Sylvain Charlebois: Stay calm and stock up on coffee now

Sylvain Charlebois: Stay calm and stock up on coffee now

MONTREAL —
Coffee is one of the most traded commodities in the world.

In Canada, we don’t grow coffee, yet, but we certainly love our daily cup of java.

Over 90 per cent of Canadians are coffee drinkers. In 2020, Canada was ranked fifth highest in the world based on per capita consumption of coffee. The average Canadian will consume about 5.5 kilos of coffee per year. The Netherlands is the most addicted nation, with 8.3 kilos per capita, according to Statista.

But coffee is getting ridiculously expensive.

Coffee in Canada is now 17 per cent more expensive since January, and barely anyone noticed.

The bad news is that more hikes are coming.

Just last month, coffee futures exceeded $2 per pound U.S. for the first time since November 2014, and prices have remained resiliently high ever since.

Early frost reports got many investors and contract starts nervous. On July 29, a large region of Brazil saw snow for the first time in years, which will likely compromise its coffee harvest.

As a result, the price of coffee is around $1.85 per pound right now. Coupled with higher transportation costs, Canadian coffee importers, compelled to renegotiate contractual terms, will likely pay more.

In turn, menu prices will need to be adjusted.

The recent sobering Intergovernmental Panel on Climate Change (IPCC) report on climate change by the United Nations reminded us of how extreme weather patterns will impact various crops for years to come.

Coffee is certainly near the top of the list of crops highly vulnerable to climate change.

Arabica coffee beans, used for dark roasts, are growing in popularity around the world, but these beans require constant and predictable growing conditions. Climate change is just making farmers’ lives even more challenging, and it isn’t going to get easier.

At retail, coffee prices should rise in Canada, and consumers should notice a difference by the time we end 2021. Perhaps though, we may see more shrinkflation affecting the coffee category.

In other words, cans or bags could shrink, but prices per unit could remain the same. A clever way not to spook the consumer.

In foodservice, things are much more subtle than they used to be.

For many years, major coffee chains would notify consumers about price hikes, 5 cents here, a dime there.

Not anymore.

Between 2014 and 2018, Tim Horton’s announced coffee price increases regularly, only to see angry consumers take to social media and express their discontent.

It’s just not good marketing, but the way we buy things now is also helping chains manage menu prices differently.

Since we now operate in a mostly cashless economy, few will notice price increases from one week to the next.

When using a card, visualizing the cost of anything is much more challenging. Chains can get away with increases with hardly anyone noticing. A cup of coffee has increased by about 15 per cent on average in food service over the last three years or so, and few are complaining.

But with prices going up, many consumers are likely to trade down, or could continue having coffee at home, as they did during lockdowns.

Depending on what coffee you buy, and where you buy it, costs can add up monthly. Making coffee at home will cost between 25 per cent to 30 per cent less than buying coffee at your favourite chain.

During lockdowns, many consumers would have noticed these savings.

Coffee is such a formidable strategic hook most restaurant chains love to use it to get more foot traffic and generate more business.

Getting someone to buy coffee regularly will generate more revenues, especially before 11 a.m. daily.

A few years ago, McDonald’s knew what it was doing when it gave away free coffee for a month. Free coffee, for an entire month!

The major American chain is now a top player in the breakfast market. While Starbucks set a benchmark on coffee quality and experience, McDonald’s made strong, dark roast coffees a mainstream flavour.

With today’s prices, a similar campaign would cost at least 35 per cent more than it did a few years ago. Not sure this will happen again any time soon.

Regardless of what happens to prices, Canadians will continue to drink coffee. The question is, will Canadians buy coffee to drink out, or make it at home.

The choice remains to be seen.

Dr. Sylvain Charlebois, Senior Director at the Agri-Food Analytics Lab, Dalhousie University 


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