The price of a flat white coffee has surged to £6.50 in some London outlets, as coffee shops face mounting pressures from government policies, economic conditions, and climate change. Industry leaders warn that volatility has become the new normal for the sector.
Rising Costs and Business Rates
Through a combination of Labour Party government business rate decisions and broader economic factors, coffee shops across the country are experiencing significant cost increases. The £6.50 flat white is now a reality in certain Lavazza shops for customers who choose to drink in, while Starbucks and Costa charge £5.20 and £4.70 respectively for the same drink.
Giuseppe Lavazza, chair of Lavazza, commented: "Volatility is the new constant. This has been a year of high turbulence and pressure, not just in the coffee market but in the general economy. The coffee market now shows fundamental changes compared with the past. We are living in an environment we don't know very well."
Climate Impact on Harvests
The coffee industry is also grappling with poor harvests resulting from climate change. Extreme weather events have disrupted supplies, contributing to sharp market swings. Susannah Streeter, chief investment strategist at Wealth Club, explained: "Arabica coffee prices have been highly volatile over the past two years, as extreme weather has disrupted supplies and fuelled sharp swings in the market."
Streeter added: "With coffee prices still prone to volatility and operating costs remaining elevated, many companies are building a buffer into their pricing to protect already tight margins."
Consumer Tolerance Tested
Despite the high prices, demand remains robust. Lavazza noted: "We saw that despite the high prices, people love having coffee. We don't see any significant decrease in terms of volumes in the most important countries." In the US, Starbucks CEO Brian Niccol faced criticism after describing a "$9 [£6.68] experience" at one of his outlets as a "really affordable premium experience."
Speaking to the BBC last year, Lavazza emphasised the importance of recognising "different ways of approaching coffee" in an age of higher prices. However, Streeter cautioned: "For now, many customers appear willing to absorb higher prices. But there are limits to how much consumers will pay if the cost of a daily coffee continues to rise. While coffee enthusiasts may be prepared to pay more for a premium experience, businesses could find it increasingly difficult to sustain casual walk-in trade as prices climb."
