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Alicia Love usually buys the most popular beans on Coffee Lab roasters with a one-year contract with coffee importers. However, at the end of last year the prices were so high that she decided to wait for the market.
Instead, prices have risen even further. Due to the low consumables, she signs the order for three months of supply, hoping that the prices will be easier soon.
“Should we wait to sign this new deal when I think about it?” Love, owner of Tarrytown, New York, told CNBC. “I’m kicking with my ass now because I’m not doing that right now.”
The first transaction costs around $4 per bag of love. This can be either 130 pounds or 152 pounds depending on the variety. The three-month deal she just signed was about $5 per bag.
Egg prices are also rising invisible, resulting in a surge in coffee costs. Both products are the pillars of American breakfast, and for a long time it has been one of the cheapest meals to eat at home or on the go. Escalating fast prices means consumers are changing their habits and businesses are running around to respond.
Rapid rise
The latest Consumer Price Index Report shows that U.S. egg prices rose 53% year-on-year. However, the pace of profits was fast. From December to January, the average cost was 15%, per Fred data. The week that ended March 3rd saw an average price exceed $8 per dozen due to a 7% weekly rise, JP Morgan Chase said.
Egg production suffers from a catastrophic bird flu outbreak, resulting in millions of chickens culling. Some say industry consolidation is making the problem worse. On Friday, the Wall Street Journal reported that the U.S. Department of Justice had begun an investigation into antitrust practices in play.
Meanwhile, coffee has also reached record prices. The Brazilian dry spells that have reached crop yields are primarily at fault. Futures prices have more than doubled over the past 12 months. Last month, coffee prices for InterContinental Exchange exceeded $4 per pound for the first time.
Coffee futures trading has skyrocketed over the past 12 months.
“We want to be stable in the market. Navigating volatility is extremely difficult and consumers struggle with it,” said Andrew Blythe, coffee trading operations manager at Royal New York. “We can’t change menu prices once a month, especially for everyday things like coffee.”
Consumers received the message. Morgan Stanley said in a memo on Wednesday that a survey of consumer sentiment informed the first negative reading since June 2024. This follows a University of Michigan’s own investigation in February that shows consumers expect inflation to worsen in the near future.
The whole breakfast was already stretching out consumer wallets, according to Robert Byrne, senior director of consumer research for the Technomic’s Food Service segment.
“When it comes to breakfast more widely, over the past few years we’ve seen affordable ratings for family-style chains (IHOP, Cracker Barrel, Denny’setc.) there is greater pressure than what is reported in other restaurant segments,” Byrne said in an interview.
That changed the diners, Byrne said.
“Breakfast is easiest to replace it with something simple from home or skip it completely,” Byrne said. He added that the recent Technomic Survey has found, on average, that consumers use some kind of food service for their breakfasts about 1.2 times a week.
“The idea that inflation affects all consumers (even wealthy diners are frequently pulled back), but that consumers are skipping other types of opportunities and saving for weekend splurges instead, is probably dinner,” he said.
According to a Technomic survey, consumers are Dunkin’ and O’ McDonald’s. Byrne said when they go now it is often a “impulse” order or a substitute for splurges at restaurants.
Profits under pressure
The impact is felt throughout the restaurant industry. Dine Brands, the parent of breakfast’s leading IHOP, hit a 52-week low on Wednesday after stocks were pulled back more than 13% this year, leaving a 2025 outlook. The majority of analysts voted by FactSet maintain a pending rating.
“For IHOP… we’re looking for something like a kind of single-digit inflation cost that year, and it’s really driven primarily by eggs.” Dine Brand Chief Financial Officer Vance Chan said in a company’s revenue call. “Otherwise, I think there will be headwinds for bacon and coffee too.”
Dine Brands expects IHOP’s same domestic store sales to range from 1% to 2% increase in fiscal year 2025.
Faced with similar pressures, Waffle House and Denny recently charged an additional fee for menu items that include eggs, in contrast to a straight price hike. Byrne said such a move could be more tolerated by consumers as it is assumed to be a temporary increase in additional charges. McDonald’s has held the line and said the company will not implement an additional egg charge.
With the exception of McDonald’s, the inventory of restaurants offering robust breakfast menu items has been hit hard over the past year.
“In my sense, consumers may appreciate that it is being recorded as a temporary extra charge rather than a rise in blanket prices, as it means prices will return when things change,” Byrne said. “On the other hand, the print menu is expensive and may not be in a position for operators to do it quickly.”
Restaurant stocks have been well below the market for the past year. McDonald’s is an outlier with a 10% profit over the past year, but Denny’s stock has plummeted over 55%, while Cracker Barrel fell 38% over the same period.
The impact of customs duties
Coffee drinkers can have even worse news. Coffee Labs’ love said that if some caffeinated coffee travels back and forth between the US borders, it could be affected by the proposed tariffs.
She explained that if the roaster uses a washing method to cut down coffee, the mountain water used in the process comes from Mexico, but pre-roasted beans can be sent to Canada for processing. This means President Donald Trump’s tariffs on Mexico and Canada can add a new layer of price pressure.
“This cost is displayed entirely,” Love said. “Canadian tariffs mean that Decaff’s coffee is already costing more in addition to its higher prices.”
Blythe is not convinced that Decaff Coffee will be damaged by the White House trade policy, but shows that there is no clarity yet.
“At this point, I don’t think there will be any tariffs, but I just don’t know about them. I hope there will be more guidance in the coming days to help me navigate the unknown,” Blythe said.
