Will coffee shops survive the increase in gas prices?

Arabica coffee beans are currently the most expensive in 10 years. Also, rising labor and energy costs, incl gas, put pressure on coffee prices in cafes. Soon we will find out whether consumers, due to the increase in the cost of living, will not give up coffee in the city en masse.

Coffee is the most expensive in 10 years - it will be felt by consumers

The last dozen or so years have brought a global expansion of the culture of drinking coffee in cafes. In this way, not only the inhabitants of Rome or Paris, but also Warsaw, Opole and Zamość, spend their free time. However, more difficult times are coming for lovers of the "little black dress". This is due to two phenomena. On the one hand, Arabica coffee beans are becoming more expensive, with the price being the highest in almost 10 years. On the other hand, rising costs of living may induce consumers to limit their expenses, and then coffee in the city may turn out to be one of the first victims of such action. The answer to whether the coffee drinking culture will turn out to be stronger than the need to limit expenses will probably be known in the next several months.

READ: How to invest in coffee? [Guide]

Arabica grains are currently at the highest level for almost 10 years, due to the still unflagging interest of consumers and worse harvests in Brazilwhich reduces the current supply and inventory. Arabica became more expensive than the second variety of robusta coffee, which resulted in the increase of the premium for using the latter (Arabica is currently about 60% more expensive than robusta). Consequently, many manufacturers are increasing the proportion of robusta in their blends, and consumers are more likely to choose robusta to keep costs down. High prices have also put pressure on margins charged by companies for which coffee is an important part of their business, such as Starbucks and Nestle.

Energy and labor costs

The cost of the beans themselves is only a small fraction of the consumer price of coffee. However, in addition to coffee prices, energy costs and labor prices are also rising around the world. This happens when consumer spending is constrained due to a significant increase in the cost of living. In Europe, we currently face a sharp rise in heating and home maintenance prices, which will be another blow to household budgets. And in Europe, the most coffee is drunk, almost 25 percent. world production. The effects of this are already visible in the latest quarterly reports of the companies. In the case of Starbucks, which only uses Arabica beans, higher prices have lowered the company's margins. On the other hand, Nestle reports in its report that the demand for Nespresso capsules has decreased after their prices have increased. The company is also the largest producer of instant coffee, which protects it against a significant drop in income during a recession.

More delicate and more difficult to grow Arabica dominates the ground coffee market, while Robusta dominates the instant coffee market. Brazil is a leader in the coffee trade as the largest producer of Arabica, accounting for 40 percent. world export. The largest producer of robusta is Vietnam, which is responsible for 16 percent. world export. The International Coffee Organization is recording a 3,3% increase in consumption this year, but supply has decreased by 2,1%, leading to an almost record deficit of 3,1 million 60 kg bags.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.