x Abu Dhabi, UAETuesday 25 July 2017

Price of coffee to rise in the UAE

Retailers expect to raise the cost of a cup of coffee by Dh1 before the end of the year as the supply chain from roaster to outlet is squeezed.

Retailers are expected to increase the price of a cup of coffee by Dh1 before the end of the year.
Retailers are expected to increase the price of a cup of coffee by Dh1 before the end of the year.

The price of a morning caffeine fix is set to rise again as demand for coffee continues to increase and supply is hampered by poor harvests around the world.

Retailers across the Emirates expect to increase the price of a cup of coffee by Dh1 before the end of the year as the supply chain from roaster to outlet is squeezed.

Richard Jones, the managing director of Coffee Planet, said prices for arabica coffee had risen 125 per cent in the past year.

"There's an inevitability that at some point the consumer is going to have to pay," he said. "The price graph has gone vertical in the last year." Coffee Planet has six stores across the Emirates and outlets in Adnoc, Enoc and Eppco petrol stations that total more than 140.

The company also acts as a roaster and wholesaler from its factory in Jebel Ali.

Mr Jones expects to increase the price of a cup by Dh1 across his company's whole range of drinks, after margins shrank on the wholesale side of the business.

"If you are working on lower margins, you have to pass some of that on to the customer," he said.

The price of coffee is being forced up to record highs globally on the back of higher demand, tighter supply and increased trading by speculators.

As the standard of living in emerging countries such as China and other Asian nations improves, more coffee is being consumed rather than other hot drinks such as tea.

The International Coffee Organisation estimates global coffee prices increased 80 per cent last month from the same month a year earlier, while consumption rose 2.4 per cent to a record 134 million 60kg bags last year. But production from Central American countries has been in long-term decline, while Colombia has experienced lower-yielding crops in recent years.

Experts also predict dry weather conditions in Brazil, the world's largest grower, in the coming months, which could also affect crop yield and global supply.

Marwan Kandeel, the senior brand manager for Cinnabon and Seattle's Best Coffee in the UAE, said the price of coffee at his chains had increased by Dh5 in the past three years and he expected prices to go up again by about Dh1.

As the franchisee for the coffee brands, Mr Kandeel is using a number of strategies to manage the increasing cost base as a proportion of revenues.

"One strategy for such impact is to expand the stores, so that the higher volume makes up for the lower margin and we can use economies of scale," he said.

With 22 Cinnabon and nine Seattle's Best Coffee outlets in the UAE, the brands are trying to offer a wider range of products, such as fruit juices and children's drinks.

Mr Kandeel is in the process of trying to negotiate a fixed price for five years from suppliers in return for a commitment to buy a certain amount each year.

"We used to buy for Dh80 [US$21.78] a kilogram, now it is Dh125 and we are asking for Dh110 for five years," he said.

 

rjones@thenational.ae