Retailers already are feeling the effect of a frost that damaged coffee crops in Brazil -- and consumers soon will be.
Supermarket executives contacted by SN last week said the jump in wholesale prices brought on by the frost is forcing them to pass increases along to consumers. They added that they expected the change to negatively impact consumption.
They will try to cushion the shock to shoppers, however. Retailers said that while they've been hit with instant price hikes, they are likely to ease retails up more gradually, especially since coffee prices had been climbing prior to the freeze, due to a tight supply situation.
Bill Vitulli, vice president of government and community relations for Montvale, N.J.-based A&P, said that all the major coffee manufacturers increased their wholesale prices. "They just couldn't absorb it, so they passed it on -- immediately.
"In the last three or four weeks, the wholesale cost has gone up to $1.95 a pound. And not too long ago, it was under a dollar a pound. "And at retail, we're not in a position to absorb these [hikes] either and yet, at the same time, we have to remain competitive," said Vitulli. "So I guess we're all watching one another and moving slowly. We'll have to absorb part of it, before we release the full impact of these increases."
But Vitulli added he thought consumers are aware of the problems and expecting an increase. "They watch television; they read the newspapers," he said. "And they see that this is not just a small increase; they see that this is big time.
"One moment we've got a 40-cent increase, immediately followed
up by a 35-cent increase. And it's all due to the freeze."
Phil Schneider, director of grocery for Big Y Foods, Springfield, Mass., said wholesale prices are now up almost 40%. "In the last four weeks, there have been two increases on almost all brands, both instant and ground, including Folger's, Maxwell House, Hills Brothers and Martinson.
"Not only is the wholesale price increasing, but the deals have all been eliminated," he said.
"We will be passing the price increase along to consumers in two ways," he said. On July 4, retail coffee prices showed an increase of 20%. And on July 18, they'll be increased another 20%.
"Starting with the [last week of June], we saw increases from the manufacturers -- Folger's, General Foods and also Nestle Beverage -- that were specifically due to the freeze," said Mike Perry, grocery buyer for Randall's Food Markets, Houston.
"And prior to that, the price of coffee had been going up anyway. So most of the prices at store-retail level are from the previous increase and not from the freeze," he said. "I would assume that there's going to be a little bit of reduction in consumption, just because of the price going up so much."
In Washington, a source at Safeway's Seattle division said that while the hikes are unfortunate, retail hands are tied. "If it costs us more, we pass it on," he said, noting that he expects coffee sales to dip slightly because of the unusually high prices -- even in Seattle where coffee is king.
On the other side of the state, Pat Redmond, the grocery merchandiser for Rosauers Supermarkets, Spokane, concurred that margins are not likely to be sacrificed, although sales could be a very different story.
"It's certainly going to slow the sales," he said. Based on similar events, Redmond estimated sales could fall off as much as 30% to 40%.
When it comes to specialty coffee, Redmond doesn't expect sales to be affected at all, despite the fact that prices have jumped roughly 17% to 20% for that segment as well. "Instead of $5.99, it's going to be $6.99," said Redmond.
"Up to this point, coffee sales had been doing pretty well, especially specialty coffees. Out here at this end of the country, it's a big business to us," he added.
At Save Mart Supermarkets, Modesto, Calif., retail prices have already responded to the frost, said Doug Keller, director of grocery. "The costs have gone up and the price has gone up; we have adjusted at retail."
When asked if he thought consumers would buy less coffee, Keller said, "I don't know, at this point, whether they will or will not. With pricing becoming more of an issue with the consumer, it could have some effect. But from everything I read and hear, people are saying, 'I'm still going to buy my coffee.' "
Some companies reported that they have yet to make a move on prices at retail.
D'Agostino Supermarkets, Larchmont, N.Y., for example, will hold off on prices for now, according to Mary Moore, D'Agostino's director of public affairs.