THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Friday, July 22, 1994 TAG: 9407220527
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: By MYLENE MANGALINDAN, STAFF WRITER
LENGTH: Medium: 92 lines
If your morning cup of coffee doesn't wake you up, the price will.
The frost destroying a third of the coffee crop in Brazil - one of the leading coffee-producing countries in the world - is spiking java prices in Hampton Roads. Coffee prices in local stores and restaurants have almost doubled. Some of the stores are so sensitive to the perceptions of gouging that they are literally making apologies.
Placards at all Farm Fresh stores read: ``The makers of Folgers, Maxwell House and other coffee brands have significantly raised the cost of their coffee to retailers, as a result of higher costs of green (raw) coffee beans from the growers. Regrettably, we have had to raise our retails to reflect these new costs.''
Although crop damage to coffee in Brazil should not affect current supplies, prices have skyrocketed to reflect the impending shortage. Some specialty distributors and retailers, like Seattle-based Starbucks, hiked their prices to take advantage of the supplies already in stock that were bought at the cheaper price. Local retailers and distributors, however, say they are not making a profit from supplies on hand but reacting to higher costs passed on from manufacturers.
``We've seen these cost increases and we're passing it along as it comes to us,'' said Tom Brockenbrough, spokesman for First Colony Coffee & Tea Co. Inc. in Norfolk. ``The industry in general was caught in short supply. No one had a long-position. That's why we're
seeing immediate cost increases.''
A cup of coffee at First Colony's restaurants costs $1.25 now, up 25 percent from just before the freeze. Although the price of coffee has increased several times, First Colony has not raised its prices to correspond directly with its costs, Brockenbrough said. Thus, the distributor and retailer has seen its profit margin dwindle.
At the Super Fresh store on Frederick Boulevard in Portsmouth, the price for a 13-ounce can of Maxwell House jumped 77.6 percent to $3.89. It sold at $2.19 before news of the Brazilian crop freeze. The grocery store's Eight O'clock brand of whole beans that the customer grinds himself rose 66.8 percent to $9.99 for a 39-ounce bag.
Coffee was already in short supply in the United States before crops in Brazil were damaged. Coffee-exporting countries like Brazil and Mexico had been accused of limiting their exports of the popular commodity through retention schemes. Stores and distributors are not inclined to stockpile much because of the storage expense, the cost of the beans or cases themselves, and coffee's short shelf life.
Despite all the gloom and doom talk about the Brazilian crop, ``no one knows yet what the impact is,'' said Frank Piason, division director of horticultural and tropical products at the U.S. Department of Agriculture.
He said the frost in Brazil will affect the 1995-96 harvest. Fear revolves around the health of the plants that may be too damaged to produce new beans or grow back.
The situation is so serious that the USDA has sent a representative to Brazil for two weeks, in addition to its regularly stationed employee there, to assess the damage.
In the meantime, ``prices have increased dramatically,'' said Mike Mozingo, spokesman for North Carolina-based Food Lion. ``Our policy for pricing, particularly coffee and other commodities, is to sell it as close to cost as possible. The decrease in supply is leading to an increase in cost.''
In the long run, Mozingo said, his company would not make a profit on coffee anyway. Although it may raise the price now, before the supply has actually dropped, Food Lion will also have suffer when the supply increases again.
``At the other end of this seesaw, you'll have coffee you have bought at higher price that you have to sell at a lower price,'' he said.
Grocery stores constitute the tail end of the labor-intensive coffee chain. From the countries that produce it, manufacturers like Procter & Gamble and independent roasters buy the beans. They sell whole beans or processed coffee to distributors and retailers, like Food Lion.
Paul Lynch, a local distributor who owns Michael's Coffee Service, sells coffee to restaurants and offices by the case. His prices to customers have increased 10 cents to 15 cents per case, or 2 cents more per cup. A cup of coffee costs 7 cents, he said.
``People's mind-set is that they should be able to buy a 10-cent cup of coffee,'' Lynch said. ``These same people don't mind paying 65 cents for a Coke and don't expect a refill.''
``It takes an awful lot to make a cup of coffee. For 1 pound on a tree, you need to hand-pick it, take it down a mountain,'' he continued. ``It's bagged and shipped. At every step people have to make money. But it's still a very inexpensive item.'' ILLUSTRATION: COLOR PHOTOS:
CHRISTOPHER REDDICK/STAFF
Cissy Irby of Norfolk was unfazed by the prices at Food Lion on
Thursday. She'll keep buying coffee, she said, ``till I die.''
by CNB