The Business of the Bean: Wholesale Prices Up

Joan and Jim Spaulding did not want to raise prices at The Hideaway Coffeehouse and Wine Bar in downtown Northfield. But faced with dramatic increases in wholesale food costs, particularly for coffee beans, it was time to bite the bullet.

“It’s been two years since we had any price increase,” said Joan Spaulding.

About three weeks ago, the Hideaway owners increased coffee prices by 10 cents a cup, and they are not alone.

Caribou Coffee also recently raised prices on coffee beans by $1 per pound, and other restaurants in town have responded to increased prices in produce, dairy, and meat with slight price increases or adjustments in portion size.

“There has been more of an increase in the prices we pay for coffee and dairy in the past year than in the previous 10 years,” said Dan Riggins, who owns Goodbye Blue Monday Coffee House, which increased coffee prices by a nickel a cup several months ago.

“Everyone is raising prices,” Riggins continued. “Starbucks has, Folgers has—we haven’t decided what to do yet, but if the increases continue, eventually you either raise prices or go out of business.”

Spaulding estimates that the costs from its vendors have increased 20 to 35 percent for coffee beans, depending on the roast, in addition to a more than 30 percent increase in the cost of produce and about 25 percent for meat. Prices for dairy products are "crazy," said Riggins.

A worldwide phenomenon

The price of a pound of coffee on world commodity markets has gone from $1.50 a year ago to about $3 a pound today, the highest price in 34 years. A number of factors have contributed to the price increases worldwide.

Demand for coffee is increasing along with living standards in China and India. For example, China’s consumption of coffee is expected to increase by 15 percent next year. Regional issues, such as hail and frost which may harm coffee crops in Brazil and Vietnam’s decision to hold on to some of its coffee stocks rather than exporting them, are also factors.

Speculation in food commodity markets may also be a significant factor. Starbucks CEO Howard Schultz on April 28 told CNBC that supply is not the reason behind commodity price increases, but rather price speculation.

Schultz said, "So we're living at a time right now where financial speculation index funds, hedge funds have created a rush of very, very high prices. And not only coffee, corn, sugar, cotton and obviously oil, and unfortunately it has to hit the consumer."

Riggins agrees.

“Banks are re-capitalizing themselves by buying and selling coffee and other commodities,” he said.

No drop in business

Despite increased costs, coffee shop owners said business has been stable.

“Our regular customers know it has been a long time since we raised prices,” said Spaulding, who noted that days with good weather "always bring an uptick in business."

Jessica Coulson, manager of the Northfield , said that even in tough economic times, “people are willing to spend a little more for a quality product.”

Riggins of agreed.

“Coffee is really an affordable luxury,” he said. “For $1.60, you can sit here for two hours, have a cup of coffee, read the paper, access the Internet for free, and visit with other people. Where else are you going to get that kind of value for $1.60?”