Coffee chains, cafes and K-Cups feel heat from rising bean prices

Wholesale coffee prices have jumped sharply this year, raising costs for coffee chains and grocery store brands alike.
Wholesale coffee prices have jumped sharply this year, raising costs for coffee chains and grocery store brands alike. CANADIAN PRESS/Chris Young

Tim Hortons, the country’s largest coffee chain, gave assurances on Wednesday its coffee prices won’t be impacted by soaring bean costs this year.

But next year all bets are off.

“Coffee costs, as everyone knows, are much higher than they’ve been historically and it’s been a fairly continued rise,” Cynthia Devine, Tims’ chief financial officer said on a conference call with analysts.

Indeed, coffee bean prices have jumped sharply this year as drought conditions persist in Brazil and hit at production from the world’s largest coffee exporter.

Prices for Arabica beans, a commonly used type in commercial products, surged to a two-and-a-half year high in October. Prices on futures contracts have retreated somewhat this month but remain significantly elevated compared to long-term pricing trends.

MORE: Keurig coffee lovers face price hikes as bean costs stay high

In response, purveyors of coffee from cafes to nationwide chains to K-Cup suppliers have lifted prices in recent months to cope with mounting wholesale costs as each vies to secure enough supply from a smaller crop.

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This week, Keurig Green Mountain increased prices on its K-Cup brands sold in Canadian and U.S. grocery stores by nine per cent. Keurig cited a 55 per cent jump in wholesale costs when it announced the price hikes in August.

In September, Starbucks Canada adjusted prices on a selection of coffee beverages, a spokesperson said by email on Wednesday, a move that followed price hikes at the U.S.-based parent in June.

Necessary action

In May, Tim Hortons’ Devine said the coffee chain had begun signing contracts to secure 2015 needs. Not surprisingly, she said those contracts were at higher prices while bean costs have continued to rise since.

Tim Hortons customers haven’t felt the increase yet because Tims is keeping retail prices in line with what it paid for supplies before this year’s spike. “For the most part, for 2014 we’ve been locked in,” Devine said.

MORE: Are higher coffee prices on horizon at Tim Hortons?

But with Tims and its network of 3,600 stores and franchisees having to pay up now, price increases perhaps loom at Tims depending on how much more the company and its franchisees must pay for coffee experts suggest.

“It’s something we are working closely with our restaurant owners on,” Devine said, “to understand what actions may be necessary.”

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