The price of coffee beans is skyrocketing, threatening the survival of the RMB 9.9 (USD 1.4) coffee model that relies on extreme cost efficiency. As of December 23, Coffee C futures—the global benchmark for Arabica beans—have skyrocketed by 70% over the past year, twice the growth rate of gold during the same period, according to data from the Intercontinental Exchange (ICE).
Arabica coffee beans are the core ingredient in brewed coffee, owe much of their price volatility to Brazil, the world’s largest producer. Severe weather in the country has prompted the Brazilian Institute of Geography and Statistics (IBGE) to slash its coffee production forecast for 2024–2025. Speculative trading has further fueled the rally, pushing Arabica futures to their highest level in over 50 years.
For RMB 9.9 coffee—a product reliant on razor-thin margins—the rising costs is a significant blow that brands will ultimately have to shoulder.
Breaking down the costs of a RMB 9.9 cup of coffee
Li Peng, founder of Chinese coffee startup Modousi, shared a cost breakdown of brewing a cup of coffee. At current futures prices, green beans from Brazil land in China at around RMB 68 (USD 9.5) per kilogram. After roasting, the cost doubles to roughly RMB 136 (USD 19) per kilogram. Using 20 grams of grounds per cup, the raw coffee bean cost is about RMB 2.72 (USD 0.38), which accounts for 27.5% of a RMB 9.9 cup.
An industry franchisee corroborated these numbers, stating that raw materials—including coffee, milk, and packaging—cost RMB 4.5 (USD 0.63) per cup. Labor adds another RMB 1.5–2 (USD 0.21–0.28), and rent contributes RMB 1–1.5 (USD 0.14–0.21). This puts the total cost at RMB 7–8 (USD 0.98–1.12) per cup, leaving little room for profit.
With raw material costs already making up nearly one-third of the total, the sustainability of RMB 9.9 coffee grows increasingly uncertain as prices continue to climb.
The price surge isn’t limited to imported beans. Domestic coffee beans from Yunnan, though not a major production hub, have seen sharp price increases. While Yunnan’s coffee has gained branding appeal in recent years, procurement costs for the latest harvest season have soared, placing pressure on major brands.
“Last week, fresh coffee cherries were RMB 7 per kilogram. This week, they’re already RMB 8 per kilogram,” coffee bean trader Li Ming told 36Kr. He noted that the price jump has prompted many Yunnan farmers to hold onto their beans, anticipating higher offers.
Li Ming also highlighted significant rises in the wholesale prices of first-grade Yunnan coffee beans. Nestle’s procurement reference price on December 26, 2023, stood at RMB 44.6 (USD 6.24) per kilogram, a 46% increase from RMB 30.57 (USD 4.28) just a year earlier.
“The surge is secondary,” Li Ming said. “The real issue is availability. Last year, we could source beans at these prices. This year, even at RMB 46–47 (USD 6.44–6.58), supply is hard to secure.”
Liu Haifeng, a representative of the Yunnan International Coffee Exchange, attributed the price hike to rising international futures prices, the improved quality of Yunnan coffee, and the rapid growth of China’s coffee market, which continues to demonstrate immense potential.
Rising upstream costs drive collective self-rescue measures
RMB 9.9 coffee has played a pivotal role in popularizing coffee among Chinese consumers. Its low price point, made possible by aggressive capital investment and historically low coffee bean prices, offered brands some flexibility. However, with coffee bean prices soaring over the past year and future supply remaining unpredictable, the question of when the market will stabilize looms large.
In response to these uncertainties, brands are turning to stockpiling as a form of collective self-preservation. Luckin Coffee, sensing market trends, recently announced its largest procurement deal to date, committing RMB 10 billion (USD 1.4 billion) to purchase 240,000 tons of Brazilian coffee beans over five years (2025–2029).
Yet, bulk orders are no panacea. Fixed-price contracts between traders and brand clients can unravel when futures markets become volatile, forcing renegotiations or even resulting in supply reductions. A green coffee bean trader told 36Kr that, while small price fluctuations are manageable, sharp surges necessitate adjustments that can lead to significant challenges during delivery.
Price volatility is not new. The last major surge occurred in 2021, when US Coffee C futures prices climbed over 90%, according to Investing.com. For many brands, futures trading acts as a vital hedge, but consumer-level price increases remain the most straightforward solution to offset rising costs.
Starbucks, a veteran in the global coffee industry, has often tackled such challenges with price adjustments. The company raised prices twice in October 2021 and February 2022 to counter rising costs. Starbucks Korea followed suit, increasing prices in August 2023 after a similar adjustment in 2022—the first price hike since 2014.
While the current price surge is set to pressure leading RMB 9.9 coffee players, smaller brands and specialty coffee shops may experience less strain. A store manager from a new coffee brand shared with 36Kr that its costs remain relatively stable due to lower purchase volumes.
Specialty coffee businesses echo this sentiment. A supply chain executive for premium coffee explained that procurement prices for Ethiopian beans—the birthplace of specialty coffee—have remained relatively steady. High-quality beans continue to offer good value, and the higher pricing of specialty products allows businesses to better absorb increased costs.
For the RMB 9.9 coffee segment, where cost efficiency is already pushed to the limit, the challenge of managing rising expenses will only grow more daunting from hereon.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Yang Yafei for 36Kr.