Customers fail to get benefit of lower global coffee prices

Chennai: Coffee prices have been falling since 2017 and have recently hit 13-year low. But, neither the café chains nor FMCG companies have revised the prices downward. In fact, prices of some SKUs of instant coffee brands have gone up in recent months.

Arabica prices in the international market hit 13-year low of 91.25 cents recently. Even in the Indian market, from Rs 140 a kg at the farm-gate in early March, Arabica prices came down to Rs 136. Arabica prices used to hover around Rs 150 –Rs 160 per kg last year and between Rs 180 and Rs 200 in 2017. Robusta prices too were down 11 per cent in March on year-on-year basis.

However in March, the price of HUL’s Bru Gold jar 100 gm has gone up by 8 per cent from Rs 245 to Rs 265, as per the data from Kotak Institutional Equities. Bru Instant jar 100 gm is up 6 per cent from Rs 165 in February to Rs 175 in March.

Similarly, Nescafe Classic 50 gm is now priced Rs 280 against Rs 270 in February. In December, there was another hike from Rs 260 to Rs 270 and a total hike of 7.7 per cent. Nescafe Classic Box 200 gm price had gone up in December to Rs 230 from Rs 220 in November. In December, the price of Sunrise Premium jar 50 gm also had gone up by 6.25 per cent from Rs 160 to Rs 170.

"Product pricing is a combination of various factors and our aim always is to ensure that the value proposition to the consumer is sustained," said Nestle India spokesperson in a response to Financial Chronicle.

“We take pricing decisions from time to time by optimizing all our levers. As a policy, we do not comment on specific pricing decisions," said HUL spokesperson.

Meanwhile, café chains too have opted to stay put with the prices. ‘Café chains usually do not revise the prices downward with the commodity trend. A decline in the commodity prices, usually flow into their margins. If at all they want to pass on the benefits, they would offer limited period offers or discounts. FMCG companies generally pass on the commodity price benefit, but they wait till prices stabilise,” said Kaustubh Pawaskar, Senior Research Analyst, Sharekhan.

When asked about the commodity price decline, Coffee Day Enterprises, which runs Café Coffee Day declined to comment, as it is a silent period for the listed entity.

“At Tata Starbucks, pricing is continually evaluated on a product-by-product basis in our stores to balance business needs while continuing to provide value to our customers. There are many factors that contribute to pricing decisions, including various operating and occupancy expenses (i.e. rent, labour, competition, distribution, marketing, furniture and commodities – including coffee – but also other commodities associated with beverages, foods, materials and operations). We are continuously looking for opportunities to provide meaningful value to our customers through benefits such as the My Starbucks Rewards program, special in-store promotions and competitive pricing and believe that our approach to value properly balances the experience we provide customers with our need to effectively run our business,” said Starbucks spokesperson.