Why Are Coffee Shops So Expensive? (Really?)

We all love coffee (that’s hopefully why you’re reading Roasty Brews). But let’s face it, coffee is darn expensive. So why is this?

Coffee is relatively expensive due to commodity prices, supply chain and transportation issues, labor costs, and global demand. In addition, factors such as wars, political upheaval, and the pandemic all have a role to play in raising and lowering coffee prices.

Let’s dive down into an expensive, luxurious cup of coffee – to discover in detail all the factors that make it so pricey…

Why Are Coffee Shops So Expensive?

Why is Coffee So Overpriced & Expensive?

There are several reasons. Demand is high, supply has chain issues (still), quality has increased and labor costs have risen, just to name a few.

Coffee beans are a commodity. They are the second most traded commodity in the world, oil being the first. The popularity of coffee is second only to water.

While demand is on the rise, supply has problems. During the pandemic, s​upply was severely affected by supply chain problems.

Then, as the problems eased, important ports closed thanks to the conflict between Ukraine and Russia.

And then again, there’s the quality of the beans. A​s coffee has become more popular, the quality has increased. But higher quality beans come at higher prices.

Finally, the cost of labor is rising – which may be a good thing. We believe a rising tide lifts all boats. 

W​e love this video from Ted-Ed on the life cycle of a cup of coffee.

Why Has Starbucks Gotten So Expensive?

I​n May, 2022, Starbucks increased their prices by around 9.5%. They claimed that they had to pay more for food and labor, while many labeled it “corporate greed”. But was it?

I​n an analysis of average coffee shop expenses, labor and food (coffee) are the number one and two expenses. Together, they accounted for somewhere between 60% and 70% of a coffee shop’s average monthly costs. 

When Starbucks raised their prices, US consumer prices overall were up by 9.1%. Hmm. 

Could Starbucks have been telling the truth?

H​ere’s a nice The Street article on why Starbucks is raising prices (again).

Do Coffee Shops Actually Make Money?

M​ost coffee shops operate in the black. That’s because, as compared to restaurants, coffee shops have lower overhead and their food product – coffee – has a higher profit margin. 

What is the Average Cost of a Cup of Coffee?

A​t home, the average 2022 cost to make a 12-ounce cup of coffee is between 20 and 30 cents.

According to experts, the average cup of coffee in a US coffee shop is somewhere between $2.60 and $4.90.

What is So Special About Coffee Shops?

A​s one coffee shop lover says – coffee shops live at the intersection of coffee and culture. Coffee shops have long been a third place.

T​he concept of the third place is not new. In 1989, sociologist Ray Oldenburg coined the phrase in his book The Great Good Place.

In it, he described the first place as our home, the second as our workplace and the third as a separate space to meet in groups, like a church, cafe or library. 

C​offee shops have long been a third place, since the first coffeehouse in Damascus in the 15th century. I​n fact, coffee houses became so popular in Persia they were banned for a while. 

In England, although suppressed by the King and government, coffee houses (aka penny universities) were significant meeting places that were open to all.

I​n the US, the first coffeehouse was opened in Boston in 1676. Beloved by immigrants from several nations, coffee shops flourished. During the political 1960’s, both Joan Baez and Bob Dylan began their careers in coffee shops.

Will Coffee Prices Keep Going Up?

Please pass the crystal ball. 

Commodities are famously fickle investments. They go up, they go down. They are affected by weather, climate change, wars, supply chains, pandemics, recessions, and consumption patterns – among many other things.

H​ere’s an article on the price of coffee forecast.

Which Coffee is The Most Expensive in the World?

Interestingly, the first and second most expensive coffees in the world are found in poop.

T​he most expensive and exclusive coffee in the world is Kopi Luwak. Although it is the most expensive coffee in the world, the opinion on the coffee taste is mixed.

Some experts say that Kopi Luwak coffee isn’t the best tasting. In fact, some say it tastes crappy (pun intended). 

This coffee comes from Indonesia, from the islands of Bali, Java, Sulawesi, East Timor and Sumatra. On these islands, a nocturnal, cat-like animal called a palm civet likes to eat coffee cherries.

Once in their stomach, the acidic digestive juices strip the fruit from the cherries and then the “hull” from the beans.

T​he palm civet then poops out the beans. Locals have collected the pooped-out coffee beans from wild civets for centuries. Lately, though, the Kopi Luwak beans have become popular, resulting in a new “farmed” bean. 

Kopi Luwak Coffee
Kopi Luwak Coffee

To meet the increasing demand, palm civets were captured and caged, then fed the cherries. Several organizations, including the BBC and Cut the Crap, have criticized the treatment of the caged and force-fed palm civets.

T​he second most expensive coffee in the world is Black Ivory. These coffee beans are also pooped out (aka refined) by an animal. Black Ivory coffee is produced in northern Thailand. 

The founder of Black Ivory started his coffee journey in Indonesia with civets. After this experience, he looked for a similar “farming” method in Thailand. He feeds elephants Arabica cherries mixed with grass, bananas, tamarind and rice bran. 

E​ventually, the beans are pooped out and harvested. The founder, Blake Dinkin, has plans to serve the coffee to Michelin-starred restaurants, where the high-end coffee will complement the high-end food. 

Mr. Dinkin has no plans for his coffee to be served in coffee shops.

Is Coffee More Expensive Than Tea?

C​offee is more expensive than tea, whether prepared at home or bought in a shop.

B​lame supply and demand. Coffee is just more popular. Also, to produce a roasted coffee bean is more work-intensive. Some say that between 30 and 40 people helped get that cuppa joe into your hands. 

For tea, f​rom plant to cup, there are fewer steps, fewer people. Without a doubt, tea is cheaper and, some say, carries a smaller carbon footprint. Tea choices are diverse and the ritual of tea is a long one. 

But according to a study from Northwestern University, here in the US – coffee is in our genes

Summary: What Determines the Price of Coffee?

I​t’s complicated. Processed coffee beans are graded by type and size (the bigger the pricier), then shipped off to market.

At market, price is set by supply and demand and varies by the minute.

Supply and demand varies due to the pandemic, supply chain issues, labor costs, inflation, and fears of a recession, to name just a few.

But hold up there – all I know is this…

A really good cup of coffee is worth every penny, unless perhaps it’s been pooped out of a civet. 🙂