Retail price fluctuations up and down or only up?

the business of coffee houses

Retail price fluctuations up and down or only up?

Postby phaelon56 on Wed Mar 09, 2011 6:01 pm

I'm well aware that coffee retailers often absorb the periodic wholesale price increase of beans repeatedly over time and only infrequently adjust their retail prices upward to compensate. My guess is that customers are more accepting of such increases than the average retailers thinks they might be (even if they grumble the first time they see the new price - few of them start going elsewhere.)

Given that in other industries - gasoline, food, etc. - retail prices have a tendency to change more rapidly based on commodities cost and also tend to go down when wholesale prices drop (beef and gasoline are good examples) and then rise when wholesale prices increase... have any of you ever tried... or seen another retailer experiment with... keeping retail prices at a level that builds in a certain desired percentage of gross and net profit? In other words - although there are menu boards and web site prices to change - why is it that in the retail coffee industry there's a tendency to wait, wait , wait and finally raise prices when we have to... but then no one lowers them when the wholesale prices go back down. A year or two back the wholesale price of coffee was lower than it had been a few years before yet and there have been many wild fluctuations in C price over the years, yet I don't recall ever seeing a retailer who lowered prices when the C price dropped significantly - only raised it begrudgingly after absorbing the increase for too long.

Is it just too much trouble to do this?
Owen O'Neill
Syracuse NY

Phaelon Coffee
and
New York Central Coffee Roasters
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Re: Retail price fluctuations up and down or only up?

Postby Jimmy Oneschuk on Sat Mar 12, 2011 5:56 pm

I wonder, have prices ever climbed so high in such a short period of time, that any change in price could be so significant as what is happening?

I would also say there are significant differences in the North American market versus the European market: if there is a price increase, if/when prices do go down again - if the consumer is willing to buy coffee at a higher price, might this enable artisan roasters to source a higher volume of even better quality coffees?

Of course, I am speculating/generalizing and could very well be wrong, but it seems to me the north american market is far from the type of maturity of the EU market, but I am trying to see "opportunity in crisis."
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Re: Retail price fluctuations up and down or only up?

Postby Jimmy Oneschuk on Sat Mar 12, 2011 6:09 pm

The other consequences of pricing change I'm wondering about is this:

-if we keep buying same level of quality and pass on the cost
-if we buy a higher volume of a lower quality coffee in an attempt to maintain margins without raising price

The problem I see in the latter, especially given reports that incentives to produce quality is going down in light of the relative ease to obtain a good price, is in some ways it is more important than ever to source the highest level of quality.

Are there any strategies other than simply raising prices? What sort of price increases have been happening at the cafe level?
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