Rising coffee prices jolt Ann Arbor area roasters, cafe owners
John Roos says the rising price of green coffee beans is cutting into his business.
Janet Miller | For AnnArbor.com
The rising cost of coffee is giving Ann Arbor roasters and café owners a caffeine headache. With the price of green beans hitting a 13-year high, local roasters and coffee shop owners are feeling the jolt, forcing some to pass along at least part of the increase to customers.
John Roos, owner of Ann Arbor’s Roos Roast Coffee, said he first noticed the price of green beans start to climb last March, and then it spiked in June.
“And it’s been climbing ever since,” he said, cutting into profit margins. The cost to buy green beans has doubled over the year, he said.
Still, Roos has resisted raising his prices and even switched over to offering all fair trade organic.
“Prices were rising anyway so I figured if I was going to pay more, I might as well pay to get fair trade organic,” he said.
While prices began to spike in the spring, Marcus Goller, founder and president of Ann Arbor-based Espresso Royale got his first glimpse of things to come a year ago when he went to buy green beans from Colombia.
“For 20 years, the price of Colombian has been stable,” he said. “But when we went to buy a truckload last December, the guy said there wasn’t any. The supply had dried up.”
Rain in Colombia and the surrounding region was down and the crop yield was 30 percent of normal, Goller said. For the first half of 2010, it was difficult to buy any beans from Colombia, and substitutes had to be found for the blends, Goller said.
Colombian beans have re-entered the market, but at a price.
“We used to pay $1.65 a pound for green (Colombian) beans. Now it’s $2.75, if we can get it,” Goller said.
Coffee had been fairly stable market, Goller said, but he’s seen overall price increases topping 50 percent this year. And he said he doesn’t anticipate prices will come down any time soon.
“I wish we could be more like a gas station and set the prices higher when the cost of coffee goes up and bring them down when the price drops. That would be cool. But I don’t think our customers would like that,” he said.
In response, Espresso Royale in May put through what amounted to a 2 percent average price increase, Goller said. No further increases are planned.
“You have to be very careful,” he said. “The profit margin is real slim. A Starbucks or a Peet’s manage a 5 percent net profit. We hover between a negative 2 percent and plus 4 percent.”
The company, which opened five new stores this year and saw a 3 percent increase in sales, has also cut costs such as switching to a more affordable health insurance plan.
Espresso Royale roasts its own coffee in facilities north of Ann Arbor and has 28 stores, mostly in college towns around the country.
Roasters and café owners are stream lining as a way to offset rising prices. Mighty Good Coffee, with a roasting operation and café in downtown Ann Arbor, has changed its suburban Detroit delivery system, opting for twice-week truck deliveries over the mail system, said owner David Myers.
Much of Mighty Goods’ beans are purchased directly from coffee estates or mills, Myers said, rather than through the commodity market, which has registered 40 and 50 percent increases. Because there’s no middleman, the price increases for Myers’ beans have been tempered, but are still significant, he said. He’s seen 20 to 40 percent hikes in his raw coffee bean costs this year.
Weather in Colombia, Costa Rica and Guatemala isn’t the only factor in rising coffee prices. There’s been a shift in the market. Coffee consumption is on the rise in developing nations such as China and India, increasing worldwide demand.
Major brands like Folgers and Maxwell House have jacked up prices while Starbucks has said it will charge more for certain coffee drinks. Myers said his supplier in San Francisco said Bay Area cafes have increased the cost of a pound of coffee beans an average $1 a pound. California-based Peet’s Coffee earlier this fall increased prices on many of their drinks 10 cents and on select bags of their whole beans.
While the retail price of bags of their whole beans fluctuate with the type of bean used, there is a ceiling, Myers said. His whole beans sell for $10 to $13 a bag.
“We’re already specialty grade. You have to remember that grocery stores sell coffee for $6.99 or $7.99 a pound," he said.
"If we added the 30 percent increase in our wholesale cost of coffee to our price, people would say we were nuts.”
Janet Miller is a freelance writer and a frequent contributor to AnnArbor.com.
Comments
AAbob43
Mon, Dec 6, 2010 : 1:45 p.m.
You pay for quality. As Swag noted, we aren't getting gored for coffee. From my office, I hit Espresso Royale and support a local business. It gets me to stretch my legs for a walk, and is a small pleasure amidst the daily grind (no pun intended.) But for the best beans EVER, I get Roos Roast. The stuff is fresh and roasted in small batches. It's best when the Rooster pulls it for you, but it's also ok in my (overrated) Sylvia. I've been drinking the Joe longer than I'd like to say. I've never had better than Roos Roast. Made the stuff in rest stops on a recent trip to Colorado, to avoid truck-stop swill. Made friends and Roos-admirers in the process.
Swag Valance
Mon, Dec 6, 2010 : 7:23 a.m.
This article is a little bit disingenuous. As has been largely publicized in the WSJ, etc., coffee prices have approached a 13-year high. But take a step back for a second. This is the same thing as saying we're paying the same price for coffee today as we did in 1997. In other words, somebody has been getting something of a free ride for 13 years (mostly: consumers). How many businesses do you know have benefitted from commodity prices that hadn't increased over their 1997 price?
Terrin
Sun, Dec 5, 2010 : 5:32 p.m.
Andy - you can do most things food related cheaper if you do them yourself at home. Yet, people still go out to eat and pay to have others do things for them. Further, treating yourself to coffee is sometimes and experience, and sometimes about being to lazy to do it yourself. Visiting the local coffee places also support local businesses.
Jay Thomas
Sun, Dec 5, 2010 : 4:04 p.m.
Looking at the chalkboard in the photo I see that just adding some milk costs another dollar. Yikes!
DFSmith
Sun, Dec 5, 2010 : 3:48 p.m.
@Andy- what if one works on campus about 200 yards from Comet Coffee or the ERC? I have to travel to the Angell Hall/ISR area 5 days a week whether I like it or not.:) BTW, I do own a Silvia and so, stay home on weekends. :)
Roger Roth
Sun, Dec 5, 2010 : 3:07 p.m.
Some of these comments sound anti-small business to me. Most small business people in the coffee business are living, at best, a middle-class life style. Why go on about margins? The fact is, contrary to our gov.'s singing the praises of what small business can do for America, the majority of owners that make it through the first critical years afloat, reaching break-even, will ultimately only eke out a living--with daily long hours on the job. Their landlords, however, will probably do much better, since rent to stay in business will be the last thing to go, even after the owner's take. Support your local coffee entrepreneur!
Janet Miller
Sun, Dec 5, 2010 : 1:22 p.m.
Debling, While raw coffee may cost less than $3 a pound and we can pay $10-$13 a pound for locally roasted coffee, the profit margins are not huge. To begin with, close to 20 percent of the coffee's weight is lost to the roasting process itself. Then there's the shipping costs, machinery costs, overhead costs, staffing and insurance costs, costs to buy and print the bags and so on. None of this covers the cost of the risk that's undertaken to open a business. Marcus Goller from Espresso Royale says he's lucky to see a 4 percent net profit. Personally, I'm feeling lucky Ann Arbor has so many choices of great coffee.
Soothslayer
Sun, Dec 5, 2010 : 12:06 p.m.
So.. save up and get a top rated Rancilio Silvia consumer espresso machine that will easily last 5 years or more and pays for itself in less than a year http://coffeegeek.com/reviews/consumer/rancilio_silvia. Even the coffee "snobs" at Coffee Geek have a hard time finding the difference between this machine and ones costing 2 - 4x as much. Sure you have to still buy and grind your own beans but you'll still save alot of time and $ especially in the long run even if you have to put on some high interest credit card. Factor in the cost of your trip & time and I bet it will pay for itself much sooner. I take pride in my brew.
ribs1
Sun, Dec 5, 2010 : 11:56 a.m.
Debling, $2.75 is the price for raw green coffee beans. Do you think coffee roasters have not other expenses? For starters that have to pay the interest on the loan they took out to buy their $100,000 roasting machine. Come on
debling
Sun, Dec 5, 2010 : 11:04 a.m.
Even at $2.75/lb for coffee beans, they sell this in bulk for $7 to $13/lb. Pretty healthy margin I would say. That's just bulk coffee. A lb of coffee makes about 22 1/2 Grande sized drinks at about $1.85 that gives you just over $41 in revenue for the $2.75 in raw materials. So it seems to me the cost of beans makes no difference since the profit margins on the drink are ridiculously high to begin with.
DFSmith
Sun, Dec 5, 2010 : 11:03 a.m.
@Andy- if like some of us, you like espresso or espresso-based drinks, it is next to impossible to make a well pulled shot at home, unless you invest a lot of money. Hence, for us folks, going to Comet Coffee is a less expensive option.
Soothslayer
Sun, Dec 5, 2010 : 10:23 a.m.
I get fair trade beans from Sams & make coffee at home. No offense to the java social butterflies but I ever got the aspect of having to be somewhere else for coffee, seems like alot of wasted effort, expense and energy.
Patti Smith
Sun, Dec 5, 2010 : 10:16 a.m.
I maybe shouldn't say this, but I'll pay whatever I gotta pay for my Roos Roast. Caffeine is a (darn tasty) drug, I'm addicted! So sorry GMAC Mortgage company (or whoever owns it this month), your payment may be late!* (* Just kidding...I hope :))
DFSmith
Sun, Dec 5, 2010 : 10:14 a.m.
I buy my coffee from Comet Coffee, located inside Nickels Arcade. I havent noticed them raising their prices on either the brewed coffee or the coffee beans they sell.