Coffee Shop Owners Pushed To The Brink As Cafe Ownership Steadily Becomes An Unreachable Pipe Dream – CoffeeTalk

The last six months have been challenging for small business owners in Britain, with record-high bean prices and brutal post-Budget conditions putting pressure on businesses like Thirst. Wholesale coffee prices have risen by more than 80pc since the start of the year, and are hovering near a record-high reached on Dec 10. Big household names like Nestlé and Lavazza have warned that bean prices have gone up so much they can no longer afford to absorb increases without passing on costs.

The pressures are felt both among independent coffee shops like Thirst and at big chains such as Gail’s, which employ over 2,300 people in 133 locations. Luke Johnson, the chairman of Gail’s, says that tax rises and wage pressures are a bigger concern than the rocketing cost of coffee beans. He believes that unlike certain other costs, commodity prices tend to normalize after a while, and taxes rarely or ever go down.

From April, businesses will have to start swallowing a £25bn tax rise unveiled at the Budget on Oct 30. Employers will have to make National Insurance contributions (NICs) of 15pc rather than 13.8pc, and the earnings threshold over which NICs are charged will be lowered to salaries of £5,000, down from £9,100. Additionally, the minimum wage will receive another inflation-busting uplift from £11.44 to £12.21 an hour, which will then have increased by 37pc in four years, well ahead of inflation of 23pc.

The increase in National Insurance contributions is a blow to any employer, especially those who employ a lot of part-time staff. Other cost pressures such as ingredients, utilities, rates, and various expenses are making this period one of the toughest he can remember in the best part of 40 years of being in the hospitality trade.

Coffee prices are expected to rise significantly due to the COVID-19 pandemic, with smaller independent coffee shops like Thirst facing the challenge of paying £5 for a cup. Paul Rooke of the British Coffee Association warns that the cost of living crisis is making people consider saving and buying more coffee instead of purchasing multiple cups a week. This could impact the overall throughput for coffee shops, leading to increased costs and income inconsistencies.

The number of coffee shops in the UK has surpassed pre-pandemic levels, but many pressures have slowed expansion. Some smaller coffee shops may also fold, leaving a loss not only to their employees and customers but also to the high streets they leave behind. Research by the British Coffee Association before the pandemic found that coffee shops made up a £15bn-20bn market but generated a further £20bn for other businesses in their local area.

The number of companies going bust across the UK hit a 30-year high last year, as rising interest rates squeezed consumers and surging prices strangled businesses. Restaurants and cafes had a higher rate of insolvencies than average. The figures for 2024 are following a similar trajectory as 2023, according to the Insolvency Service.

Many cafe owners are hoping for a reprieve from spiking coffee bean prices, but they may be disappointed. High prices may incentivize farmers in countries like Brazil, Vietnam, and Guatemala to start planting more crops in response to more lucrative profits. However, this will not offer a quick fix, as it takes three years from the moment you plant a coffee tree for it to reach significant growth.

Climate change is also making life more difficult for farmers worldwide, with coffee plantations in Brazil experiencing fires due to hot and dry temperatures, chocolate and orange juice wholesale prices soaring due to extreme weather, and Houthi attacks in the Red Sea delaying shipments and a rush to import to the US before Trump tariffs have both driven up prices.

In Chelmsford, coffee shop owner Chiswell-Rivas recently received a letter warning of a 10pc increase in the price of his beans. He is trying to stay optimistic but admits that there is a very bleak two or three years coming up with many businesses that are just holding on that are going to go.

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