Consumers face a jolt as coffee prices turn frothy
Lisa Spruill is fighting inflation with a secret stash of coffee. The Los Angeles office building manager has six cans of Don Francisco coffee squirreled away, all purchased with double coupons at local supermarkets in recent months.
Spruill’s micro-investment is paying off as she and other Americans find themselves coping with the increasing price of morning java -- whether it’s at the supermarket or the corner coffeehouse.
“If I hadn’t done that, I would have to reduce my coffee drinking,” Spruill said. “I have already curtailed my Starbucks drinking. I am cutting back wherever I can.”
Breakfast is getting a lot more expensive. Coffee is now up there with other increasingly expensive essentials such as milk, bread and eggs. Overall, the cost of groceries is rising at the fastest rate since 1990, according to the federal Bureau of Labor Statistics.
The increase for coffee started with Starbucks raising drink prices in July. Other coffee chains followed suit. The big supermarket brands, including Folgers, Maxwell House and Chock full o’Nuts raised prices twice in the last two months, including last week. World coffee prices have risen 23% over the last six months.
It’s not that there’s a sudden coffee shortage.
A weak U.S. dollar that makes imported coffee more expensive and speculative investments in all commodities, including raw (green) coffee, wheat, oil and platinum, have sent prices skyward.
At the Ralphs supermarket in Seal Beach, a typical package of ground coffee, say Folgers’ 13-ounce Classic Roast, sold for $4.89 on Thursday. A 11.5-ounce can of Maxwell House French Roast went for $4.69. Those prices are up about $1 from a year earlier.
Large coffee roasters including Folgers owner Procter & Gamble Co., and Kraft Foods Inc., which sells Maxwell House, said they are raising the price they charge supermarkets and mass retailers for their coffee by about 7%, or 20 cents for containers in the 11- to 13-ounce range. The price of instant coffee also is going up.
This was the second round of price increases this year. Just last month Procter & Gamble and Kraft added 15 cents to what they charged supermarkets for a typical can of ground coffee. Combined, the two increases raised Kraft’s suggested retail price for Maxwell House by almost 10% to $3.94, and Southern California supermarkets often charge more than that.
Ralphs customer Linda Hubbard sighs when she sees those higher prices.
She and her husband, John, of Seal Beach drink a pot a day.
“It doesn’t matter how high the price goes, John is going to drink his pot,” she said as she piled $140 of groceries into the back of her truck Thursday.
“Everything is going up. It’s just awful.” She tries to save by buying coffee on sale.
Prices are going up, even though roasters have not seen any dramatic change in the supply of coffee beans that would explain the sudden increase in prices for their raw product.
“There is nothing fundamentally that suggests coffee should be higher, but due to the volatility in the stock market, the prices have remained high because the dollar has been devaluating against other currencies,” said Jay Isais, coffee buyer for Los Angeles-based Coffee Bean & Tea Leaf.
As investor focus shifts away from commodities, Isais forecasts that prices will slowly ease to fall in line with the supply of beans.
Much of the increase has affected what coffee entrepreneur Richard Karno calls commercial grade beans, lower quality arabica and robusta beans that go into the mass-market brands.
“It’s a lot worse at the lower end of the market,” said Karno, who owns the six-store Groundwork Coffee Co. chain in Los Angeles. “We already pay a premium for our organic, sustainable and good arabica beans, so the increase hasn’t been as much.”
Karno doesn’t plan a price increase for now. Neither does industry giant Starbucks, which raised the price of its coffee drinks by an average of 9 cents, or 3%, in July. Coffee Bean, a large regional chain, raised prices in September but has held the line since then.
“We have no immediate plans to raise prices again at present. However, this could change if green coffee prices continue to climb,” said Chas Hermann, the company’s senior vice president of marketing.
How fast the recent price increases will show up at supermarkets, which are free to set their own prices, isn’t clear.
“We don’t comment on prices,” said Terry O’Neil, spokesman for Ralphs Grocery Co. Albertsons, a supermarket chain owned by Supervalu Inc., also wouldn’t discuss its coffee prices.
Coffee prices have risen so fast that even some traders are starting to get nervous. Last week the cost of a pound of coffee eased a bit on the world commodities markets. That was the first significant drop in months and reflected investor fear that the U.S. might be headed for a recession that could slow demand for coffee and other goods.
But if you think higher coffee prices will prompt American consumers to kick the habit, forget it, said Richard Hassebrock of Fullerton who considers coffee one of life’s staples.
“I am going to drink it even when the price goes up,” the Starbucks regular said. “I like coffee.”
--
