Wednesday, July 8, 2015

Retail Coffee Prices and Value

This new post in Roast Magazine's Daily Coffee News caught my eye, and I thought the link within it to a group calling themselves Transparent Coffee Trade was of perhaps even greater interest.

The first article lists a composite average retail coffee price among so-called Blue Chip Roasters of $21.94 per pound, while the Transparent Coffee site shows that the (very) few roasters in their roster, most of whom charge retail prices well above the $21.94 per pound average, are remitting about 18-25% of their selling price to their growers.

Meanwhile, the current New York C market spot price is $1.25, Fairtrade (F.O.B.) is $1.60, top-quality green in tiny (home roaster sized) quantities from Sweet Maria's is around $5-8 per pound,  and the small roasters featured at Transparent are reporting paying green prices in the $3.20-4.40 range. (Interestingly - at least to me - the company in their listings paying by far the highest percentage to farmers, a group called Farmers to 40, is paying 40% of their selling price to growers but selling at around $14 a pound - albeit for coffee of obviously uninspiring quality).

Clearly there aren't enough data points in any of these articles to draw any conclusions, but they do make me want to raise a few issues that I don't see getting discussed very much.

One of the most obvious things is that consumers are certainly being asked to pay the price for inefficient buying on the part of small roasters. Setting aside true exotics like Geshas (which are excluded from these surveys anyway) or top-quality Kenya auction lots where there is a direct relationship between cup quality and the green price paid,  any specialty roaster buying full containers and committed to paying farmers well above their cost of production ought to be doing just fine with average F.O.B. prices in the $2-3 range for the bulk of their volume, heading well north of that for small quantities of exotics such as East Africans.

Add in ocean freight, customs, exporter/importer profit, 25% for shrink during roasting and a generous dollar per pound for state-of-the art vacuum packaging in Fresco bags (uncommon except among the larger players) and most roasters should be making double their roasted-and-packaged cost at $10 per pound, or triple that at $15 - which happens to be the average selling price from, for example, Peet's mail order, which certainly buys excellent coffee, has a shrink rate to end all shrink rates, roasts to order and packages superbly.

As a home roaster buying mostly expensive Kenyas and Yirgacheffes and a smattering of top Centrals and Indonesians from Sweet Maria's - and paying UPS freight rates - I still have a roasted cost of well under $10 per pound for coffees that are at least as good as the top Third Wave folks are selling for triple the price or more.

Going from the still-abstract level of price per pound to actual beverage coffee, my wife and I most often brew a 1 liter pot of coffee and share it over the course of a morning. That means I get seven pots (at 65 grams per liter) out of a roasted pound - meaning that if I were paying the "Blue Chip Roaster" average price of $21.94 per pound our coffee habit would cost us $3.13 per day, or $94 a month.

That's nothing compared to a couple with a daily cappuccino-and-pastry coffeehouse habit but it certainly isn't cheap - and it goes a long way towards explaining the immense popularity of good-not-great whole bean coffee (in this case from Lake Atitlán in Guatemala) for $6.65 per pound as found at Costco. Now of course the mega-growth area in Costco and other big box stores is single serve, but  Peet's K Cups are selling for 54 cents each there at the moment and Starbucks Via Instant can be had for about the same price - meaning a consumer could enjoy a full quart of brewed coffee made by these very expensive, packaging-intensive methods for less than $2.50. That doesn't even buy you a single mug of cinnamon-roasted pourover swill at your local Piercings-'n-Beans outlet.

Studies like these two are focused on what percentage of coffee's selling price ought to go to the grower rather than looking at price pie charts that include all of the stakeholders in the transaction - including the consumer. Rewarding farmers is obviously important, but so is delivering value to the consumer. Costco and its key suppliers, from JBR to Starbucks, Nestlé and Green Mountain certainly understand this but there's not much evidence of such sanity on the boutique roaster side of things - which goes a long way towards explaining why the Blue Bottles and Stumptowns get all the fawning press coverage in the world while selling such small volumes of coffee that, at the end of the day, they're just microlot noise in a container-load universe. That's also why most of the PR is about canned or bottled cold brew, insanely expensive microlots of interest only to staff and the press, the latest in ridiculous latte "art" competitions and the rest. Talking about the actual taste and value of coffee is bad business - or at least not the business many folks want to be in.


  1. Great article as usual. I got into a minor twitter argument with a local coffee personality about coffee prices. His original post was regarding the ridiculously high price that “Bulletproof Coffee” is charging to consumers. I thought this was ironic given his alma mater was a large third wave joint and mentioned how the cost of whole bean coffee production is way lower than what third wave joints are selling at. His argument, while valid was rather ironic; the cost of production of wine is way lower than what Chateau Petrus gets for their bottles! The price the consumer is willing to pay for the goods is, in the end fair. True, but that can be said of Bulletproof Coffee too!

    While I understand the economics of consumer demand and it is a valid argument, what bothers me is the breakdown of the retail price paid and what it is going to. A lot of third wave joints market themselves as delivering high prices to farmers and also delivering top quality every step of the way. We both know this isn’t true and it doesn’t even take bar charts to realize that.

  2. I enjoy your posts and wish you would post more often, but I think you're assuming your goals match with that of the "third wave" roasters. You want to see high quality coffee appealing to a mass market. They, on the other hand, are going for what could be called the semi-affordable luxury market. To appeal to such a market, you have to set prices higher to convey the right image of perceived quality and prestige. One example I've seen recently was a roaster on home-barista wondering out loud if he should increase the price of his coffee to see if sales would increase. Personally, I align myself more with your goal of trying to expose more of the general population to better coffee, but I see where the other perspective comes from.

  3. Hi Bob -

    I'm actually enthusiastic about maximum diversification in the coffee market and not particularly hung up on appealing to a mass market. The problem I have with most of the Third Wave places is that the premium price isn't accompanied by actual, measurable premium quality, and in fact the coffee is often much lower-quality than that offered by the better second-wave firms that know how to source, roast and package.

    It would be different if places like Blue Bottle, Intellingentsia and Stumptown (to name some specific names) had better cupping, sourcing, roasting or packaging capabilities than, say, Peet's or Starbucks but they don't - not even remotely. Underneath all of their attitude and absurd prices lies mediocrity and PR fluff.

  4. Hi Kevin! Nice to see you're still with us! For me the maddening thing about pricing and perception is the convoluted business of Fair Trade and Organic certification. You and I know that many of the best greens are not certified, yet are perhaps grown and processed in a very thoughtful manner by growers who treat their workers fairly. But here in the States, educated-yet-ignorant consumers look for those labels, and pay a premium for them. Trying to explain this usually devolves into me saying "It's complicated", or I would need to delve into territory I'm not qualified to speak about. All I know is there is no real quid pro quo regarding price paid and benefit to farmer, nor is there one for certification. Like I said, it's complicated. Meanwhile, I have to have offerings of certified coffees, not because they're the best I can find taste-wise, but because my market here in crunchy land demands it. Oh, and to top it all off, ultimately, in the co-op where I sell most of my whole bean, folks buy what's on sale!

  5. Hi Robert!

    I believe it was W. Edwards Deming, the father of modern quality control in manufacturing, who said "never rely on inspection to achieve quality," and I would say that goes doubly for certification!

    The specialty coffee trade has long since moved on to much more thorough and intimate knowledge of farms and trade models based on direct, personal communication with farmers rather than third-party certifications, but as you pointed out consumers are in general nowhere near as well-informed. At retail, unfortunately, sound-bite or at best bumper sticker length sloganeering ("fair trade" "certified organic") seems to be what works.

    Off hand I'd say why not fight (disinformation) fire with fire and just slap "direct trade" or "farmer fair" on you coffees at retail BUT with a link to your web site where the full, nuanced, complicated story of your sourcing by farm and by country can be told in detail?

    It is indeed sad, and odd, that coffee alone among all beverages is still marketed on a basis where something other than flavor, quality and pleasure is so often put forward as a reason to buy. You don't see that with wine, or with microbrews, or even with artisanal chocolate which is even closer to coffee since it's a third world import.

  6. Speaking of slogans and such... Are the delicious SL28 and SL32 varieties considered GMO's? Dun, dun, dun!