Coffee at $7 a cup? One of many price rises coming

21 March 2022
Cappuccino

Crop shortages in Brazil, the rising price of oil, and surging freight costs, could see a cup of coffee setting you back as much as seven-dollars by the end the year, says David Parnham, of the Cafe Owners and Baristas Association of Australia. Speaking to the ABC, Parnham said the price of a cup of coffee was long overdue for an adjustment, having remained relatively stable for some years:

The pain will be felt from the cities to the outback, but Mr Parnham said the increase was well overdue, with the average $4 price for a standard latte, cappuccino and flat white remaining stable for years. “The reality is it should be $6-7. It’s just that cafes are holding back on passing that pricing on per cup to the consumer,” he said.

How things have changed. About four years ago a well-run cafe’s cost to produce a cup of coffee was less than a third of the price they charged. To maintain a profit of at least two-dollars per cup, based on a selling price of say six-dollars (can you imagine it?), means the cost of making that cuppa will have risen to four-dollars.

The markup on coffee is higher than most food items. In fact, it’s only rivalled by the markup on craft beer. An average cup of coffee costs less than a dollar to produce, yet it usually sells for around $3.50. Other items on the menu have a much smaller profit margin. Coffee sales alone should constitute 25-35% of your gross.

The average price of a coffee in the areas I’m in and out of is about $4.50. They might have been about $3 ten years ago, and price rises to date — at the cafes I frequent — have usually been in twenty to fifty cent increments, maybe every few years. To think we might be seeing possibly two one-dollar increases in the next nine months is incredible.

We’re a nation of coffee devotees, but I wonder at what point cafe customers might decide a cup of coffee costs too much, and decide to look at alternatives, or simply cut back their consumption. I’m all for small businesses making a go of it, I’m one myself, but I think cafes will need to tread carefully — somehow — when it comes to passing on costs.

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