Your daily cup of cappuccino is now more expensive by almost Rs 20. Coffee chains such as Cafe Coffee Day, Costa Coffee and Fresh & Honest have raised menu prices to cope with coffee’s biggest global rally in five years. Companies selling branded coffee powder such as the world’s largest food company, Nestle, which owns Nescafe, and Tata Coffee are also likely to raise prices shortly.
Arabica, the world’s most-grown coffee, has become almost 50% more expensive in the past three months and touched a 13-year high last week, pulling up prices in India, the world’s sixth-largest coffee producer.
Costa Coffee, owned by UK-based Whitbread, which runs close to 60 cafes in India through its franchisee partner Devyani International, hiked prices by 6% in June. Santhosh Unni, CEO of Costa Coffee, said he did not expect an ‘immediate’ round of price hikes. But Mr Unni added: “So far, we have been able to absorb the hike in commodity costs. I am not, however, sure how long we can continue to do so.”
India consumes about one-lakh tonnes of coffee annually. This includes the retail packaged segment and coffee chains. Most coffee chains in India are yet to break even on investments, and rising commodity costs leave them with little choice, but to pass on the increase to consumers.
The country’s largest coffee chain, Cafe Coffee Day, owned by Bangalore-based Amalgamated Bean Coffee Trading Company (ABCTCL), hiked prices by 6% about four months ago across its 972 cafes in 142 cities. But K Ramakrishnan, president-marketing at Cafe Coffee Day, said that coffee from the company’s own estates is helping keep costs under control. “Since we rely on the coffee we grow at our own estates, the impact of rising global prices is limited for us,” he said. ABCTCL has 7,400 acres of own coffee estates, another 2,500 acres of managed estates, and it sources coffee from 11,000 small growers.
An official with Fresh & Honest Cafe, which makes the coffee brand Alive, said the company was aware of the rising trend in prices. “We have a limited presence in retailing, but the rising price of coffee means we would have to re-look the pricing. There is room for a 5-10% rise in prices,” the official said. Firms in the packaged retail segment are following suit. Foods maker Nestle, which makes Nescafe coffee among other packaged foods, is considering the option too.
“High commodity prices and food inflation are an ongoing challenge and we do not react to every increase. However, as a long-term strategy we have accelerated our cost optimisation initiatives and will take selective and staggered price increases at appropriate times,” the spokesperson for Nestle India told ET in an e-mail reply.
Tata Coffee’s US-based 100% subsidiary — Eight O’Clock — is also mulling a price hike to protect margins. Eight O’Clock predominantly sources coffee beans of central and south American origin. “The US market is highly developed and there is a pass through process. Already, brands like Folgers have hiked prices by about 9% and a gourmet brand
Eight O’Clock would also have to follow suit to maintain margins,” said H Huq, MD of Tata Coffee. Smaller coffee chains like Cothas Coffee, a roast and ground coffee supplier in Bangalore, said it would have to ‘rethink on pricing’.
Said CP Chandan, partner at Cothas Coffee, “Prices have risen beyond a point of comfort for roasters, forcing us to look at price hike.” The company’s coffee retails at Rs 250 per kg, and Mr Chandan said the company was looking to hike prices by Rs 20 per kg. V Sushilkumar, retail head at Concorde Cuppa Beverages, which operates a chain of 16 outlets in Bangalore, confirmed that prices in their cafes would be hiked effective October, though the pricing had not been frozen as yet.
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