inflation coffee shops

Why inflation could be worse for UK coffee shops than the pandemic

Michelle Anindya speaks with coffee consultant Paul Ashby to find out how coffee shops can show the same resilience they did during the pandemic.

Like most businesses, the outbreak of Covid-19 in early 2020 left coffee shops reeling.

Not only were supply chains affected, but with offices closed and high streets empty, footfall fell to zero almost overnight.

For many coffee shops, it has taken more than two years to recover; while others haven’t been so lucky, with no choice but to close for good. 

However, for those who have seen a return to pre-pandemic levels, a new crisis has emerged.

Rampant inflation – largely caused by conflict in Ukraine and the lingering logistics problems of Covid-19 – is once again altering consumer behaviour and putting pressure on businesses. The cost of everything, from cups and stirrers to coffee beans and electricity have soared. The UK alone has seen its inflation rate exceed 11% – the highest in more than 40 years.

According to barista, café owner, and coffee consultant, Paul Ashby, coffee shops that survived the economic impact of the pandemic should now be gearing up for the knock-on effects of the ongoing “cost of living crisis”. 

In fact, he warns that inflation may even prove to be more damaging to coffee shops than the pandemic, particularly for those who were able to continue serving takeaway coffees during periods of lockdown.

“There are three items immediately impacted by inflation,” he says. “Energy, bread, and milk. If you take the UK as an example, the cost of energy has increased fourfold, wheat from Ukraine costs twice as much, and the price of milk has also doubled.”

This is only being compounded by the strength of the dollar, which makes it more expensive for cafés to buy coffee.

“All coffee all over the world is traded in dollars,” Paul explains. “It doesn’t matter if you’re in the UK, Asia, or Europe – if you’re buying coffee in dollars, you’re losing out on money.”

UK coffee shops

A tale of two crises

Inflation isn’t a new challenge, by any means. In fact, the vast majority of businesses raise prices on a regular basis to absorb the effects of rising costs. Effectively, the burden is shared with customers, ensuring that the business continues to operate.

Ideally, Paul says that coffee shops should increase their retail price incrementally every year. However, many businesses around the world have never faced such a severe inflation rate before.

“If you don’t put your price up every year to stay in line with the inflation, then you’re going to make a big jump all at once,” Paul says.

In Europe, the “accepted” level of inflation every year is around 2%. When translated into retail prices, this slight increase doesn’t typically concern customers. In contrast, however, an 11% increase in the cost of a cup of coffee may scare off even the most loyal of customers, particularly as they are seeing a fall in real wages.

With pressure from all sides, coffee shops are once again faced with the challenge of how to keep themselves afloat. Squeezed profit margins are only sustainable for a certain length of time, after which owners could see themselves beginning to fall into debt.

The government and, by extension, landlords, prevented this from happening on a large scale by stepping in with support packages, such as furlough schemes and renewed rental terms.

“During the pandemic, you had things you could do to offset the costs,” Paul says, noting that some landlords offered businesses “payment holidays” or free rent altogether. “The UK government also stepped in and said they’d help pay the wages for however long the shops are closed for.”

However, a similar approach has been lacking since inflation took hold last year. Although the UK government recently announced a new “Energy Bills Discount Scheme” to ease the pressure on businesses, some claim it doesn’t go far enough.

“The vulnerability of the [hospitality] sector due to soaring energy costs, crippling rises in the cost of goods, and dampening consumer confidence means that if urgent action isn’t taken, it is looking incredibly likely that we will lose a significant chunk of Britain’s iconic hospitality sector in the coming weeks and months,” read a recent joint UK report

UK coffee shops

How can coffee shops manage inflation?

Over the past few years, coffee businesses have been forced to innovate to mitigate the effects of the pandemic. Now, they may need to up the ante.

Subscription services and product diversification certainly help. But business owners are quickly realising that they must do whatever it takes to stay afloat – including reducing energy use, freezing staff recruitment, and sourcing alternative coffees.

That said, Paul emphasises the importance of coffee shops maintaining their quality and service however they can. Specifically, he says, coffee shops will always require well-trained staff.

“If people don’t have the knowledge, they will just guess how to make it, and if they don’t do it correctly, customers aren’t going to enjoy it,” Paul explains.

Energy-efficient superautomatic coffee machines can help ease some of the pressures, while minimising heat loss is an easy way to keep down energy bills.

Paul adds that coffee shops should also be cashing in on online sales channels and customers’ need for convenience. “Online is very big in the UK because it’s all about convenience,” he says.

Even though it may seem counterintuitive, developing a new product can also be a creative risk worth taking. Experimenting with arabica and fine robusta blends or offering products such as coffee cocktails have the potential to generate more interest in specialty coffee and reach new segments of the market.

Ultimately, Paul concludes that in times of crisis, coffee shop owners should take a close look at their books.

“If you’re not looking at every single cost every month and seeing how much everything comes to, that’s when you’re in trouble,” he says. “You really need to keep an eye on all of your costs at the moment, and moving suppliers and trying to get the best deals is really what you need to be doing.”

On the bright side, the resilience shown during the pandemic proved that the coffee shop sector can overcome whatever is thrown at it. And, like Covid-19, sky-high inflation rate won’t last forever.

“You need to be bold enough to continue doing what you’ve always done, even if it’s costing you money right now,” Paul says.

Why inflation could be worse for UK coffee shops than the pandemic

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