Coffee battle price - Aldi puts the whole industry under pressure

Coffee is considered an important corner product in retail. The pound of instant coffee serves many supermarket visitors as an indication of whether a shop is currently cheap or not. After all, German coffee drinkers drank an average of 3.8 cups a day in the second quarter of 2022, according to the most recently available figures from the industry association.

But in recent years, the price curve for coffee has only gone in one direction – namely upwards. According to Statista, consumer prices rose by around 14 percent from 2021 to 2022. Prices above ten euros for a kilogram of filter coffee from well-known brands are the norm.

But now there is movement in the coffee market: the discounter Aldi has just reduced the price of the pound by up to 20 percent. The lowest price for the private label is now 3.49 euros. Aldi has its own coffee roasting facility and is therefore a manufacturer and retailer at the same time. Therefore, the company can set the selling prices itself. Lidl also works in this way and has announced price changes.

Supermarket chains such as Edeka or Rewe, in turn, negotiate purchase prices with coffee producers such as Jacobs or Dallmayr and can then set special offers for coffee packages according to their own criteria. Price reductions are also expected from these retailers, but no concrete decisions have yet been made.

"With the current retail prices, there is a big run on the discounters and their own brands," says Arthur Darboven, Managing Partner of Benecke Coffee. The raw coffee trader is one of the five largest companies in the sector in Germany.

But actually coffee should be cheaper again even with the established brands. After all, the exchange price for green coffee on the international coffee exchanges has been falling for months. A pound (454 grams, British unit of measurement) currently costs 1.75 dollars (1.64 euros) there. Within a year, the green coffee price has fallen by almost 40 percent.

In addition, energy prices for gas in coffee roasting have fallen in recent weeks. Sea transport, for example from Latin America by container to Europe, has long behind the record tariffs. "All of this should soon have an impact on the retail price," says Darboven.

However, the major suppliers are currently "remaining at their price level," as the Lebensmittelzeitung writes. Darboven does not expect changes in retail until mid-year. "Then we should return to a normality in the coffee market," he says. What is meant is the ratio of green coffee price, currency relation and production costs.

One reason for the delay are the special features of the purchase contracts for the raw materials. For example, if a coffee entrepreneur bought green coffee last December, the deliveries may not be due until next May or June. "The purchase price at that time then determines the coffee price for the trade," says Darboven. As a rule, the stocks of the coffee roasters are sufficient for six to nine months.

This is exactly what happened to the Munich-based branch company Dallmayr. “My impression is that the entire German economy has bunkered stocks over the past few months. We did that too," says Johannes Dengler, member of the management board at Dallmayr Kaffee.

According to the statement, the company could not pass on all wholesale cost increases in the past year. "Nevertheless, it is foreseeable that coffee prices will not increase, but will decrease," says Dengler.

The purchasing of coffee roasters like Dallmayr is shaped by the reality of physical green coffee trading and not by stock market transactions with the product. "The prices actually paid for green coffee have decoupled from the stock exchange prices in recent months and are in some cases significantly higher," says Dengler.

Market prices would be charged depending on the quality of the coffee beans and the availability of the goods. "We don't roast stock exchange certificates, but raw coffee beans," says Dengler.

Other large coffee roasters are also keeping a low profile when it comes to pricing. "We are not making any statements about future pricing", is the standard answer at Tchibo to such questions. The Hamburg coffee group had increased prices by up to 1.30 euros per pound last year.

The largest brand manufacturers are Jacobs, Tchibo, Dallmayr and Melitta. When it comes to individual brands, Dallmayr's Prodomo is ahead. The discounters Aldi and Lidl have their own coffee roasters and house brands.

The poor harvest yields were always cited as the reason for the expensive green coffee beans last year. And reference was made to long periods of drought in the most important growing country, Brazil. This doesn't seem to be a concern, at least for now. "In most growing countries there will be reasonable harvests this year," says green coffee trader Darboven. He does not expect a shortage of raw materials.

One of the biggest beneficiaries in the coffee business in this country is the state. In every kilogram of roasted coffee there is a tax of 2.19 euros. In Europe, this tax is otherwise only levied in Belgium, Denmark, Lithuania and Norway.

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