Two industry leaders weigh in on why a $12 coffee is unrealistic for both coffee shop owners and consumers in Australia.
With recent coffee commodity price hikes, an increase in the price of a standard flat white by the end of 2025 is likely. Within the industry, attitudes towards this are generally positive as many are keen to back the sector and bear the costs.
However, emerging speculation that a cup of coffee could reach $12 by the end of the year – an approximate 100 per cent increase – is simply poor math, according to Kirk Pearson, Co-Founder of Project Zero Coffee in Melbourne, and Andrew Low, Supreme Coffee CEO.
“It’s important to acknowledge that coffee prices are going up, and I’m not opposed to that, but numbers need to be based on real factors, not arbitrary figures,” says Kirk.
Kirk and Andrew agree that the cost of a cup of coffee is more than just the beans: it includes packaging, milk, and business costs such as labour, rent, electricity, insurance, tax, and more. Indeed, prices have gone up across the board – including the commodity climbing to historical highs. However, Kirk says at Project Zero Coffee, milk as a key ingredient has only seen an estimated five cents per litre increase in the past year.
Currently, the coffee component of a cup constitutes about 12 to 15 per cent of the total cost – between 50 and 65 cents.
“Even if coffee prices doubled, this would add only about $1 per cup to the sell price to recover the cost increases,” says Andrew.
Andrew provides a realistic breakdown of what an inevitable price increase looks like:
- An increase to about $5 for a small coffee to offset all the historic non-coffee cost increases businesses have absorbed.
- +50 cents to cover the current necessary coffee bean price increases passed on by roasters.
- A potential 50-cent increase in six months to cover a second coffee bean price increase if commodity prices remain high, and the USD exchange rate stays in the 60- to 65-cent range.
“This leaves us looking at a small coffee base cup price by year end of around $6 moving towards $7 over the short term,” he says.
Beyond the flat white, the world of specialty coffee is a little different, Kirk explains. Often, companies pay for specialty beans at rates above the commodity price to maintain the long-standing relationships with their producers.
“For example, Market Lane sources a coffee called Santa Isabel from Guatemala every year. They’ve had a relationship with the producer for years, and stick by each other through hardships so are likely to pay above market price to maintain the relationship. In years like this, you don’t see a huge price increase, even though they could probably get a higher price on the open market,” says Kirk.
Kirk adds that coffee shops in Melbourne have a great relationship with the public with mutual trust, and a dramatic price hike would hurt business.
“Coffee producers and coffee shop owners understand the cost-of-living crisis better than anyone, no one’s out there hoping for $12 lattes,” he says.
The small price increase, according to Andrew, is an investment in the local community and the connection with your local artisan café, which goes beyond being a functional sum of its ingredients. He hopes that consumers will acknowledge and then pay more for a product that is hand-picked, hand-roasted, and hand- crafted just for them from an expensive coffee machine.
“Many long-standing roasters say small, regular price increases, combined with an ongoing focus on excellent service is very sustainable,” he says. “It will allow the industry to decouple the price of a coffee and the sustainable margin of a cafe from the commodity price or one small ingredient and this would be a great thing for all partners in the industry.”
