Skyrocketing Coffee Bean Prices... Coffee Industry's Hidden Struggles Unable to Raise Prices Even by '100 Won' [Why & Next]

Drought and Heatwave Cause Robusta Prices to Soar
Cost Burden Increases but Prices Can't Rise for Fear of Losing Customers
"Low Loyalty and High Price Sensitivity for Low-Cost Coffee"

Ultra-low price coffee. Photo by Hyunmin Kim kimhyun81@

As droughts and heatwaves cause global coffee bean prices to soar, the domestic coffee industry is facing an emergency. Although the cost burden has increased sharply, fierce survival competition makes it difficult to raise prices easily. Especially for low-priced coffee, consumer price sensitivity is high, and with many alternative franchises available, even a 100 won increase is challenging. These companies intend to endure as much as possible through 'economies of scale,' but with coffee bean prices expected to rise again next year, a price hike seems only a matter of time.

Even Robust Robusta, Strong Like Weeds... Coffee Bean Supply Disrupted by Abnormal Weather

According to the Korea Agro-Fisheries & Food Trade Corporation (aT) Food Industry Statistical Information on the 17th, the price of Robusta coffee beans based on the London International Financial Futures Exchange (LIFFE) reached $4,583 per ton. It surged 52.26% ($573) this year alone, setting a record high. The price of Arabica coffee beans also rose 52.0% from the beginning of the year to $5,338 per ton based on the New York Board of Trade (NYBOT), marking the highest level since 2022.

Price increases for Arabica beans, used in premium coffee, have occurred occasionally before. However, the industry finds it unusual that the price of Robusta beans, the main ingredient in instant coffee, has surged due to supply shortages. Unlike Arabica, which is vulnerable to pests and diseases, Robusta grows like weeds regardless of region.

However, major coffee-producing countries such as Brazil, Vietnam, and Indonesia are suffering from severe droughts and heatwaves, causing supply disruptions even for Robusta. According to the International Coffee Organization (ICO), Vietnam, the world's second-largest coffee producer, saw a 46.8% decrease in coffee bean shipments in May compared to a year earlier.

Additionally, prolonged war has increased maritime freight costs, sustaining the high coffee bean prices. The route using the Suez Canal is effectively blocked due to attacks by the Houthi rebels.

'Arabica and Arabica are Necessities'... Concerns Over Coffee Price Hikes Among Consumers in the 'Coffee Republic'

The surge in coffee bean prices is a critical blow to South Korea, known as the 'Coffee Republic.' According to Euromonitor, last year, the annual per capita coffee consumption in South Korea was 405 cups, more than twice the global average of 152 cups. Consequently, domestic consumers worry that coffee prices, which have become a small but certain happiness (sohwakhaeng) and a necessity in this high-inflation era, might rise.

In fact, the rise in coffee bean prices has deepened concerns about price increases from instant coffee to coffee franchises. Lotte Nestle already raised the prices of instant coffee products such as Nescafe Supremo Americano and Supremo bottle (100g), as well as powdered drinks like Hot Choco Original One Cup, by 7% starting from the 1st of this month. This was the first price increase in 1 year and 5 months since January last year, prompted by rising costs. The low-priced coffee franchise The Venti raised prices on seven menu items, including cafe latte, by 200 to 500 won in April.

Industry Leaders 'No Plans to Raise Prices Yet'... A Game of Nerves Over Losing Low-Loyalty Low-Priced Coffee Customers

However, major high-end franchises such as Starbucks, Twosome Place, and Hollys, along with instant coffee leader Dongseo, and mid-to-low priced franchises like Ediya, Compose, and Mega Coffee, have stated that "there are currently no plans to raise prices."

The reason for delaying price hikes despite increased cost burdens is fierce competition among companies. In the coffee industry, where price sensitivity is very high, being the first to raise prices could risk losing customer goodwill and cause sales to plummet.

According to aT, as of the end of 2022, there were nearly 99,000 coffee and beverage shops in South Korea, more than doubling in size over four years. It is estimated that the number has now exceeded 100,000. It is already a familiar sight to see several low-priced coffee shops crowded together in a single knowledge industry center.

An industry insider explained, "Coffee is both a luxury and a necessity, but with so many alternative brands, it is difficult to announce price increases to consumers who prefer cost-effective coffee in this high-inflation era."

Enduring Through Economies of Scale... Coffee Bean Prices to Rise Again Next Year

Large franchises are trying to minimize price increases by leveraging economies of scale and in-house roasting. An Ediya Coffee representative explained, "Since we import coffee beans and roast them directly at our Dream Factory in Pyeongtaek, Gyeonggi Province, we can somewhat suppress price increases compared to companies that purchase roasted beans." A Mega Coffee representative also said, "While it is difficult to control international coffee bean prices, we are making efforts to reduce the cost burden by utilizing our large consumption volume." A Compose Coffee representative added, "We manage everything from green bean import to roasting and distribution at our own roasting factory, enabling a more stable supply of coffee beans compared to other companies."

However, with coffee bean prices expected to continue rising next year, a price increase is highly likely. Giuseppe Lavazza, chairman of the Italian coffee brand Luigi Lavazza, recently told Bloomberg, "(The sharp rise in Robusta prices due to poor harvests) is unprecedented in industry history," adding, "Above all, this phenomenon is expected to last a long time."

Since it usually takes about six months for international coffee bean prices to be reflected in coffee prices, cost burdens for companies are expected to increase further in the second half of the year. An industry insider said, "As coffee bean prices continue to rise, the possibility of price increases is being discussed internally," adding, "We will decide on whether to raise prices considering exchange rate trends along with coffee bean costs."