Retail: Coffee prices high and staying there

Retail: Coffee prices high and staying there
by Eric Wolff  ewolff@nctimes.com

Bleary-eyed coffee buyers may get their jolt before they take their first sip: Prices in the last year have risen again and again at local coffee shops, and they’re notabout to fall any time  soon.

Skyrocketing bean prices put pressure on roasters and retailers to raise prices, and many held off as long as possible. But as big-money investors launched commodity bean prices to new heights, retailers had to start passing on their costs. And though prices have come down some in recent months, local retailers said they need to hold on to higher prices to earn back money they lost.

“A lot of roasters, they were slow to the trigger,” said Steve Teisl, a Carlsbad trader with Vournas Coffee Trading. “They were really slow on raising their prices to cover their expenses.”

The price of coffee on investment exchanges took off last year: the price of a pound of raw coffee beans catapulted 138 percent between June 2010 and May, when it peaked at $3.11 a pound on the New York Mercantile Exchange. The price has since fallen back to $2.66.

Teisl said hedge fund investors discovered a few years ago that coffee made a safe haven for money when other investments were too volatile, but they didn’t come in strong until last year, when they fled stocks and other investments for the seeming-stability of coffee.

“These guys wouldn’t know a raw bean from a rock in the road,” Teisl said. “It became a very quick, advantageous way to make money.”

The published exchange displays prices for low-end coffee typically seen in supermarkets. For premium coffee, roasters spend four to $10 more per pound. Teisl said small, premium coffee roasters have seen their bean expenses double in the past year.

“It’s making it tough on the little guys,” said Doug Novak, owner of La Costa Coffee Roasting Co. in Carlsbad.

Novak and his competitors held off raising prices until last fall, when they yielded to pressure. Since then Novak raised the price on a cup of coffee twice, by a nickel to 15 cents a cup, depending on the size. His competitors are right there with him.

“The retail market was damaged significantly,” said Ryan Dalton, president of Intazza Coffee in Murrieta.

Marc Jennett, owner of Safari Coffee Roasters in Escondido, said higher prices have definitely cut back his cup of coffee sales, but he’s doing OK on beans, thanks to a two-for-one roasted bean deal.

“That’s been an equalizer here,” he said.

Despite rising prices at supermarkets and coffee shops, Americans are drinking more coffee than they did last year, according to the National Coffee Association. In 2010, the trade group said 40 percent of people ages 18 to 24 drink coffee daily, up from 31 percent in 2009, and 54 percent of 25- to 39-year-olds said they drink coffee daily, up from 44 percent.

Dalton said his company expanded recently, installing a new, bigger roaster and adding new contracts. He said they haven’t raised prices on long-term customers, but they’ve charged more on new contracts, to reflect their costs.

Roasters divided on whether the high prices represented a “new normal” or whether prices would eventually come down: Some argued that coffee had been due to go up in price, while others expect a bumper harvest in Brazil to bring costs below $2.

But even if prices fall, roasters don’t plan on lowering prices back to previous levels, at least not soon.

“I don’t see us lowering prices at all this year,” Jennett said. “We had to absorb high prices, even if they go down a bit, we need to recover what we lost.”