Are higher coffee prices on horizon at Tim Hortons?
There’s a drought in Brazil punishing local farmers at the moment. Their current woes however may well translate into yours in about seven or eight months’ time if your daily habit involves a trip to Tim Hortons (or Starbucks, or McDonald’s, for that matter).
See, Brazil is the largest producer of coffee beans on the planet and a shortage of rain is wreaking particular havoc on Brazillian coffee growers, and as a result world prices (see chart).
Tim Hortons said Wednesday its coffee prices won’t be affected for the balance of the year because it has stocked up on coffee bean contracts that are priced at levels before the drought and resultant market spike came around.
But like other big coffee chains it competes against, Tim Hortons is already locking in supply for next year — and paying up for it.
“We’ve begun buying [coffee bean supply] for 2015 at higher prices reflective of current market conditions,” Cynthia Devine, Tim Hortons’ chief financial officer said on a call with analysts on Wednesday.
In North America, the April wholesale price for a pound of mild Arabica—one of the more popular and widely consumed beans—topped out at $2.26, according to the International Coffee Association.
That’s a jump of more than 62 per cent from the average in 2013 when Tim Hortons was securing its current supplies.
“We’re comfortable with our position for 2014,” Devine added. “It’s really as you look out to 2015 where the market right now is really just trading a lot higher than where we purchased our ’14 requirements,” she said.
Franchisees of the more than 3,500 Tim Hortons coffee shops around Canada have some leeway in determining their prices apart from what corporate says, Devine said. But that will come after Tim Hortons crunches some numbers and determines where else costs can be nipped, such as labour.
“Once that work is done and an analysis is completed, then [Tim Hortons and its franchisees] will look at whether or not [increased] pricing is necessary,” Devine said. “But again, that work is ongoing and the coffee costs are really a 2015 event.”