Double-Digit Price Hikes In Store As Coffee Set To Rise By Staggering 25% – CoffeeTalk

Coffee beans, including those from 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. 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 example, Dutch supermarket chain Albert Heijn 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 Peet’s has warned of a profit decline this year due to surging coffee costs, but it added 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. 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.

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.

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.

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.

Roasters are in a bind. They can absorb some cost increases and hope consumers keep buying, or they can raise their prices so that their profit margins don’t fall. The result is a hit to overall profits that hasn’t even spared coffee house chains such as Starbucks, which are far less exposed than the likes of JDE Peet’s. Roasters and traders are meanwhile buying as little coffee as possible as they struggle to pass on costs to supermarkets.

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