Even in a persistent cost of living crisis, it appears there is one luxury most Australians won’t sacrifice: their daily cup of coffee.
Coffee sales have remained largely stable, even as financial pressures have increased in recent years.
Prices have also changed. Although many of us were upset when prices started rising last year, they have since largely stabilized in the range between $4.00 and $5.50 for a basic drink.
But this might have to change soon. By international standards, Australian coffee prices are low.
Nobody wants to pay more for essentials, especially now. But our independent cafes are struggling.
If we do not properly value coffee, we risk losing the internationally renowned coffee culture we have worked so hard to create and the phenomenal quality of the cup we enjoy.
The cost of a takeaway coffee in Australia has been revealed to be cheaper than international prices despite the cost of making a cup soaring (file image)
Coffee is relatively cheap in Australia.
Our recent survey of Australian capital cities found that the average price of a small takeaway flat white in specialist venues is A$4.78.
But in some international capitals, it is almost double, even after adjusting for local purchasing power parity.
In London, a small flat white costs around AU$6.96. Singapore, 8.42 Australian dollars. In Athens, up to 9.95 Australian dollars.
Australian capital cities rank behind other countries when it comes to the cost of a cup of coffee.
The coffee shop business is getting tougher
In recent decades, coffee prices have not kept pace with input costs. In the early 2000s, after salaries, food costs, utilities and rent, many cafes were making healthy profit margins of up to 20 percent.
The latest data from IBISWorld shows that while Australian cafes’ net profits have recovered from a 2020 drop of 7.5 per cent, they remain well below the average Australian business profit margin of 13.3 per cent. hundred.
For an independent owner running a coffee shop with an average turnover of AU$300,000, this would equate to a meager annual net profit of AU$22,800 once all bills are paid.
What fits in a cup?
Just looking at the cost of the raw inputs (milk, beans, a cup and a lid) the margin could seem lucrative. But they don’t paint the full picture.
The cost breakdown of a takeaway coffee
In recent years, renting the building, keeping the lights on, and paying staff have become much bigger factors in the equation for coffee shop owners, and many of these pressures are not abating.
1. Price of green coffee
Increasingly subject to the effects of climate change, the basic price of green (unroasted) coffee is increasing.
Arabica, the highest-quality bean most likely drunk in specialty coffee shops, is a more expensive raw product. Despite stabilizing from post-pandemic highs, its price is still trending upward. In 2018 it was sold at $2.93 per kilogram, a value that is projected to increase to $4.38 in 2025.
Robusta coffee is cheaper and is the type commonly used to make instant coffee. But a severe drought in Vietnam has just raised the price of robusta to an all-time high, putting pressure on the cost of coffee in general.
2. Milk prices
The price of fresh milk has increased more than 20 percent in the last two years and remains at its peak. This has put sustained cost pressure on the production of our most popular drinks: cappuccinos and flat whites.
3. Salaries and public services
Over the past year, Australian wages have grown at their fastest pace since 2009, which is good news for cafe staff but difficult for operators in a low-margin sector.
Electricity prices remain elevated after significant inflation, but could begin to fall by mid-year.
Specialty vs. Basic Coffee: Why Price Expectations Create a Divide in the Industry
One of the key factors keeping prices low in Australia is consumer expectations.
While many Australians will complain if a coffee shop increases the price of coffee, the average between $4.50 and $5 is still lower than in other countries.
For many people, coffee is a fundamental part of daily life, a marker of livability.
Unlike wine or other alcoholic beverages, coffee is not considered a luxury, or even a pleasure, for which one might expect to pay a little more or reduce consumption in difficult economic times. We anchor ourselves in familiar prices.
For this reason, it hurts cafe owners a lot to raise prices. Being in contact with their customer base almost every day, they are well aware of how much inflation can affect.
But in Australia, a large proportion of coffee companies are also passionate about creating a world-class product using only ‘specialty coffee’.
Ranked at least 80th on a quality scale, specialty beans cost much more than commercial-grade beans, but their production offers better working conditions for farmers and encourages more sustainable growing practices.
Although it is not on par with the wine industry, there are similarities.
High-quality, single-origin beans often come from a single farm and command higher prices than commercial-grade coffee, where cheaper-origin beans are often combined into a blend.
The problem is compounded by Australia’s love of specialty coffee, which costs much more even though Australians expect a cheap cup.
Running a specialty coffee shop can also mean roasting your own beans, which requires a large investment in experience and equipment.
It’s an obvious example of how your suppliers and customers do the right thing. But specialty cafes face much higher operating costs, and when they’re next to a basic-quality competitor, customers are generally unwilling to pay the difference.
Approach price rises with curiosity, not defensiveness
When cafe owners raise prices, we are often quick to accuse them of selfishness or profiteering. But often they are just trying to survive.
Given the quality of our coffee and its global reputation, it should come as no surprise that we will soon be asked to pay a little more for our daily brew.
If so, we should offer the people who create one of our most important ‘third spaces’ kindness and curiosity about why.