Restaurants make a lot of their money from the drinks they sell, so some might feel a little skittish when the cost of serving one of their more popular drinks, namely coffee, goes up. This is why there is a little anxiety in the air now that news is coming out of Central America concerning the health of their coffee plants.
The Arabica plant has been a major source for our beloved coffee for centuries, but it is susceptible to a nasty little fungus called Hemileia vastatrix, a vicious disease that weakens the coffee plants and decimates plant yields. This fungus was a big reason that Sri Lanka’s coffee economy went under in the 1870’s. And the same rust hit Guatemala and other Central American countries in 2012, ruining coffee harvests in record numbers. According to a report on NPR, it has affected 70% of the coffee growing farms in Central America. One farm went from producing 140,000 pounds of high-quality coffee beans in 2013 to harvesting only 28,000 pounds in 2014.
There has been some pushback according to the World Coffee Research organization: the coffee industry has been promoting replacing traditional Arabica plants with F1 hybrid plants that can resist the fungus. However, this fungus is wily and scientists believe that it can evolve to infect the hybrids in 5 to 10 years.
The Effect On Restaurants
This has been devastating to coffee farmers, of course. It has cut deeply into their livelihoods. And problems like this have a ripple effect: restaurants make a considerable amount of their profit off of (inexpensive to make) drinks. Currently, a pound of coffee beans sells for $1.22. According to the Specialty Coffee Association of America, you can get 48 6-oz cups of coffee out of a pound of coffee, so each cup costs you roughly $0.25 to make. That’s a decent profit margin for something that Americans will order a ton of and regularly pay more than a dollar per cup for. If you own a coffee shop that makes 40% of its revenue from selling coffee, that’s a big chunk of change. But you don’t have to be a coffee shop to need that profit margin: the sale of the cup of coffee is one of the places where you make up money for loss leaders and rising labor costs.
If coffee harvests continue to drop, restaurants could be looking at a spike in coffee prices. Actually, the prices are already on the rise: however it is still not historically high. As recently as September, 2014 coffee was selling for over $2 per pound significantly higher than it is today.
How Your Restaurant Can Prepare For Trouble
As anyone who tries to sell anything can tell you, the solution to something being more expensive to make isn’t always to jack up the price of the item. Well, it’s an option, of course. You can slide the price of a cup of coffee up a couple of cents, but there is a risk of scaring away customers if you slide it up too much without providing a good reason. There is a market price that customers are accustomed to paying, and they will get fussy if they perceive that they are paying a lot more than normal. So, what can you do if the price of making a cup of coffee starts to climb?
- If you are located in a upper-class market consider upgrading your coffee program with higher-end coffee. If you don’t already have an espresso machine then consider purchasing or leasing one to open up many new coffee options. If customers see a price hike coming along with a much higher value proposition (better coffee and more interesting drinks) they won’t balk at the price increase as much.
- Consider adding other coffee alternatives to move some of your customers away from this higher cost product. While getting anyone to re-consider their cup of joe in the morning may seem impossible; there are many other trendy drinks you could interest them with. Matcha and Chai teas are popular caffeinated alternatives that consumers could be interested in with a proper nudge.
- Evaluate your coffee source and check out alternative sources to see if someone is selling the stuff for a more reasonable price. Getting the best deal that you can now, especially if you can lock in a long-term rate can help you keep your costs more consistent.
- Serve coffee in smaller cups. Were you serving it in 8-ounce mugs before? You can charge the same amount for a 7-ounce mug and use fewer beans. This suggestion should be taken with caution as customers do not like when items are sized-down – especially when it comes to their caffeine. However, this can still be useful if you’re trying to keep a certain price point and you still offer the larger format for an increased price.
- Re-evaluate your method of making coffee. Can find a more efficient coffee maker? Make smaller batches at the end of the day to cut down on product thrown out? Evaluating your processes to see where they can be improved can be especially important when costs are rising.
A warning here: don’t get carried away with cutting corners. You have to serve a quality product to your customer to keep them coming back, and this, as we have said before, is especially true with coffee. With good management, we can all survive the fungal invasion in Central American with our profit margins intact.