Coffee price hikes will bring tough wake-up calls

Coffee drinkers are facing a tough wake-up call: Retailers are finding it increasingly difficult to hold the line as rising commodities prices percolate through the system.

At the Coffee Tree Roasters shops in metropolitan Pittsburgh, Pa., prices have just increased for the first time in at least two years.

"We held out to try to see where the market was going to settle out," said Bill Swoope, co-owner of five coffee shops as well as Iron Star Roasting Co., a wholesale roaster in West Mifflin.

In the past year, the price of a pound of coffee beans has more than doubled on the commodities market in New York, to $2.23 a pound Thursday. Roiled by everything from changes in the Brazilian crop to the cost of transportation from Africa to increasing demand from a growing middle class in China and India, the fuel of choice for many has become so precious there are reports of thieves stealing containers of beans at ports or even stripping trees in the fields.

No matter where restaurants, cafes or grocers source their coffee, they're all bound to feel the impact. "The market pushes prices even for fixed contracts," said Swoope, who plans to raise his wholesale prices in June.

Unlike rising gas prices, coffee prices aren't visible on big signs on every street corner. And those who sell coffee have dealt with the spike differently.

But since last May, the J.M. Smucker Co. has announced three rounds of price hikes -- a 4 percent increase followed by a 9 percent increase and then a 10 percent increase -- on its Folgers and Dunkin' Donuts packaged coffee products. Kraft has been raising prices on its Maxwell House brand.

The bean counters at the Eat'n Park restaurant chain in Homestead limited themselves to a 10-cent increase on a cup of coffee earlier this year. The company's purchasing team is betting that supplies will ease and costs will return to more reasonable territory; indeed, last week's trading prices have backed off slightly from the highs.

"If you raise your price a lot, people ... think you're more expensive" on everything, said Kevin O'Connell, senior vice president of marketing. Eat'n Park serves nearly 7 million cups of coffee each year, excluding free refills.

Sorting out the impact of rising coffee prices from the overall economic slump may be difficult, said Rich Westerfield, who co-owns Aldo Coffee in Mount Lebanon. Many people who used to get a big latte have already downsized to the small in the past couple of years.

It doesn't help that coffee has become a poster child for unnecessary expenditures.

"You have every financial analyst out there saying, 'If you want to save money, cut out the latte,'" Westerfield pointed out. "Why not cut out a bottle of water?"

Despite higher prices, cutting back on caffeine might be even harder than cutting back on gas. Coffee ranks as the top hot beverage among convenience store customers, according to 2008 data from the National Association of Convenience Stores. It quotes data from major coffee associations indicating more than 150 million Americans drink it daily.

The coffee category accounted for more than $3.9 billion in sales in the 52 weeks ended in mid-April, according to SymphonyIRI Group, a Chicago-based market research firm that tracks sales from U.S. supermarkets, drugstores and mass-market retailers. The numbers do not include sales through Wal-Mart, warehouse stores or convenience stores.

That total sales figure represented an 8 percent increase in dollar sales over the previous year, but a mere 2.3 percent gain in unit sales.