February 2025
In early January 2025, when most of us are on holiday, and it's typically a "slow news week", our Australian media published many stories about the rising cost of coffee with typical claims of $8 or $10 cups of coffee soon being sold in your local cafe.
Like most media's obsession with triggering outrage via clickbait, these articles deliberately link to their preferred editorial policy - recycling the fear of a "cost of living crisis".
After seeing similar stories many times over the last 20 years, it would have been easy to dismiss and ignore the noise except that the coffee market this time was really on a hellfire and there may be some truth in their predictions.
When mainstream media latches onto a story about the coffee industry, it's normally a few months late to the party, and that's entirely reasonable considering supply chains for coffee operate in 3-6 month cycles, unlike food or vegetable produce grown in Australia which might experience price volatility in timeframes of weeks.
So here we are in early February 2025, and the global coffee index has broken through the unthinkable barrier of 400.
It had been sitting under 200 just 14 months ago.
Raw coffee, imported into Australia for sale to coffee roasting brands, has risen more than 130% in the last 14 months, with 80% of that increase occurring in the previous four months. It's not just the index price of coffee but also the escalated costs and delays of shipping adding to the pain.
The trajectory from November to February has been simply astonishing and scary.
It's added another $10 per kilo to the cost of raw coffee.
Good news if you are a coffee farmer.
Bad news if you are an exporter, importer, coffee roaster, retailer or coffee drinker.
The rapid rate of price increase is trapping all players in the coffee supply chain with contract breaches, payment defaults and a significant shortage of both inventory and liquidity.
We thought the pandemic was tough; however, it's nothing compared to how challenging the coffee industry is now in 2025.
2025 will be the year that breaks the coffee industry - more brands than ever before will go bust or simply give up from trying to survive.
Maybe a more polite way to phrase it is "rationalization".
The global coffee industry is navigating unchartered waters with record high pricing and ongoing shortages of all origins, varietals and types.
Up until late 2023, cheaper coffee was always readily available to those willing to engage in the lower-quality segment, but that option has since disappeared without being replaced by alternatives.
There is no such thing as cheap coffee these days, regardless of how many thousands of tons you might wish to buy - volume is meaningless in this broken market.
Importers have been waiting for the market to cool before they buy more coffee, but it's still largely a guessing game as nobody can read the market.
Importers sit on their hands to mitigate risks of losses from a falling market they suspect is just around the corner.
But that market correction never happens, and Australian Importer warehouses are sitting almost empty from the long uphill run of rising prices, importers reluctant to buy.
Coffee pricing is volatile and, historically, trades up and down based on supply and demand factors, plus a bunch of speculation by futures traders seeking to profit from price movements.
Current coffee price forecasts support the higher for a longer story, which is not entirely good news for the demand side (buyers and drinkers) as trying to push through price adjustment after price adjustment in short intervals is never easy.
Nobody wants to see prices rise, then again next month and the month after - it's intolerable.
For us, @mycuppa, we had to make tough decisions to increase our pricing and optimize our portfolio.
Our February prices do not reflect true replacement costs; we continue offering good value leveraging our buffer stock, which is depleting fast.
However, the raw coffees we purchase today are priced at replacement value by the importer, so by May or June this year, there will be more price increases as our buffer will be gone.
It's an ongoing task requiring review weekly as the global and local outlook changes almost daily. To give you some insight, last week the price of coffee rose 6% in a single 24-hour period.
Why are coffees listed as "Out of Stock"?
Due to global shortages, there is a lack of raw coffee available in Australian importer warehouses. It applies to almost every coffee-growing country, varietal or type.
Historically, importers offered many different origins year-round, spreading container shipments from the exporting countries.
However, with such extreme shortages, many origins have been unavailable for 6+ months and some for almost 12 months, requiring a wait until the next crop (which is never a guarantee).
There are also cases where the quality or price is not sensible for us to source and sell, so we have decided to sit out those coffees until the market recovers.
Today, we are short around 60 tons from our normal contracted position this time of year.
Some sacrifices are unfortunate - blends like Redemption of the Spro and Berry Apocalypse are temporarily out of stock, as are some single origins.
Why are 500g packs not being offered on all coffees?
Good question.
During 2024, we saw a dramatic change in how our customers purchased coffee, with many switching from 1kg packs to the more expensive 500g packs.
Fair enough. But after 17 years of selling coffee online, the reason why 500g pack sales had surged was not obvious or clear.
With a rapidly rising pricing environment and the tougher economic conditions, why are customers willing to pay more for the same coffee?
Really does not make sense.
At first, we thought customers might have been reducing their spending and consumption by downsizing from 1kg to 500g packs.
However, after analyzing a lot of data and validating the results a few times, we found that the average customer order was not less, but in fact containing more coffee, split across many extra 500g packs.
I know this might sound selfish, but for us, making up all those extra 500g packs at a time when it is much more expensive was fighting against our mission to keep our selling prices low.
An empty 500g bag is 12% more expensive than a single 1kg bag. Not only is the packaging a lot more expensive but the labour effort is 300% more, forcing us to roast more batches daily to keep up the supply as it was becoming impossible to estimate the ratio of 1kg versus 500g packs per coffee.
Faced with compressed margins from a rapidly rising ingredients base, higher labour and packaging costs, we had to apply some sensible limits to the availability of the 500g packs for some of our coffees.
For the time being, a limited set of coffees are only available in 1kg pack size and we will not pack or sell those coffees in 500g bags. There are notes relating to this policy on the product page description.
In particular, this will affect most of our Organic lots as our holdings of Organic coffees are much smaller.
@myCuppa, we have always tried our best to offer great value, delicious tasting, freshly roasted coffee shipped fast to your door.
Making thousands of 500g packs each week was sending us broke, forcing us to increase prices and hence lose our competitive advantage, tying us in knots and risking our highly regarded fast order processing speed.
When conditions in the coffee market improve, we will again review our strategy for 500g packs and coffee availability, hoping for a return to normal and offering more choices.
