Coffee addicts may be in for a bit of a shock today when they pull in to their neighbourhood Tim Hortons as prices on some menu items are going up. Prior to today, the chain hadn’t specified which items would be hit with price increases, but it did confirm that coffee would be among them. A large coffee will be seven cents more, for one.
Being a keen watcher of trends in the fast-food business, I’m always interested by such increases, particularly because prices tend to be higher in Canada than in the United States to start with (The Economist’s Big Mac index finds McDonald’s signature burger to be 15 per cent more expensive in Canada). So over the weekend, I got to wondering: are Timmies’ price increases warranted?
Well, if the historical price of coffee commodity futures is anything to go by, they certainly are. The increase on the cost of a coffee amounts to only a few per cent but the rise in the commodity prices have absolutely skyrocketed over the past year, between 68 and 81 per cent.
Tim’s is in fact blaming its move on the rising costs of its ingredients, including coffee beans, while coffee prices are climbing across the board. Kraft and Smucker both recently hiked their prices by 22 and 10 per cent, respectively.
But commodity prices are not always a good measure of the actual supply of the particular goods. Indeed, the world’s biggest coffee seller – Starbucks – is blaming rising prices not on a shortage of beans but on speculators who are trying to make money by manipulating the market. While South American countries are yielding less beans than normal because of bad weather conditions, the chain says it isn’t haven’t any supply problems.
“I think it’s artificial. I think financial speculation has really stepped into the market,” Starbucks CEO Howard Schultz said recently. In other words, the people who buy and sell commodities futures are exaggerating the issues in South America to drive up prices. Schultz’s claims may have merit; after all, this sort of speculation has happened in every other market – even comic books – so why not coffee?
Whether it’s bad weather or greed, this is another clear sign that the luxury lifestyle we have here in the west is becoming more expensive to maintain. Rising coffee prices may in fact be another small sign that the divide between rich and poor is going to continue to grow. That is, of course, bad news for the Timmies addicts for whom coffee is not a luxury but a necessity.