News / Business

Price no deterrent for coffee lovers

The Columbian

Published: March 16, 2014, 5:00pm

SAN FRANCISCO — Doreen Cappelli is so hooked on her morning cappuccino that she says she’d pay a lot more to get it.

“I don’t drink wine and alcohol,” Cappelli, 52, said after buying the $3.25 drink at Blue Bottle Coffee at San Francisco’s Ferry Building. “Coffee is one of my pleasures in life. I would pay double.”

While prices probably won’t go up that much just yet, pressure is growing on the $80 billion U.S. coffee industry as the cost of arabica beans used in high-end brews skyrockets. Futures in New York jumped 85 percent this year to $2.053 a pound. By May, they may reach $3, the highest since 2011, said Judy Ganes-Chase, an industry consultant in Panama City, Panama, who has been analyzing the market for three decades.

Arabica is off to its biggest rally to start a year in at least four decades after drought hurt crops in Brazil, the world’s top grower. Eventually, that will mean higher bean costs for Keurig Green Mountain Inc. and J.M. Smucker Co., maker of Folgers, the best-selling U.S. brand.

For now, sellers including Starbucks, the largest coffeehouse chain, say they’re in no hurry to raise prices. Many have stockpiles of cheaper beans from before the rally. Even if they do start to charge more, history shows that’s no deterrent for American consumers, the biggest drinkers.

“I need it — it’s like crack,” said Lindsay Cooper as she stood in line for her morning cup at Philz Coffee in Mission Bay, near AT&T Park, the San Francisco Giants baseball stadium. “I feel like I’m exposing a deep, dark secret. Is there some sort of coffee rehab? If so, hopefully mine has coffee.”

In 2011, when futures doubled over 12 months to a 14-year high of $3.089 and retailers including Smucker and Kraft Foods raised prices, U.S. consumption still rose 1.2 percent from 2010 to 2.916 billion pounds, according to the International Coffee Organization in London. In the past decade, as domestic demand jumped 44 percent to 100.3 billion cups last year, spending rose even more, up 135 percent, data compiled by Cedarhurst, New York-based researcher StudyLogic shows.

“There’s very low price-elasticity-of-demand for coffee,” said Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors, which manages $1.4 trillion. “Would people who like coffee regularly substitute tea, or soda, if prices rise? The answer is ‘No.'”

Americans drink one of every four cups globally, 9.5 percent more than No. 2 Brazil and two and a half times the amount consumed in Germany, ICO data show. About 32 percent of U.S. demand is outside the home, in restaurants including McDonald’s, coffee shops including Tim Hortons, and at work, up from 21 percent in 2004, StudyLogic estimates.

“People still go out for their cup of joe,” Nigel Travis, chairman and chief executive officer of Canton, Mass.-based Dunkin’ Brands Group, owner of the world’s largest donut chain, said on a Feb. 6 conference call with analysts. “It’s a very ritualistic business.”

In the past year, Americans who drink coffee consumed about 1.7 cups a day on average, up from 1.4 cups a decade ago, StudyLogic estimates.

Marisa Smith, 25, of Brooklyn drinks about two cups a day and said she doesn’t pay much attention to prices when buying coffee at a shop.

“Coffee for me is a social activity,” she said at a Stumptown Coffee Roasters on West 29th Street in Manhattan. The shop charges $2.50 for a cup of Americano coffee, which can cost $7 if made with beans from El Salvador that fetch a whopping $42 per 12-ounce bag. “It doesn’t cost much when you think about how much we pay for alcohol beverages.”

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