread consumer attention. The market generally attributes the price hikes to failed coffee bean harvests in Brazil, which led to tight ICE Arabica inventories and soaring prices. However, the head of Brazil's coffee export management agency stated that Brazil still has sufficient coffee bean stocks, and transportation issues are the key. In fact, container shortages driving up transportation costs, combined with inflation and rising labor and rent expenses, are the deeper reasons behind the price increases at chain coffee shops. This article will outline the timeline of the price hikes, analyze the real connection between coffee futures and retail prices, and retain Front Street Coffee's professional recommendations to provide a comprehensive interpretation for coffee enthusiasts.
On February 2, Starbucks CEO Kevin Johnson had forecast multiple rounds of price increases in the coming months. However, given that Starbucks' pricing in China was already relatively high, it was unclear at the time whether the Chinese market would be included in the adjustments. Starbucks drink prices in China were already nearly twice those in the U.S. market, and logically, the existing pricing and labor costs should have been sufficient to support the company's operations. Just as everyone speculated that the Chinese market might not follow suit, Starbucks quietly raised its prices—seemingly just an ordinary adjustment, yet still surprising.
Coincidentally, after Starbucks announced its price increase, Luckin Coffee and Tim Hortons, which had already quietly raised prices earlier, were also pushed into the spotlight. Many people believe that the price increases at major coffee chains are due to poor coffee bean harvests in Brazil, which led to insufficient ICE Arabica coffee bean inventories, driving Arabica coffee bean prices to soar wildly, increasing costs for coffee shops and forcing them to raise prices to maintain profitability. However, Nicolas Rueda, head of Cecafe, Brazil's coffee export management agency, recently stated that Brazil's coffee beans have not run out; although inventories have decreased, there is still enough to supply the market.
Nicolas Rueda pointed out that the 2021 harvest season for Brazilian Arabica coffee beans was extremely difficult, with frost and drought hitting in turn, directly causing Brazil's total Arabica coffee bean production that year to drop by 25% compared to 2020, to only 47 million bags (60 kg/bag). At the same time, the pandemic slowed the transportation efficiency of Brazilian coffee beans, leading to a decline in ICE Arabica coffee bean inventories. But this does not mean that ICE has no Brazilian Arabica coffee beans available, because the 2020 harvest was quite substantial, and with the current container shortage, large inventories may still be stuck in ICE warehouses. In other words, despite the reduced production of Brazilian Arabica coffee beans in 2021, ICE warehouses still have sufficient supply. Such sharp price increases cannot be entirely blamed on Brazilian coffee beans; transportation issues are an important factor. In addition to container shortages causing slower transportation and higher freight rates, which in turn lead to coffee bean shortages and rising costs in various countries, the main reason for price increases at chain coffee shops is still inflation plus increases in other costs (labor, rent, etc.).
In the two years since the pandemic began, all industries have suffered severe blows, and the beverage industry is no exception. For coffee chain enterprises, the rent for multiple stores, employee wages, supply chain challenges, and personnel training are already huge costs. The uncertainty of the pandemic made it difficult for these enterprises to accurately judge later economic trends, so they could only guard against potential shocks through early and continuous price increases. Luckin Coffee's price increase occurred in early December last year, while Tims' increase took place in early January this year, both earlier than the "out-of-control surge" of Arabica coffee bean prices to a ten-year high. Therefore, the price adjustments at these two chain coffee shops were more based on operational conditions.
Objectively speaking, Starbucks' price increase this time is not unjustified. After all, bean costs have risen, and other costs are also increasing, so drink prices can only be adjusted accordingly. The last time Starbucks China raised prices was in 2018. After nearly four years, an increase of 1-2 yuan can only be regarded as a general adjustment. Choosing to suddenly raise prices these past few days, even if it is a broad increase, still appears especially "dazzling." Image source: Internet
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The above content is compiled by CoffeeHunters, a coffee news website.
