Business Daily (Nairobi)
Allan Odhiambo And Abyssinia Lati
12 March 2008
Consumers should be prepared to dig deeper into their pockets as coffee companies increased prices by up to 30 per cent to cushion themselves from record prices of unroasted beans.
Taking cue from other international companies such as the giant Kraft Foods and Procter and Gamble that have raised prices on jars of instant coffee and packets of ground coffee, leading local companies said the increases were inevitable if they were to continue on the profitability curve.
"The bulk of the industry has had to make price adjustments to try and improve on profitability that is threatened by the record high global prices," Erick Omondi, the general manager of Dormans Coffee Limited told Business Daily in an interview.
A price list Dormans uses with effect from February 26, 2008 its upmarket blend coffees go for a price 30 per cent higher than the previous ones while the prices of average value coffees have climbed by 10 per cent.
"You realise that even the price of green coffee has doubled...and when you look at the market average for all coffees we are today talking about $200 per bag up from an average $110. Even the low-end Mbuni (unwashed coffee) has seen its prices rise three times to about $85 per bag," said Mr Omondi.
Another key coffee company, Nairobi Java House, said they had also been pushed to revise retail prices to try and uphold good profit margins.
"Coffee prices have reached an astronomical level this time round. This is good for farmers but tough for consumers. We had to adjust retail prices as we were selling at a loss but have not effected change from the cup.
Under normal circumstances, retail bean sales offer very limited profit margin and many times one just does a break even depending on how the auction went," John Njuguna, a senior manager with Java, said.
The prices of coffee in main international outlets such as the New York Futures market have recently hit a 10-year-high with analysts attributing the rally to speculative activities of traders and short supplies.
Latest trackers by the International Coffee Organisation (ICO) captured the huge gains with the highest growth in value being registered among the Robustas whose daily average price struck the US cents 104.09 per pound on January 31 - the highest in 12 years.
A similar steep growth was witnessed for the Arabicas, the only variety grown in Kenya, whose prices hit a 10-year-high.
But in what would sound a major reprieve to thousands of customers frequenting popular outlets run by the two companies for their favourite beverage, the firms said cup prices at the cafes would remain unchanged at least on the short term as they monitored proceedings in the industry.
"We are watching the space...the impact is still small but obviously (prices) changes could come if necessary," the general manager at Dormans said.
Java too maintains that its customers would still continue enjoying some form of goodwill in terms of pricing at its coffee shops.
"In the short term, we shall not change cup prices and would want our customers to continue enjoying premium quality," said Mr Njuguna.
The increments in the retail prices, however, means that customers seeking to purchase packets of the commodity outside the companies' coffee shops, for instance in supermarkets, would have to pay more - a position that could provide an opportunity to the companies to boost the brewed coffee sales.
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