Challenge: Coffee Prices Rise as Yields Decline
Coffee shops may see lower profit margins in the months ahead as a global decline in coffee bean production drives up supply costs. Following an extended drought in early 2014, Brazil’s coffee output is expected to fall by almost 10 percent for the 2014-2015 growing season. Unseasonal summer rains have also raised concerns, according to the International Coffee Organization. Some analysts have projected that wholesale coffee prices could reach $3 a pound, which would be a three-year high, in the event of another crop shortfall, The Financial Times reports.
Several coffee roasters, including Starbucks, JM Smucker, and Kraft, have already increased prices in response to rising costs.
Coffee shops should be prepared to pay more for coffee beans well into 2015 if low crop yields cause prices to remain high.
U.S. consumer spending on nondurable goods, an indicator of coffee shop sales, rose 1.5 percent in July 2014 compared to the same month in 2013.
U.S. personal income, which drives how much consumers might spend on luxury items like coffee, rose 4.3 percent in July 2014 compared to the same month in 2013.
U.S. retail sales for food services and drinking places, a potential measure of coffee shop demand, increased 4.9 percent in the first eight months of 2014 compared to the same period in 2013.
U.S. tourism spending for food services and drinking places, an indicator for coffee shop revenues, increased 3.3 percent in the first quarter of 2014 compared to the same period in 2013.
Companies in this industry sell coffee drinks and other food and beverages for consumption on the premises or for takeout.
Major companies include International Coffee & Tea (The Coffee Bean & Tea Leaf), Peet's Coffee & Tea, and Starbucks (all based in the US), as well as Costa (part of hospitality firm Whitbread) and Caffè Nero (both basedin the UK).
Beverages typically sold by coffee shops include brewed coffee and tea; espresso drinks (cappuccinos, café lattes); cold blended beverages; bottled water; soft drinks; and juices.
The typical customer for a coffee shop is 25 to 40, affluent, and educated.
Sales are seasonal, with a peak during the fourth quarter, driven by the winter holiday.