The £5 coffee is coming – but should we swallow it?

 

The £5 coffee is coming – but should we swallow it? | Life and style | The Guardian

A large takeaway flat white will already set you back £5.19 in London and other cities aren’t far behind. If cafe owners aren’t getting rich off our caffeine habit, who is?

it was one of those London museum cafes where buggies block the entrance and children trail veggie straws across the floor. The queue of parents stretched to the door and the staff appeared frazzled. I ordered an iced oat milk latte. “That will be £4.50,” said the server. I remember the sensations that follow acutely.

Shock. How much? Regret. I don’t want it. Self-recrimination. Why didn’t I check the price? Embarrassment. If I say I don’t want it, everyone will hear. Acceptance. I’ll pay for it, but I’m never ordering here again. I drank every sip of the coffee, waited for the ice to melt, and drank that, too. I was out of sorts for the rest of the day.

It wasn’t that I hadn’t noticed coffee getting more expensive. Prices had uniformly become £3-something – and £4-plus prices were not uncommon. But £4.50 stung because it was almost £5: a ludicrous sum, I thought, to pay for a takeaway coffee.

And yet the era of the £5 coffee is upon us. In London branches of Black Sheep Coffee, a nationwide chain, a large flat white is £5.19. Go into many London coffee shops, add an extra shot to your order, or non-dairy milk or ice, and you’ll easily pay upwards of £4.50 for your drink. Where the capital goes, the rest of the UK follows. “We’re two to three years away from £5 being routine for a standard coffee,” says Jeffrey Young, the CEO and founder of the Allegra Group, which analyses the sector. “Certainly, we’ll see it in the next five years, without any doubt.”

As I was leaving the coffee shop, I thought: have I just been conned?

A perfect blend of factors means that having a coffee out is more expensive than ever. First, the beans. “We are in a situation of very low stocks in the US and Europe, exacerbated by the Red Sea being blocked,” says Carlos Mera, head of the agri commodities markets team at Rabobank. “A lot of coffee comes from Vietnam to Europe and that now needs a much longer transit time.” Brazil and Vietnam, the world’s largest and second-largest producers of coffee, have experienced adverse weather. In 2021, Brazil had a major frost, while Vietnam is in the grip of a drought.

As a result, at the time of writing, robusta futures were trading at $4,178 per metric tonne, the highest ever price for the coffee beans that make up approximately 40% of the world’s consumption. Meanwhile, arabica futures prices have been higher only a handful of times in the past half century. “There is not much unsold coffee left in Vietnam,” says Mera. Prices may yet increase further before the end of the year, as European roasteries attempt to import beans before scheduled EU deforestation legislation. Coffee production is also likely to be severely affected by the climate crisis, with researchers suggesting that it might halve the area of land suitable for growing beans in coming decades.

But the beans are only a small fraction of the cost of a cup. Inflation in the UK began rising in earnest in early 2021, fuelled by the war in Ukraine, as well as the long tail of Brexit and Covid. It peaked at 11.1% in October 2022, a 41-year high, before falling; it now stands at 3.2%. Coffee shops – which use electricity and raw materials such as wheat, cocoa, milk and eggs, all vastly more expensive, and which were, pre-Brexit, often reliant on European labour – have been severely affected.

“Everything that could possibly have gone up, in terms of the base costs of a coffee shop, has gone up by around 20% in the last two years,” says Young. “Equipment has gone up. Labour costs have gone up substantially. Milk has gone up. Packaging has gone up. Electricity and utilities have gone up. Insurance has gone up.” Only commercial rents have remained relatively stagnant.

According to data from the Office for National Statistics, a cup of coffee purchased from a restaurant or cafe in March 2024 is 19% more expensive than two years previously. Consumers are adjusting their habits accordingly. “Our research shows that fewer people bought drinks in-store at coffee shops in October 2023 compared with the previous year: 83% versus 89% in October 2022,” says Trish Caddy of the research agency Mintel, although more people are buying takeaway coffees from kiosks and drive-throughs, which tend to be cheaper.

‘It’s about having a nice place to go’ … Paul Ashby in his Milton Keynes cafe, Bogota Coffee Co. Photograph: Alicia Canter/The Guardian

“I don’t mind spending money, but I hate wasting it,” says Georgia Williams, 28, a partnerships manager from London. Williams recently spent £9.10 on two coffees from a local cafe. She only realised how much they had cost when she saw the Monzo notification on her phone. The coffees were delicious, but in future she’ll make them at home, using her moka pot. “Buying coffee out will be a special treat in the future,” she says.

It is this exact situation that Paul Ashby, 44, a coffee shop co-owner from Leighton Buzzard, fears. “If I raise my prices, hoping to get more revenue, am I shooting myself in the foot, because you’re not coming in as frequently?” he asks. We are meeting in one of the three coffee shops he co-owns, the Bogota Coffee Co, in central Milton Keynes. It is a warm and inviting wood-panelled space that serves single‑origin Colombian coffee. The week before I visit, Ashby put prices up by about 10%. A flat white has gone up from £3.20 to £3.50. “It’s a big jump,” he says, but unavoidable. His costs have gone up 17% in the past year.

“The coffee industry has been seen as recession-proof, because it’s so low-spend,” says Ashby. “But because that spend is getting higher, we can’t say it’s bulletproof any more. That’s the worry.”

Ashby places a coffee cup in front of me. On it, he has written out his costs for a £3.50 flat white. Seventy pence goes to VAT; 25p for corporation tax; 50p for rent; 35p for wages; 27p for coffee beans; 15p for milk; 15p for utilities; and 7p for the cup, lid and sleeve – leaving £1.06 profit. I visit on Monday, the quietest day of the week; in the hour I spend there, I estimate that 20 people buy coffees, equating to about £21 profit.

Prepared with love … independent coffee shops are particularly hard hit. Photograph: lensmen/Getty Images/iStockphoto

“I do not want people to think I’m pleading poverty, because I’m not,” says Ashby. “But this is a lifestyle business. If you’re hoping to get rich out of it, you’re not going to.”

It’s easy for independent operators to get into a financial mess. “A one-off independent is often a passion project,” says Young. “They don’t have the cost controls a large-scale operator can put in place. They don’t have the marketing reach. They are not in the highest footfall locations, because landlords can’t take the risk. It’s very hard to make money.”

Despite not having the same economies of scale, independent coffee shops have to match or even undercut the major brands. “The chains set the price,” says Prof Jonathan Morris of the University of Hertfordshire, the author of Coffee: A Global History and the host of a podcast called A History of Coffee.

Many of the chains have put up prices by above inflation in recent years, sometimes by startling amounts. “Well-established brands with strong pricing power have been able to raise menu prices without losing market share, particularly among 16- to 34-year-olds who are willing to pay more for their favourite brands like Costa Coffee and Starbucks,” says Caddy.

According to data collected by the coffee retailer UCC, a medium latte in Buckinghamshire branches of Starbucks went up from £3.20 in January 2023 to £4.50 in January 2024, a 40% increase. “The fact is, the independents don’t have the confidence to charge what they should be charging to have a commercial business,” says Young. “Whereas the likes of Costa, Starbucks and Nero are charging what they need to charge.”

The Bogota Coffee Co remains profitable because it has a well-established customer base, many of whom Ashby knows by name, and because he is on top of his costs. “We don’t waste anything,” he says. “We know exactly how much to put out on the counter every day. We know exactly how much milk to order.”

ut even the most well-operated and beloved coffee shops can founder. “Until lockdown, we were all right. It was never going to be a business you can retire early on. But we were OK,” says Sharon Henderson, 44, from Kingswinford, near Dudley. Henderson opened the Red Cone Coffee House in Wordsley in 2013. She had previously owned, and sold, a successful coffee shop in Kinver. “I went in with knowledge and experience,” she says. The Red Cone was a charming, rustic cafe, known for its cakes in particular. “We baked everything in-house,” she says proudly, “in the tiniest kitchen you’ve ever seen.”

The Red Cone was within a heritage attraction. It relied on tour groups, which Covid decimated. Then came the cost of living crisis. Henderson’s electricity bill tripled overnight. A single egg went from 6p to 20p. “We couldn’t pass those increases on,” she says. “So we were always absorbing the costs.” She put up prices, but “there was a ceiling to what customers were prepared to pay”. To make matters worse, renovation work began at the heritage site and the scaffolding put off customers.

In January 2024, Henderson took the heartbreaking decision to close: “I tried to be very dispassionate and unemotional about it, which I didn’t succeed in, because I cried in the bath.” She felt “like a failure. It’s soul-destroying.” Having to tell her staff they no longer had jobs, she says, was horrendous. “They were all wonderful. They knew, because I never kept it secret, that I had done everything I could. But that was the worst thing,” she says.

 

The British have an enduring love affair with coffee, dating back to the 1650s, when coffee houses arrived in England. “They spread very rapidly and became important spaces for socialising,” says Morris. But coffee houses disappeared in the late 18th century, being replaced by pubs or private clubs. There was a limited revival with Italian-style coffee bars in the 1950s, but it wasn’t until the 1990s that coffee shops took off once again in the UK, led by chains such as Starbucks. Throughout the 2000s, independents pioneered Australian-influenced drinks such as the flat white, and began procuring specialty beans.

According to the Allegra Group, there are now more than 22,000 coffee shops in the UK. “We are making a better product,” says Young. “Customers are getting a pretty good deal.”

But sometimes the experience falls short. Sullen staff, cold coffee, dirty tables. (This is Ashby’s pet peeve. “You go to sit down and it’s a sticky table,” he groans. “It’s the worst!”) When this happens, particularly if your drink is expensive, it transforms a restorative ritual into a frustrating experience. It is likely that outlets like these will be winnowed, as price rises force customers to think carefully about where they spend their money.

“Independent places sometimes take their foot off the gas,” says Ashby. “Are customers still having a good experience? Are you taking them for granted?” Independents cannot survive without their regulars. He points out a woman by the till. “She comes every day,” he says. “She’s a really good customer. If we were to upset her, it would be really difficult to replace that revenue.”

‘I looked at the price and thought: is that right?’ Photograph: georgeclerk/Getty Images/iStockphoto

Larger chains can afford unhappy customers, as attrition is priced in. “As I was leaving, I thought: have I just been conned?” Nick Green, 50, lives in Ipswich and works for a bank. He has just paid £5.19 for a large flat white at Black Sheep Coffee in the City of London. Green placed the order on a touchscreen menu during the lunchtime rush. “I looked at the price and thought: is that right?” he says. “But there was a queue of people behind me. I didn’t want to look like an idiot and back out.”

The issue, for Green, wasn’t the cost. “It’s a value thing,” he says. “I wasn’t waited on. I didn’t get a china cup with a little biscuit on it. I got a plastic cup with a lid. I couldn’t see if there was latte art or not. I did the work myself. I ordered it and queued for it and left.”

The best coffee shops are also about atmosphere: the hiss of the milk steamer, the conversation drifting from other tables. “You don’t go to a coffee shop to buy coffee,” says Morris. “You go to the coffee shop to buy the experience of being in a coffee shop.”

When all that is stripped away, even the creamiest latte will leave a bitter taste in your mouth. Consumers don’t tend to complain – they simply never come back. “You literally and figuratively swallow it,” says Green.

Done well, coffee shops are vital community spaces, where for a few pounds mums with prams and pensioners and office workers can meet and talk. “It’s a hospitality venue,” says Ashby, as the milk delivery man arrives and leaves with a free coffee and a cheery wave. “It’s not a coffee shop, really. It’s about coming in and feeling welcomed. About having a nice place to go.”

The £5 coffee is coming – perhaps not today, but soon enough – and when it arrives, coffee shops may not seem like extensions of our living rooms, but more rarefied spaces, like restaurants or bars. “Customers are not ready to pay £5 daily for a regular coffee,” says Young. If they do balk, more well‑loved independents like the Red Cone will falter.

“If we don’t support independent businesses, they will be gone,” warns Henderson. “We are open to the elements. We are on our own.” She now works as a baker. “It’s tough out there, and this time my business didn’t survive,” she says. “Would I do it again? I don’t know.”

Coffee shops disappeared once before from UK shores. In an era of capsules, sachets and worktop espresso machines, with high-quality coffee easier than ever to make at home, whether the neighbourhood coffee shop will survive the dawn of the £5 coffee remains to be seen.

“Coffee’s always been an affordable luxury,” Ashby says. “You don’t really think about it. Whereas now you are thinking about it. And that is the problem.”