Coming to a store near you: double-digit coffee price hikes

LONDON/NEW YORK — If your favourite coffee beans have vanished from the shelves, don’t worry – they will return soon. The bad news is they will be up to 25% more expensive.

Roasters such as Lavazza, Illy, Nestle and Douwe Egberts maker JDE Peet’s are currently in talks with retailers about passing on costs from a near doubling of arabica coffee prices over the past year, according to eight industry sources.

Raw arabica prices have spiked due to four successive seasons of deficit as adverse weather makes it harder to grow enough of the delicate beans to meet consumer demand.

As roasters press for price hikes, grocery stores and supermarkets push back, postponing signing new supply deals to the point where some have run out of coffee stock.

In one such example Dutch supermarket chain Albert Heijn, the country’s largest, ran out of coffee products like Douwe Egberts and Senseo.

The products returned to the shelves on March 20, albeit at higher prices, a spokesperson for Albert Heijn said after the firm concluded talks with JDE Peet’s, one of the world’s top coffee roasters.

“JDE’s purchase prices have increased significantly. We will absorb part of this price increase to keep the products affordable,” the Albert Heijn spokesperson said.

JDE Peet’s, which has warned of a profit decline this year due to surging coffee costs, said the stand-off with buyers in the Netherlands and Germany resulted in some of its products missing from the shelves. It added, however, that it has since concluded 90% of its price negotiations globally.

Global prices for arabica, typically used in roast and ground blends, have gained more than 20% this year after soaring 70% last year as Brazil – producer of nearly half the world’s arabica – suffered one of its worst droughts on record.

On average, the raw beans account for about 40% of the wholesale cost of a bag of roast and ground coffee.

That means that if last year’s raw bean price jump was passed through in full this year, it would equate to a 28% price rise to the consumer, said Reg Watson, director of equity research at Dutch Bank ING.

Watson believes prices will rise 15%-25% and that in some markets consumers may feel the hike in one shot.

Even steeper rises are taking place in countries whose currencies have weakened significantly against the dollar. These include Brazil, the world’s second largest consumer of the beverage as well as the top grower.

According to documents sent to clients and seen by Reuters, 3 Coracoes, a large Brazilian roaster, raised roast and ground prices by 14.3% on March 1, having previously hiked them by 11% in January and 10% in December.

3 Coracoes did not respond to requests for comment.

Brazilian coffee roasters association ABIC said price rises in the country are steep because in local currency terms, raw bean prices rose 170% in Brazil last year.

In response, Brazilian shop shelf prices have surged 40%, with more increases coming as early as this month, said ABIC.

“People are already rationing, changing their habits. If before they used to make a big thermos at home for the family, sometimes throwing what was left down the sink, now they cut the waste,” ABIC President Pavel Cardoso told Reuters.

Data prepared for Reuters by market research firm Nielsen shows the volume of roast and ground coffee sold in North America and Europe, by far the world’s biggest consuming regions, fell 3.8% last year as prices rose 4.6%.

With price rises this year expected to be far steeper, the decline in sales volumes should widen.

Folgers coffee maker J M Smucker, which sells to U.S. retailers such as Walmart and Target, expects a decline in volumes in its fiscal year starting in May as it raises prices again, its chief financial officer Tucker Marshall said at a conference call earlier this month.

The firm, which also sells Dunkin and Cafe Bustelo coffee, already raised prices last June and October.