Tight Supplies Not Deterring Growth of Coffee Shops

The following post contains more information about the Reuters report on rising coffee futures and its impact on the coffee industry: Last Saturday, we discussed how fierce competition in many mature markets has managed to keep prices for coffee down in spite of rising costs. Nevertheless, there is no such thing as a free lunch: someone has to pay, sooner or later. In this case, it is the coffee roasters that have suffered the worst drop in revenue. To cite one example: Germany's largest coffee roaster Tchibo said last month that surging coffee costs are likely to cut its profits this year.

The Reuters story goes on at some length to discuss how tight supplies have driven the cost of arabica coffee on the International Coffee Exchange to the highest level in 34 years earlier this month, peaking to a record high of $3.089 per pound. It has since fallen slightly to around $2.68 a pound but remains at double the level traded a year ago. Coffee supplies have struggled to keep pace with demand, with a number of key coffee-producing countries reporting smaller crops.

All this is not deterring many large retail coffee chains from embarking on their expansion plans in many countries around the world. Teddy Esteve, Chief Executive Officer of ECOM Coffee, a trading and processing house based in Mexico City, does not expect high coffee prices to stall the growth in coffee house chains. "I don't think the prices of coffee have an impact on the growth of coffee shops," he told Reuters earlier this month. "Those that plan on growing will not stop because of a momentary blip in coffee prices."