INDUSTRY NEWS

John Henshell internal communications sample: how to cope with price increases

GROWING WITH DYNAMIC COFFEE PRICES

A variety of market factors has contributed to rising green coffee prices. Although consumers in many areas have not yet noticed retail price hikes, the wholesale price increases have received national and local media attention. Danny Raymond was quoted in an article on coffee prices on the front page of the Sunday, May 22 Oregonian’s business section.

Recent changes in the green coffee market have not affected Boyds ability to purchase top quality coffees, but we are paying more to get them.

The abandonment of the International Coffee Organization’s commodity agreement in 1989 was the root of the current volatility. A perennial over-supply contributed to the decline of the agreement even before the United States withdrew from the agreement. Last October, the Association of Coffee Producing Countries (ACPC) agreed to withhold supplies from the marketplace in an effort to reverse that balance so they could raise prices. ACPC’s strategy was not working fast enough, so big producing countries established a minimum coffee price earlier this year.

The coffee crop in the just concluded harvesting season was smaller than in previous years. Danny says less good coffee was produced this year than in any of the past 20 or 30 years. This was the major factor in a big jump in green coffee prices in May. As Danny had predicted, we will pay more to meet our level of quality.

Along with supply and demand factors, speculation by outside investors has contributed to price increases. Investment fund managers and other speculators are gambling on coffee “futures.”

As demand is growing in the United States, we are experiencing the largest increase in green coffee prices since 1986. Average prices doubled in the past 14 months.

Ladder, Plateau, or Rainbow?

Danny sees tremendous confusion by the coffee trade in the current market. He hears a wide variety of perspectives from his many industry contacts, but no one can be certain whether prices will continue to rise, level, or fall. Although many foresee big increases and radical swings, Danny projects that with normal weather, the market will stabilize at its current level, or a slightly higher level. Even though we don’t buy much coffee from Brazil, a cold winter in Brazil, producer of a third of the world’s coffee, would have a major adverse effect on supply. Barring that, Danny expects to see a good supply and demand balance for all coffees within 11 to 17 months.

Boyds coffee prices will go up June13, and are certain to go up at least one more time. Our two price increases (including the one effective Monday, June 13) have been proportional to the market. While some competitors haven’t passed on their increases to customers yet, others have raised their prices more than Boyds. This presents sales opportunities.

Media coverage of wholesale price increases has prepared many of your customers to expect their costs to rise, so you may not encounter much dissatisfaction. With our size and buying expertise, we can purchase volume and get top qualities that some of our competitors can’t get. Both factors may offer competitive advantages. Boyds salespeople must be attentive to competitors’ changing prices and practices to capitalize on the opportunities that might present.