Last week, I absent-mindedly tapped my card for an oat flat white at a chic coffee shop in Sydney’s Surry Hills. As I did, I read a sign plastered in front of the till. It explained that prices had increased – the result of supply chain issues, wage rises, and rent increases.
Soon, a $7.20 charge appeared on my phone. The cost stung – but for many businesses it’s increasingly necessary to pass costs onto the consumer, or risk sinking under the pressure of rising overheads. Such prices are becoming the norm in inner city Sydney, with cafes like Single O now charging $6.50 for a small and $7.50 for a large.
“For over 20 years, the price of specialty coffee in Australia has been kept artificially low, often comparable to mass-market chains. But the meticulous work that goes into every cup – from the producer’s farm to the roaster’s craft to the final pour at an independent cafe – deserves to be fairly valued,” Single O CEO Mike Brabant commented in a statement back in March.
Over in University of Sydney-adjacent Forest Lodge, specialty coffee shop Ichigo Ichie, which opened in June, manages to charge $5 for a small coffee with cow’s milk and $6 for a large. Co-owner Riccardo Martin is aware that there’s a $2 discrepancy with some cafes, but he and his business partner Robin Karell carefully considered their pricing strategy before opening.
“We didn’t want to set the bar too high because all the other cafes around Forest Lodge are still sitting under $5 for a coffee. You can get a coffee and a banana bread deal for around $8,” says Martin.
The café owner says they wanted to find the sweet spot between the budget options and other newcomers on the market that were priced slightly higher.
“The other reason is because Forest Lodge is a destination café. There isn’t tonnes of foot traffic. So we thought we should start at $5 and slowly increase from that,” says Martin. “But we still get a lot of people saying we’re the most expensive in the area.”
Martin says they’ve been able to keep costs lower than Surry Hills cafes because their rent is more affordable and their operation is compact (the café is roughly 30 square metres), meaning they can open with just two people on deck.
“It’s going quite well and it’s working well with two people. We think we can do double the number of sales,” says Martin.
Trends
Martin believes cold drinks and specialty drinks are becoming increasingly popular. Customers are ordering iced coffees more than ever, while he’s noticed that cafes are increasingly adding their own signature touches like flavoured creams.
“Filter coffee is growing as well,” says Martin. “As more and more people get to know and develop their palate, they’re experimenting.” To cater to this, Ichigo Ichie serves up specialty options at a premium price, allowing people to venture out and test more unusual varieties.
Matcha, which has become exponentially more prevalent in the last five years, is also expected to continue growing. As More Director Jerome Manion commented in Hospitality’s September/October issue, “It’s time to wake up and realise that matcha is not just a trend”.
Gen Z’s preference for matcha is taking over from the chai lattes favoured by their Millennial predecessors.
Alternative milks like soy, almond, and oat have also become increasingly popular. “At one stage Australia was only ordering skim milk, whole cream, and soy. But now oat is slowly taking over soy, and definitely taking over skim – we’re hardly using skim at all,” says Martin.
Despite the trends, Martin says flat whites and cappuccinos remain the most common orders. In fact, cappuccinos remain the favourite coffee order worldwide, dominating in 24 countries according to Google search data analysis by Coffeeness.
Consumer outlook
As prices increase, consumers are making more coffee at home. Data analysts Mccrindle have found that 40 per cent of Australians spend less than $10 a week on coffee, and 78 per cent prefer to make coffee at home. Young Australians are more likely to purchase it from a café (40 per cent Gen Z; 41 per cent Millennials) while their older counterparts are more likely to make it at home (30 per cent Gen X; 18 per cent Baby Boomers).
Jacksons on George Head Chef Steven Sinclair drinks at least one coffee daily, sometimes two. Of these, he buys two to three coffees a week from a cafe. For Sinclair, the benefits of making it at home are clear: “It’s quick and easy – I can get up and make one straight away. It also saves me money compared to buying takeaway every morning, especially with coffee prices going up.”
The upper end of the at-home market is also growing, with ultra-premium coffee machines like Breville’s Oracle dual boiler ($4,699) gaining traction. Machines like this allow significant customisation and professional quality coffee at home – with specific settings for alternative milks, and the choice of either 15 presets or fully customisable coffee. For this market, which skews older, it’s less about saving money and more about having near- total scientific control of their own coffee, or to entertain and serve café-quality coffees to guests.
Millennials and Gen Z tend to preference options that are both more aesthetic and more affordable, like Alessi’s Pulcina coffee makers and KitchenAid’s semi automatic espresso machine.
In good news, consumers are still buying coffees out, often as a weekend treat, or a day they’re running late to work. During these purchases they’re becoming more likely to invest in coffee and associated merchandise for their home set ups, presenting cafes with the opportunity to make subsidiary product sales.
At Single O, for example, a range of beans sit at the POS, while at Ichigo Ichie, mugs and t-shirts are available – and they’re proving popular. “The goal to build a lifestyle brand. It’s coffee first, but it’s not just coffee. It doesn’t have to be limited to coming and getting a cappuccino or a flat white. There can be a small community and lifestyle brand around the coffee,” says Martin.
Australian beans
For those in the industry, it’s well known that climate uncertainty and extreme weather conditions in growing regions have disrupted global supply chains, pushing coffee prices higher over the last 18 months.
As such disruptions become more common, looking towards local producers could help future-proof supply chains and also create a more sustainable industry. Currently, Australia’s industry is small and some experts express scepticism around the conditions for growing beans locally, due to the lack of high altitude farms generally required.
But President of the Australian Grown Coffee Association (AGCA) Rebecca Zentveld believes there are unique areas in the Australian climate where the industry can thrive – including in Far North Queensland, such as the tablelands around Mareeba where the country’s earliest coffee roasters began in the 80s, and the NSW Northern Rivers.
“Most of us aren’t growing on the sides of mountains. And whilst we don’t have high altitude, we do have low latitude. Being much further south of the equator brings in the cooler subtropical conditions as if we were 1500 to 1800 metres high,” says Zentveld.
“If you’re in Costa Rica, Guatemala, you want to be up in the mountains, but we don’t need that. We’ve got those conditions with our volcanic soil down here at only 200 metres.”
Why local?
Zentveld says there are currently only about 40 growers in Australia, producing no more than 800 tonnes of green beans per year. “That’s a tiny figure,” she says. “For every cup of coffee consumed in Australia, we’re only meeting about 0.03 percent, meaning 99.97 percent of coffee consumed in Australia is from international sources.”
Zentveld says there is huge room for growth in the local industry with new strains boosting its viability and profitability. Another large benefit of the local industry is the lack of pests. Australia has neither the coffee leaf rust disease or the coffee berry borer insect, meaning no pesticides are used in Australia coffee production.
International prices rises have proved beneficial for the local growers. Now, local beans are relatively the same or only just slightly above some of the quality green bean coffee that is sourced internationally, according to Zentveld. Local beans are also appealing because of their low food miles and Australian fair labour conditions.
It’s these benefits that are now seeing more local cafes look toward their own backyard. But there are a few major blockades; one being the small number of local growers, another the lack of link between grower, roaster, and café. To bridge this, Zentveld says its important for the hospitality industry to contact their roaster and demand a local bean.
For cafes owners in Sydney, it a lack of desire hindering the use – but rather a lack of product awareness. “I didn’t think people were growing it in Australia, but we would definitely use Australian coffee,” says Martin.
Sinclair says the drive to try local suppliers is there, even if the opportunity is not. “I love supporting local producers, so I’d definitely be keen to try Australian-grown beans,” says the chef.
For cafes and restaurants looking to sample local beans, Zentveld says the best place to start is the AGCA website, where a handful of grower-roasters have beans roasted and ready to go.
What’s next?
Looking ahead, Australian cafes could see potential growth by staying open later and capitalising on the decrease in alcohol consumption. “People are looking for coffee experiences beyond 4pm, and they are also looking for night-time options that don’t include alcohol,” says David Sale, Head of Sales and Operations at La Marzocco Australia. Additionally, the introduction of POS coffee accessories could help to increase spends.
Now more than ever, the industry needs to future proof itself and look toward potential growth opportunities. As global climate news remains dire, it’s becoming more important for operators to consider using local growers – both for the safety of supply chains, and for the low food miles and consequent positive climate implications.
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