The £5 Coffee Is Coming – but Should We Swallow It?

The era of the £5 coffee is upon us, with prices in London branches of Black Sheep Coffee, a nationwide chain, and many London coffee shops offering drinks at prices upwards of £4.50. This trend is expected to continue in the next five years, according to Jeffrey Young, CEO and founder of the Allegra Group.

The coffee industry is facing a perfect blend of factors, including low beans, adverse weather in Brazil and Vietnam, and rising inflation in the UK. The Red Sea being blocked has led to low stocks in the US and Europe, and coffee production is likely to be severely affected by the climate crisis. Coffee production is also likely to be severely affected by the climate crisis, with researchers suggesting that it might halve the area of land suitable for growing beans in coming decades.

Inflation in the UK began rising in earnest in early 2021, fuelled by the war in Ukraine, Brexit, and Covid. It peaked at 11.1% in October 2022, a 41-year high, before falling to 3.2%. Coffee shops, which use electricity and raw materials such as wheat, cocoa, milk, and eggs, have been severely affected. The base costs of a coffee shop have gone up by around 20% in the last two years, with equipment, labour costs, milk, packaging, electricity, utilities, and insurance all rising by around 20%.

According to data from the Office for National Statistics, a cup of coffee purchased from a restaurant or cafe in March 2024 is 19% more expensive than two years previously. Consumers are adjusting their habits accordingly, with fewer people buying drinks in-store at coffee shops in October 2023 compared to the previous year. However, more people are buying takeaway coffees from kiosks and drive-throughs, which tend to be cheaper.

In conclusion, the era of the £5 coffee is upon us, with prices in London and the rest of the UK following suit. The coffee industry is facing challenges due to factors such as low beans, adverse weather, and rising inflation.

The coffee industry has been seen as recession-proof due to its low-spend, but the increasing spending means that it is no longer bulletproof. Independent coffee shops, such as Paul Ashby’s Bogota Coffee Co in central Milton Keynes, are facing financial difficulties due to their lack of cost controls, marketing reach, and footfall locations. Independent operators often struggle to make money, as they lack the economies of scale of large-scale operators and the marketing reach of larger chains.

Many chains have put up prices above inflation in recent years, sometimes by startling amounts. Well-established brands with strong pricing power have been able to raise menu prices without losing market share, particularly among 16- to 34-year-olds who are willing to pay more for their favorite brands like Costa Coffee and Starbucks. According to data collected by the coffee retailer UCC, a medium latte in Buckinghamshire branches of Starbucks went up from £3.20 in January 2023 to £4.50 in January 2024, a 40% increase.

The Bogota Coffee Co remains profitable because it has a well-established customer base and is on top of his costs. They know exactly how much to put out on the counter every day and how much milk to order. However, even the most well-operated and beloved coffee shops can founder. Sharon Henderson, 44, from Kingswinford, near Dudley, opened the Red Cone Coffee House in Wordsley in 2013 and had previously owned and sold a successful cafe in Kinver.

The Red Cone was within a heritage attraction and relied on tour groups, which Covid decimated. Then came the cost of living crisis, which led to a tripled electricity bill and a single egg going from 6p to 20p. Henderson’s electricity bill tripled overnight, and a single egg went from 6p to 20p. She couldn’t pass those increases on, so she always absorbed the costs. She put up prices, but there was a ceiling to what customers were prepared to pay. To make matters worse, renovation work began at the heritage site and scaffolding put off customers.

In January 2024, Henderson took the heartbreaking decision to close the Red Cone, feeling “like a failure. It’s soul-destroying.” She had to tell her staff they no longer had jobs, which she felt “like a failure. It’s the worst thing.”

Coffee has a long history in the UK, dating back to the 1650s when coffee houses arrived in England. However, they disappeared in the late 18th century and were replaced by pubs or private clubs. A revival with Italian-style coffee bars in the 1950s followed, but it wasn’t until the 1990s that coffee shops took off again in the UK, led by chains such as Starbucks. Independents pioneered Australian-influenced drinks like the flat white and began procuring specialty beans.

According to the Allegra Group, there are now more than 22,000 coffee shops in the UK. However, sometimes the experience falls short, such as poor staff, cold coffee, and dirty tables. This can turn a restorative ritual into a frustrating experience, especially if the drink is expensive. As price rises force customers to think carefully about where they spend their money, independent places may take their foot off the gas.

Independent places cannot survive without their regulars, and larger chains can afford unhappy customers as attrition is priced in. When the best coffee shops are about atmosphere, the hiss of the milk steamer and the conversation drifting from other tables are essential. Customers go to a coffee shop to buy the experience of being in a coffee shop, and when all that is stripped away, even the creamiest latte will leave a bitter taste in their mouth.

When done well, coffee shops are vital community spaces, where for a few pounds, mothers with prams, pensioners, and office workers can meet and talk. They are not just about having a nice place to go, but about coming in and feeling welcomed. The £5 coffee is coming soon, and when it arrives, coffee shops may not seem like extensions of our living rooms but more rarefied spaces, like restaurants or bars.

Customers are not ready to pay £5 daily for a regular coffee, and if they do balk, more well-loved independents like the Red Cone will falter. If we don’t support independent businesses, they will be gone. In an era of capsules, sachets, and worktop espresso machines, with high-quality coffee easier than ever to make at home, whether the neighbourhood coffee shop will survive the dawn of the £5 coffee remains to be seen.

Read More @ The Guardian

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