Luckin and Starbucks have raised prices, how come the "spiritual food" of workers is getting more and more expensive?

Source: Financial Breakfast

There is no doubt that in China, coffee has changed from a niche spiritual and cultural consumer product 20 years ago to a disposable mass consumer product.

For workers who are sleepy every day, caffeine has become a daily must-have "spiritual food" for stimulating nerves.

In addition to large expenses such as rent and catering, coffee has become one of the indispensable consumption of workers.

However, the price of this "food" is rising silently.

Three chains of coffee shops have raised prices

At the beginning of January, the Canadian coffee brand Tim's made a 1-2 yuan adjustment to 9 products in Chinese stores, and some SKUs in some Starbucks cities rose by about 2 yuan, taking large cups of coffee as an example, American coffee rose from 28 yuan to 30 yuan, latte coffee rose from 32 yuan to 33 yuan, and Fu Rui Bai rose from 37 yuan to 38 yuan.

Shortly before that, Luckin Coffee also raised the price of coffee products on takeaway channels by 3 yuan.

The customer service of Starbucks, Luckin Coffee and Tims all said that the price increase was decided after comprehensively considering operating costs and other aspects:

• Starbucks customer service said that the pricing was formulated after a comprehensive assessment and consideration of various factors such as operating costs. This time, only the pricing of some drinks and foods has been adjusted.
• Luckin Coffee customer service said that the price adjustment is a normal operational policy adjustment. In view of the two different consumption scenarios of delivery and self-pickup, the company comprehensively considers factors such as production and operation, manpower, rent, distribution, etc., and makes certain adjustments to the delivery price.
• Tims customer service said that after comprehensively considering the current market operation, a small number of products have been adjusted.

The wind of coffee price increases has also blown to South Korea.

As the single market with the largest per capita coffee consumption in Asia, Koreans have ushered in the most expensive moment of coffee: a number of coffee brands led by Starbucks have adjusted prices in the Korean market, and it is reported that the price of some Korean Starbucks stores will rise by about 2 yuan (RMB).

It is worth noting that this wave of price increases has surprised some Korean consumers, because the last time there was a price increase in the Korean coffee market was 8 years ago.

While some coffee brands have increased prices, COSTA, as a coffee giant brand, has no obvious price increase in coffee products. This may be related to its own coffee production line and roasted coffee bean factory, which can control costs from the source.

Coffee getting more and more expensive

However, this wave of price increases is probably just the beginning.

In releasing the first quarter of fiscal 2022, Starbucks CEO Kevin Johnson revealed on a conference call that the price increase in 2022 "will be more than once."

He bluntly said that the inflationary pressure and staffing problems brought about by the epidemic "greatly exceeded our expectations", and although the price increase could not reverse the unfavorable situation of the economic and consumption environment, it could pass on the impact of rising costs on performance to a certain extent.

As the coffee giants say, the cost of raw materials is rising all the way, and the reasons behind it can be mainly divided into two points:

First, the relationship between supply and demand has changed, and the second is the weakening of commodity circulation under the influence of the global epidemic.

Coffee consumption in many countries is growing rapidly, especially in China. In the case of increasing consumption rate, the global total output does not increase by a corresponding margin, which will inevitably lead to the phenomenon of short supply.

Over the past five years, coffee consumption in Asia has grown by 1.5 percent, compared with 0.5 percent in Europe and 1.2 percent in the United States, according to the International Coffee Organization, making Asia quickly the center of gravity of the coffee world.

From 2016 to 2020, the scale of China's freshly ground coffee market continued to grow, reaching 58.8 billion yuan in 2020, an increase of 6.5% over 2019.

According to deloitte's White Paper on China's Freshly Ground Coffee Industry, by the end of 2020, the total number of cafes in China exceeded 108,000, mainly in second-tier cities and above.

Shanghai's data epitomizes China's coffee market: as of the end of 2020, Shanghai had 6,913 cafes. According to Dianping data, as of 2018, there were more than 7,500 cafes in Shanghai.

In the context of high demand, the output of coffee shops has not increased but decreased.

According to the U.S. Department of Agriculture, the double whammy of drought and frost caused a 14 percent cut in global Arabica coffee production last year, and inventories of coffee certified by the Global Intercontinental Exchange (ICE) fell to a low of 1 million bags in the past decade, reflecting the very tight supply and demand reality of the global coffee market.

From the perspective of production capacity, the global coffee bean production in 2021 is the lowest state in more than 8 years, affected by factors such as futures and large orders, this capacity shortage will not be "immediately" reflected to the terminal store, but from the second half of 2022 to 2023, C-end consumers are likely to feel a more obvious "sense of price increase".

At the same time, the rise in sea freight prices and air freight prices has further fermented the impact of brazil's coffee bean production reduction. The head of domestic second-tier coffee brand procurement said that some Brazilian supplies have made domestic brands "prohibitive".

Recent data from Ethiopia, Africa's largest producer of Arabica coffee beans, showed that the country's total coffee exports far exceeded expectations. According to statistics from the relevant departments in the country, the price of some exported coffee beans has reached the highest point in nearly a decade.

The price of Arabica coffee beans has risen to $2.59 a pound, a 10-year high. The Arabica coffee bean offer on the Intercontinental Exchange in New York has reached about 4 times the spring of 2020.

"A large part of Brazilian coffee beans are supplied to the field of instant coffee, as a commodity bean, the cost performance is very critical, the production reduction and sea freight price have been greatly improved, so that some brands can only replace the supplier."

Although the reduction in coffee bean production last year did not have a significant impact on the domestic market, at the same time, with the rise in maritime and air freight prices, it is bound to put pressure on the procurement of coffee brands, especially small and medium-sized boutique cafes.

Compared with giant brands, small and medium-sized boutique cafes rely more on the demand for coffee bean raw materials, if the quality is maintained unchanged, they may face problems such as sharp decline in revenue, and more brands are trying to increase the unit price of customers through the combination of coffee and light food, thereby solving the problem of high cost and insufficient income.

According to industry insiders, most of the first-line brands have completed their 2022 orders in the second half of 2021, "The coffee inventory of brands such as Nestlé is very sufficient, and there will be no shortage of coffee beans." ”

But in 2022, the whole industry is likely to adjust prices universally, because the overall price of coffee beans and key raw materials such as sugar and paper is rising, and in order to cope with the new cycle of rising costs, the whole industry will make adaptive changes.

As early as May last year, CCTV Finance published data saying that the "FAO Food Price Index" climbed to the highest level in 10 years.

Of course, there are also some coffee bean origins that have tasted the sweetness due to the wind of price increases.

Some Yunnan coffee bean traders said that the purchase price of coffee beans this year is about 30 yuan / kg, up 36% from last year. "On the one hand, there are more people harvesting coffee beans this year, on the other hand, there may be a decrease in production, and some coffee farmers have reported that this year is not very fruitful, which may be affected by natural conditions such as rain."

Is there another reason for the price increase?

While the price of coffee beans has risen significantly, this is not the only reason why these brands have raised the price of their products. Especially for the stores of chain coffee brands, the proportion of coffee raw material costs is not large.

Based on the need for 10 grams of coffee beans per cup of coffee, from January 2020 to the present, the price of the US C-type coffee futures has risen from about 15.33 yuan / kg to about 34.83 yuan / kg, and the cost of sharing to each cup of coffee has risen by about 0.195 yuan.

As we mentioned above, several coffee giants have raised prices at about 2 yuan, which is much higher than the cost of each cup of coffee.

This is because in China, the coffee market has gradually become a very competitive market. Many new players emerge every year, but it is unknown whether demand will rise in tandem.

There are more and more coffee shops in China, it is more and more difficult for enterprises to think of a monopoly, as the income of the store decreases, it may only be necessary to increase the price of a single cup to stabilize the income of the store and maintain a good growth figure.

In Shanghai, a well-known coffee chain upstart has begun to try to "sell light food" and try to increase the "depth of payment" and increase the unit price of customers through the model of meal + coffee.

In Beijing, since October 2021, a number of coffee brands have begun to focus on grabbing the "point" of the hall on the first floor of the office building, and trying to develop a "new" store model: borrowing the flow of commuters to sell low-priced coffee + fast food. This model has even become a craze and is seen as the direction of the future evolution of "small shop high ping effect".

At the same time, there are also many players entering the coffee market on the tea drinking track, which adds a lot of pressure.

In 2021, head brands such as Neixue and Xicha have entered the coffee field, and even some coffee products have sold more than similar products of pure coffee brands. In the field of raw materials and talents, the newly emerging tea upstarts are "competing head-on" with coffee brands.

Even on the same day that Starbucks rose in price, the entry "the country's first post office coffee shop officially opened" appeared on the hot search list. According to the Xiamen Post WeChat news, the post office coffee shop landed in Xiamen International Trade Building and officially opened on February 14.

Items of sale include coffee, tea, desserts and post office areas. Post Office Coffee will transform and upgrade the original Guomao Postal Branch, and superimpose coffee drinks and postal cultural creative services on the basis of retaining universal postal services to create a new scene of experiencing postal culture.

It is understood that in 2022, post office coffee will successively open a number of special post office coffee shops in beijing, Shanghai, Guangzhou, Shenzhen and other first- and second-tier cities.

In this context, the coffee giant's price increase seems to be a helpless choice, but whether consumers are willing to pay all the time is still unknown.