I freely admit that I’m addicted to coffee. Nothing short of a blizzard or pneumonia will stop me from venturing out of my house and making the ritualistic trek to my local Starbucks Corporation (NASDAQ:SBUX) to grab my daily cup of coffee. You can consider part of my addiction based on my surroundings — I do live in the Seattle suburbs — but the love of coffee is also engrained in American culture.
Source: McKay Savage, Flickr.
Roughly 100 million adults in the U.S. drink coffee daily, with a whopping $18 billion being spent on specialty coffee each year. Coffee is a gigantic business, from the containers and instant coffee we buy in grocery stores to the specialty coffee we order at small and large coffee houses.
But coffee is at an interesting crossroads for the American consumer. Less than three years ago, coffee prices soared past $3.00 per pound and pushed up prices quicker than you could blink. Green coffee beans, those used to make the brews of coffee we find in Starbucks Corporation (NASDAQ:SBUX) and our local coffee shops, had been under pressure because of supply concerns in South America at the time, and skittish investors rallied prices past the $3-per-pound mark.
Times have changed, though, and since then coffee prices per pound have been ground down to nearly a four-year low, touching as low $1.16 last week. Although the immediate impact on paper would be one of jubilation in that lower coffee prices should translate into lower prices for consumers and potentially lower costs for businesses, this isn’t the case.
We’ve seen some partial victories for consumers in the grocery aisle, with The J.M. Smucker Company (NYSE:SJM), the producer of Folgers, the top-selling coffee in the U.S., reducing its prices in accord with falling coffee costs on more than one occasion. The good news here is it means cheaper prices for the consumers without Smucker’s having to sacrifice its margins because its costs have also fallen. Over the long run, this could be a positive for its Folgers brand, as lower prices could be looked upon favorably by consumers and actually cause its market share among store-brand coffee to increase.
The great coffee conundrum
However, if you move beyond the supermarket scene, you’ll find a completely different picture. Despite a rapid descent in coffee prices as supply fears abated and crop yields have improved, consumers aren’t seeing those savings passed along to them by large coffee chains such as Starbucks Corporation (NASDAQ:SBUX) and Dunkin Brands Group Inc (NASDAQ:DNKN)‘Dunkin Brands Group Inc (NASDAQ:DNKN)’ Donuts, or even Keurig brewer and K-cup provider Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR).
