NEW YORK (AP) — The owners of Coffee Bean Direct had no choice. They had to raise prices.
Wholesale coffee prices were soaring in 2010 with no signs of stopping. Previously the company, which sells to coffee houses and retailers and online to consumers, had absorbed increases to keep their prices low. They considered their low pricing strategy a competitive advantage.
The price of coffee in the commodities market soared from about $1.40 a pound in early 2010 to more than $3 in May 2011. Companies like Coffee Bean Direct that roast beans and sell to their customers had to pay a premium to get coffee.
"We had seen other ebbs and flows and thought, this is going to be one of those spikes that happens and comes down. But it never did. It kept going and going and going," says Greg Shefler, the vice president of Coffee Bean Direct, based in Frenchtown, N.J. The company decided to raise prices between $1 and $5 a pound. Most of the increases took effect in 2011.
Raising prices isn't as easy as slapping a new sticker with the higher amount on a product. Many businesses find that they need to put careful thought into not only how much they raise prices, but how they implement them and how they communicate with customers about the changes.
To ease the sticker shock, Coffee Bean Direct charged its old prices on coffee that it already had in its inventory, and raised prices only on the new inventory as it came in, Shefler says. It also didn't immediately raise prices across the board, but raised them as prices rose in each coffee-producing region.
The company also worked with its wholesale customers to help them find cheaper coffees that would still taste like the kinds they usually ordered. For example, instead of Jamaica Blue Mountain, one of the world's most expensive coffees, the company offered a coffee that was cheaper but just as satisfying for coffee lovers. (Jamaica Blue Mountain currently sells at Coffee Bean Direct for $45.50 a pound. Most of the company's coffees are priced below $15).
Competitors also raised their prices. Large companies such as Green Mountain Coffee Roasters Inc., Peet's Coffee and Tea Inc., Starbucks Corp. and J.M. Smucker Co., which sells Folgers and Dunkin' Donuts coffee, all began charging more.
Still, some customers were angry, even owners of small coffee houses who knew that prices were going up all over the world. There were some irate phone calls after Coffee Bean Direct delivered the bad news. A few customers threatened to buy their coffee somewhere else.
"Some of it was venting," Shefler says. "They'd say, 'I'm having all of these prices going up and now you guys are hitting me up for more money.'"
But most of them didn't follow through on their threats. It turned out, the company's strategy of phasing in the increases helped mollify its customers, who were still getting a lower price compared to those being charged by other coffee roasters. Overall sales didn't fall. In fact, within a few months, the company realized that there was a surprise benefit from the price increase. The higher prices were more in line with what customers expected to pay for a gourmet coffee, Shefler says.
"It brought in a lot of new business from people who were wary about the quality of our products because the cost of the coffee was so low," Shefler says. "We found out after we raised our prices that people were taking us more seriously."